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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 1-13394
CHASE INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 51-0328047
(State of Incorporation) (I.R.S. Employer
Identification No.)
14212 COUNTY ROAD M-50 43543
MONTPELIER, OHIO (Zip Code)
(Address of principal executive offices)
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(419) 485-3193
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Parts I, II, III, and IV of this Form 10-K or any
amendment to this Form 10-K. [X]
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Aggregate market value of outstanding Common Stock held by
non-affiliates of the Registrant, as of March 18, 1999.... $61,170,129
Number of shares of Common Stock outstanding as of March 18,
1999...................................................... 9,084,052
Number of shares of Nonvoting Common Stock outstanding as of
March 18, 1999............................................ 6,150,118*
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* The Registrant's Nonvoting Common Stock is convertible, on a share-for-share
basis, into Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III -- Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A for the Annual Meeting of Shareholders to be held May 25, 1999.
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CHASE INDUSTRIES INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for Registrant's Common Equity and Related Matters... 9
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations.................................
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting 43
and Financial Disclosure..................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 43
Item 11. Executive Compensation...................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and 43
Management................................................
Item 13. Certain Relationships and Related Transactions.............. 43
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on 43
Form 8-K..................................................
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Note: The responses to Items 10 through 13 are included in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A for the
Annual Meeting of Shareholders to be held May 25, 1999. The required
information is incorporated into this Form 10-K by reference to those
documents and is not repeated herein.
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PART I
ITEM 1. BUSINESS
GENERAL
Chase Industries Inc. (the "Company"), through its wholly owned
subsidiaries Chase Brass & Copper Company, Inc. ("CBCC"), and Leavitt Tube
Company, Inc. ("Leavitt"), is a leading manufacturer of free-machining and
forging brass rod and structural and mechanical steel tubing. The Company's
principal executive offices are located at 14212 County Road M-50, Post Office
Box 152, Montpelier, Ohio 43543, and its telephone number is (419) 485-3193.
The Company's business strategy is to increase profitability through
capital investment and continuous productivity improvement programs, maintain
its low-cost position while retaining high standards of quality, on-time
delivery and service and expand its product offerings into complementary as well
as other industries through acquisitions and joint ventures that capitalize on
the Company's operating strengths, management experience and entrepreneurial
philosophy. The objectives of the Company's strategy are to enable the Company
to maximize operating profitability, respond to increased demand for its
products, strengthen its leading industry position and enhance and capitalize on
its strong reputation for high-quality products and extensive customer service.
CBCC. CBCC is an ISO 9002 certified manufacturer and supplier of
free-machining and forging brass rod in the United States and Canada.
Free-machining and forging brass rod, which CBCC estimates represent
approximately 80% and 12%, respectively, of annual copper alloy rod shipments by
U.S. mills, are the two primary types of copper alloy rod used in the United
States and Canada. CBCC is one of the largest manufacturers and suppliers in the
United States and Canada of free-machining brass rod, which accounted for
approximately 95% of CBCC's total shipments and net sales in 1998 and 1997.
CBCC's diverse customer base of more than 250 companies uses its "Blue Dot"
trademark brass rod to produce a variety of products, such as faucets, plumbing
fittings, heating and air conditioning components, industrial valves, automotive
parts, and numerous hardware components.
CBCC traces its roots to a brass button-making business started in 1837 in
Waterbury, Connecticut ("Old Chase"), which began brass rod operations in 1917.
The Company was formed in 1990 by Martin V. Alonzo, the Company's Chairman,
President and Chief Executive Officer, and Citicorp Venture Capital Ltd. ("CVC")
and certain affiliates of CVC for the purpose of acquiring the assets and
operations of the brass rod division of Old Chase, then a subsidiary of BP
America, Inc. (the "CBCC Acquisition"). The CBCC Acquisition was consummated
August 24, 1990, at which time the Company began operations.
Leavitt. On August 30, 1996, the Company acquired, through Leavitt, the
assets and operations of the steel tube division ("Old Leavitt") of UNR
Industries, Inc. ("UNR") (the "Leavitt Acquisition"). Upon consummation of the
Leavitt Acquisition, Leavitt continued operations in the manufacture and sale of
structural and mechanical steel tubing and structural pipe and is a leading
producer and supplier in the United States. Structural steel tubing is used in
farm equipment, non-residential construction and other commercial applications.
Mechanical steel tubing is used in a broad range of consumer and commercial
products, including furniture and fixtures, lawn-care products, storage racks,
exercise equipment, bicycles and machine tools. Structural pipe is used for
handrails, scaffolding and communications towers.
STOCK SPLIT
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. As a
result of the split, 5,075,996 additional shares were issued. Fractional shares
resulting from the stock split were paid in cash, without interest. All
references to the number of shares and per share amounts have been restated to
reflect the stock split.
In conjunction with the stock split, the Company's Restated Certificate of
Incorporation was amended by stockholder vote to increase the number of
authorized shares from 25 million to 36,310,000 for Common Stock and 5 million
to 12.3 million for Nonvoting Common Stock.
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PRODUCTS
CBCC. CBCC principally produces round and hexagonal shaped brass rod in
sizes ranging from 5/16 inch to 4 inches in diameter, which are the primary
shapes and sizes used by consumers of free-machining and forging brass rod. The
main attributes of copper alloy rod are its excellent corrosion resistance, the
ease with which it can be machined or forged into a variety of shapes and its
moderate strength. Free-machining brass rod is used to produce brass products,
such as valves and fittings, by a machining process during which the brass rod
is formed, drilled and cut. Forging brass is used to produce brass products by a
process during which a heated slug cut from a rod is pressed in an impression
die and then machined.
Leavitt. Leavitt produces structural and mechanical electric resistance
welded steel tubing in square, rectangular and round shapes in sizes ranging
from 3/8 inch to 12 3/4 inches in outer diameter for round sizes and 1/2 inch to
10 inch for squares and equivalent rectangles. Leavitt's structural steel tubing
is used in farm equipment, non-residential construction and other commercial
applications. The advantages of structural steel tubing over other structural
products such as beams and channels include its high strength-to-weight ratio,
low surface area, low wind resistance, hollow interior, good aesthetics and ease
of fabrication. Mechanical steel tubing is used in a broad range of consumer and
commercial products, including furniture and fixtures, lawn-care products,
storage racks, exercise equipment, bicycles and machine tools. Structural pipe,
Leavitt's third product line, is used for handrails, scaffolding and
communications towers.
BUSINESS STRATEGY
The Company's business strategy is to increase profitability and
shareholder value through internal growth as well as through acquisitions.
Internal growth strategies focus on capital investment and continuous
productivity improvement programs and maintaining the Company's low-cost
position while retaining high standards of quality, on-time delivery and
service. The Company's acquisition strategy focuses on continually expanding its
product offerings into complementary as well as other industries through
acquisitions and joint ventures that capitalize on the Company's operating
strengths, management experience and entrepreneurial philosophy in becoming an
engineered materials company.
Capital Investment and Continuing Productivity Improvement Programs
CBCC. CBCC is committed to identifying and implementing programs designed
to increase plant utilization, productivity and profitability. Since the CBCC
Acquisition, certain aspects of the manufacturing process have been improved
through reallocation of employee responsibilities and in-house modifications of
the manufacturing operations. The Company also has completed capital
improvements which have improved the reliability and enhanced the production
capacity and productivity of CBCC's manufacturing facility.
In 1996, CBCC launched the "Project 400" capital expansion project. The
project is designed to increase foundry, extrusion 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 was completed in early 1998 with the installation of three new billet
heaters that increased finished brass rod capacity by about 17 percent. The new
billet heaters increased productivity and improve quality. The total cost of the
first phase of the project was approximately $12 million.
In second quarter 1998, the Company announced Phase II of Project 400,
which is a $30 million multi-year investment to construct an additional brass
foundry enabling CBCC to increase casting capacity and to provide customers with
multiple alloys. New casting equipment has been ordered and a new building is
under construction and is expected to be operational during first quarter 2000.
The Company anticipates that capital projects will be paid for with cash flows
provided by operating activities and the Bank Credit Facility (as hereinafter
defined), as necessary.
Leavitt. Management continues to review the manufacturing processes at each
plant in order to identify capital improvement projects that will improve the
efficiency and productivity of the facilities and the operations of Leavitt as a
whole. Leavitt's 1999 capital investment plan includes automating some manual
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processes, improving set-up procedures to reduce scrap and focusing on
increasing equipment "up-time." Leavitt is also installing new and improved
tooling to increase productivity and lower manufacturing costs.
ISO 9002 Certification
CBCC and Leavitt have significant quality procedures and controls in place
in all aspects of their operations. Effective February 11, 1996, CBCC became the
first U.S. brass rod mill to receive an ISO 9002 quality system certification.
Leavitt has established a production-management steering committee that is
overseeing the process of obtaining ISO 9002 certification. ISO 9002 is a
quality system standard for manufacturers that has been adopted by at least 74
nations. The ISO 9002 quality system certification signifies a quality system's
adherence to the internationally recognized ISO standards.
Acquisitions
The Leavitt Acquisition was the Company's first step in its strategy to
further grow earnings by becoming an engineered materials company. The Company
has reviewed and continues to search for additional acquisition opportunities
that will further increase its product offerings and capitalize on the Company's
management skills. The Company intends to pursue acquisitions and joint ventures
within its current as well as related products manufacturing industries, as well
as in other manufacturing industries, that utilize the Company's operating
strengths, management experience and entrepreneurial philosophy. In recent years
the Company has investigated several domestic and international acquisition
opportunities. However, future acquisitions will be consummated only if the
opportunities investigated have the specific operating and financial
characteristics which management believes are essential to further the Company's
business strategy and increase shareholder value.
MARKETING AND DISTRIBUTION
The Company markets its products through a direct sales force whose
territory covers the United States and Canada. Management believes that its
experienced sales force provides an important link with its customers and
increases the quality of its service. The Company distributes its products to a
diverse customer base of over 700 companies in the United States and Canada. The
Company's customers include original equipment manufacturers, independent
fabricators, distributors and service centers. CBCC's original equipment
manufacturing customers primarily are in the construction and remodeling,
industrial machinery and equipment, electrical and electronic, transportation
and consumer durable goods industries. Leavitt's original equipment
manufacturing customers are in the farm equipment, non-residential construction
and consumer and commercial products industries. Independent fabricators produce
products for sale to original equipment manufacturers, while distribution and
service centers supply products to original equipment manufacturers and
independent fabricators. The Company's products are distributed either by direct
shipment from the manufacturing facilities or, in the case of brass rod, by
shipment from CBCC's warehouse in Los Angeles. See "Item 2. Properties."
COMPETITION
The industries in which the Company operates are highly competitive. Based
on available industry data, the Company estimates that it supplied approximately
33% of copper alloy rod and 9% of structural steel tubing shipped by U.S. mills
in 1998. In addition to CBCC, there currently are five U.S. companies operating
a total of six U.S. copper alloy rod mills, all of which produce both
free-machining and forging brass rod. These competitors are Cerro Metal Products
Company, Inc., Mueller Brass Co., Inc., Extruded Metals Inc., Chicago Extruded
Metals Company and Ansonia Copper & Brass, Inc. The steel tubing industry's
capacity exceeds demand, primarily due to the many new market entrants in recent
years. Leavitt's primary competitors in steel tubing include Welded Tube of
America, Copperweld Corporation's Tube Division and Bull Moose Tube Company.
Although the Company competes with other manufacturers, the Company is unable to
determine the extent to which its competitors' product lines compete directly
with the Company's products because the competitors also produce products that
the Company does not produce.
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The Company also is subject to competition from imported products and
alternative materials, such as, with respect to CBCC, ceramics, plastics and
steel and, with respect to Leavitt, steel I-beams, channels and pre-cast
concrete. The principal competitive factors in the Company's business are price,
quality, on-time delivery and service. The Company believes that it is an
industry leader as a result of its ability to consistently provide a broad range
of high-quality products, on-time delivery and superior service at competitive
prices. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General -- General Economic and Industry
Conditions."
RAW MATERIALS AND SUPPLIES
The principal raw materials used by the Company are brass scrap and carbon
steel coils. The Company believes adequate supplies of these raw materials are
available to the Company. The Company does not rely on any one supplier of raw
materials and it does not believe that the loss of any one source would have a
material impact on its business. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of
Operations -- General -- Operations."
CUSTOMERS
Neither CBCC nor Leavitt depends on any single customer or group of
customers, the loss of any one or more of which would have a material adverse
effect on CBCC or Leavitt. Also, during 1998, 1997, and 1996, no customer or any
affiliated group of customers accounted for more than 10% of the Company's net
sales, and the Company does not anticipate that any customer or affiliated group
of customers will account for more than 10% of the Company's net sales in 1999.
BACKLOG ORDERS
As of February 28, 1999, the Company had backlog orders totaling $27
million. As of February 28, 1998, the Company had backlog orders totaling $41
million. The decrease from 1999 to 1998 is attributed to shorter
order-to-shipment lead times throughout the brass rod industry, 14% reduction in
CBCC's Metal Selling Price and lower steel tubing demand and reduced tube
prices. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General -- General Economic and Industry
Conditions." The Company anticipates that all current backlog orders will be
filled during 1999, but is unable to estimate the amount of backlog that will
exist as of year end 1999.
TRADEMARKS
The Company owns the registered trademarks CHASE and a centaur design
(which is CBCC's logo) in the United States and Canada, and the registered
trademark "BLUE DOT" and its design in the United States and Mexico, for use in
connection with CBCC's products. The Company also owns the registered trademarks
CHASE BRASS & COPPER CO. and a centaur design in Mexico. The Company also owns
the registered trademarks LEAVITT and a steel tube design in the United States,
and has registrations for these trademarks pending in Canada and Mexico. Because
of the recognition of these trademarks in the industries in which CBCC and
Leavitt operate, the Company considers these intellectual property rights
important to its business.
EMPLOYEES
At December 31, 1998, the Company had approximately 700 full-time
employees, of whom approximately 250 were salaried and approximately 450 were
hourly. The Company believes that its relations with its employees are good and
currently does not anticipate any work stoppages.
BUSINESS SEGMENTS
The Company has two business segments, the brass products segment operated
by CBCC and the steel products segment operated by Leavitt. For segment
information, see Note 13 of Notes to Consolidated Financial Statements included
in Item 8.
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ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state and local pollution
control laws and regulations relating to the discharge of hazardous or regulated
materials into the environment, the transport and sale of hazardous materials
and the disposal of certain materials and wastes. These laws and related
regulations are changing constantly and, as a consequence, are subject to
differing interpretations by the agencies that administer them. Moreover,
increasingly stringent regulations often result in the mandatory implementation
of additional and/or modified pollution control procedures and processes which
may result in material increases in compliance costs.
For the above reasons, the Company cannot predict with certainty its
aggregate future capital expenditures for pollution control. However, the
Company currently estimates that it will incur capital expenditures for
pollution control of approximately $500,000 in 1999, a portion of which may be
subject to reimbursement by certain affiliates of BP America, Inc., as the
owners of the assets of the brass rod division of Old Chase prior to the CBCC
Acquisition (collectively, "BP") under the Remediation Agreement and the CBCC
Purchase Agreement discussed below. The Company anticipates additional
expenditures of approximately $2.2 million for pollution control devices
associated with Phase II of the capacity expansion project at CBCC (see
"Business Strategy -- Capital Investment and Continuing Productivity Improvement
Programs -- CBCC"). Estimates of capital expenditures for pollution control
purposes beyond 1999 are even more uncertain. However, assuming no significant
manufacturing process changes and no significant changes in applicable laws or
regulations, the Company currently anticipates that its capital expenditures for
pollution control purposes for 2000 will be approximately $500,000, and during
the period of 2001-2003 will aggregate approximately $1 million. These estimates
are exclusive of expenditures associated with on-site remediation activities, as
more fully discussed below, and pollution control devices that may be required
in connection with additional phases of the capacity expansion program. The
Company believes that expenditures for pollution control equipment will continue
to be required in the future for continued compliance with applicable
environmental laws and regulations.
Any capital expenditures for pollution control will affect earnings to some
degree since funds expended for this purpose generally provide minimal, if any,
monetary return on investment and may divert capital from income-producing
activities. However, the Company does not believe that the current anticipated
capital expenditures for this purpose will have a material impact on the
Company's earnings or consolidated financial position.
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 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. Although BP has acknowledged its contractual obligations
to fund certain investigatory and cleanup activities related to site
contamination attributable to Old Chase's operations, as described in Note 12 of
Notes to Consolidated Financial Statements included in Item 8., BP and CBCC
currently are involved in litigation regarding, among other things, BP's
obligations under the Remediation Agreement and the CBCC Purchase Agreement.
While CBCC's waste water treatment plant has been in operation since May
1993, CBCC is still experiencing occasional exceedances of certain limitations
contained in the Permit, resulting in violations of the Clean Water Act. The
Ohio Environmental Protection Agency ("Ohio EPA") has not initiated any
enforcement action against CBCC for prior exceedances, but has indicated that it
may do so if violations 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 significantly
the Permit exceedances. Although certain Permit exceedances are still being
experienced on occasion, precluding
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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. The Company anticipates that the
corrective measures currently being undertaken will be completed in the second
quarter 1999.
Preliminary studies conducted immediately prior to the CBCC Acquisition
indicated that the site upon which CBCC's manufacturing facility is located has
been contaminated by certain volatile organic compounds as well as total
petroleum hydrocarbons and certain metals associated with 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 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. CBCC has substantially conducted the additional
sampling that it believes is necessary.
Based on the aggregate sampling results, interim remediation for a portion
of the site was completed in fourth quarter 1998 at a cost of approximately $1
million. The Company anticipates undertaking additional interim remedial
activities in third and fourth quarters 1999 and, in connection with these
activities, to conduct additional sampling at certain areas of the site. The
results of the initial sampling conducted by BP, the additional sampling
conducted (and to be conducted) by CBCC, and input from the Ohio EPA are being
(and will be) used to develop a comprehensive remediation plan for the site.
Until the completion of these additional interim remedial and investigatory
activities and the development of a remediation plan for the site, the Company
will be unable to estimate with any degree of certainty the extent of
contamination or the amount of cleanup costs associated therewith. 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.
To the extent CBCC has incurred, and incurs future, cleanup cost with
respect to investigatory and remedial activities at its site, the Company
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 recover from BP pursuant to the Remediation Agreement, the CBCC
Purchase Agreement or otherwise, the Company may elect to offset the amounts of
such recoveries against amounts payable under the $20 million promissory note
delivered to BP as part of the consideration for the CBCC Acquisition (the "BP
Note"). See Notes 5 and 12 of Notes to Consolidated Financial Statements
included in Item 8., for a discussion of the receivable from BP and prior
offsets against amounts owing under the BP Note and pending litigation regarding
BP's obligations under the Remediation Agreement and CBCC Purchase Agreement.
Leavitt. Prior to the Leavitt Acquisition, five underground storage tanks
("UST's") were removed from Leavitt's facility in Hammond, Indiana. Prior to
removal, one or more of the UST's 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
Environment 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 would be required prior to the IDEM considering
closure. Additional groundwater sampling was conducted in fourth quarter 1997.
The sampling results, which indicated the continued presence in the groundwater
of certain contaminants, were submitted to the IDEM for review. Upon review of
those test results, the IDEM indicated that it would not yet issues a "closure"
letter.
The Company has engaged a consultant to evaluate appropriate actions to be
taken with regard to the groundwater at Hammond in order to receive a closure
letter from the IDEM. The consultant has completed its review and analysis of
the Hammond facility and has recommended additional onsite investigation and
further discussions with IDEM. Until these actions are carried out, the Company
will be unable to determine what, if any, remedial activities may be required.
However, based on final test results from the sampling conducted in fourth
quarter 1997 and the contractual obligation of UNR to indemnify the Company for
pre-closing environmental conditions, the Company does not believe that the
cleanup costs associated with the environmental conditions at the Hammond
facility will have a material adverse effect on the Company's
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financial position, results of operations or liquidity. The Hammond operations
were relocated to Chicago in September 1997, and no manufacturing activities
currently are conducted at the Hammond location. See Note 12 of Notes to
Consolidated Financial Statements included in Item 8.
The Company is involved in certain environmental legal proceedings as
described in "Item 3. Legal Proceedings" and Note 12 of Notes to Consolidated
Financial Statements included in Item 8.
The Company does not believe that costs that may be incurred in connection
with the investigation and cleanup associated with the environmental matters
discussed above will have a material adverse effect on the Company's financial
position, results of operations or liquidity. For additional information
regarding the environmental matters referenced above, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Contingencies -- Environmental Matters" and Note 12 of Notes to
Consolidated Financial Statements included in Item 8.
ITEM 2. PROPERTIES
The Company owns all of its facilities except as indicated below. The
Company believes its plants are suitable for their purposes, are well maintained
and are adequately insured.
CBCC. CBCC's manufacturing facility and the Company's executive and general
offices are located on a 75-acre site owned by the Company in Montpelier, Ohio,
near the Indiana and Michigan borders. CBCC's manufacturing facility in
Montpelier consists of one plant of approximately 140,000 square feet. The plant
was constructed in 1965 expressly for the purpose of producing free-machining
brass rod and the Company believes that it is the most modern brass rod facility
in the United States.
CBCC also leases a warehouse in Los Angeles, California, that contains
approximately 47,000 square feet of storage space. The Los Angeles warehouse
lease expires in 2001. The Los Angeles warehouse lease does not contain any
express renewal provisions, but the Company believes that the lease can be
renewed or comparable facilities can be obtained on terms acceptable to the
Company.
CBCC manufactures substantially all of the brass rod it ships. CBCC's
manufacturing facility has operated seven days a week, 24 hours a day, since
1981 (except for downtime relating to regular maintenance, capital improvements
and minor mechanical failures). CBCC's "Project 400" capital expansion program
is designed to further increase finished brass rod capacity by one-third to
about 400 million pounds annually. See "Item 1. Business -- Business
Strategy -- Capital Investment and Continuing Productivity Improvement
Programs -- CBCC."
Leavitt. Leavitt operates three manufacturing facilities, two in Chicago,
Illinois, and one in Jackson, Mississippi. The three facilities have a total of
over 900,000 square feet of manufacturing and office space. The facilities
contain a total of thirteen tube mills and four steel coil slitters. Leavitt's
production capacity is in excess of 1 billion pounds annually. Leavitt's
facilities are currently operating between one and three shifts daily with
utilization at approximately fifty percent of capacity. All of Leavitt's
facilities are owned except for the Jackson facility which is leased. In second
half 1997, Leavitt's Hammond, Indiana, facility was consolidated into a Chicago
facility and some production was transferred to the Jackson plant. Leavitt also
operates a steel tube cutting facility in Blue Island, Illinois. See "Item 1.
Business Strategy -- Capital Investment and Continuing Productivity Improvement
Programs -- Leavitt."
The following table sets forth information concerning size, location, use
and nature of the principal manufacturing facilities owned or leased by Leavitt.
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LOCATION SQUARE FEET NO. OF MILLS NO. OF SLITTERS OWNED/LEASED
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Chicago, IL 450,000 6 mechanical 2 owned
North Plant 2 structural
Chicago, IL 240,000 1 structural 1 owned
South Plant
Jackson, MS 256,000 4 mechanical 1 leased
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The Jackson leases expire in 2001. Under the leases, Leavitt may purchase
the land and facility based on the appraised value of the land at the time of
purchase and a scheduled payout for the facility and the improvements. Upon
expiration of the leases, the scheduled payout for the facility and improvements
(but not the land) is reduced to one dollar.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain claims and litigation as described in
Note 12 of Notes to Consolidated Financial Statements included in Item 8.
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 PRP at one additional site, as described in the following
paragraphs.
CBCC has been named one of over 130 defendants in a CERCLA Section 107
action styled Ashland Oil, Inc. v. Acme Scrap Iron & Metal Corp., et. al. (Case
No. I:94 CV 1592), which seeks recovery of response costs previously spent and
proposed to be spent by the plaintiff Ashland Oil at the Huth Oil Services
Company site located in Cleveland, Ohio. A waste oil reclamation facility was
operated at the site from 1938 until 1990. Beginning in 1983, and at various
other times until 1990, both the U.S. EPA and the Ohio EPA conducted inspections
and sampling at this site. In October 1990, the U.S. EPA ordered the plaintiffs,
Ashland Chemical Company (a division of Ashland Oil, Inc.), The Cleveland
Electric Illuminating Company and Huth Oil Services Company, to remediate the
site. As a result thereof, 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 complaint alleges that the defendants are each strictly, as well as
jointly and severally, liable. The Company believes, however, 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. BP has been notified of the
institution of this suit and has assumed the defense thereof because alleged
events giving rise to CERCLA liability occurred prior to the CBCC Acquisition.
CBCC has been notified by a group of private parties of its potential
identification as a PRP at a site in Tifton, Georgia, commonly known as the
"SoGreen" site. According to the notice, a flue dust and flyash recycling
facility was operated at the site from approximately 1976 until 1993. Pursuant
to a consent order entered into between Atlantic Steel Industries, Inc., Florida
Steel Corporation, Georgetown Steel Corporation, Owen Electric Steel Company of
South Carolina and U.S. Foundry & Manufacturing Corporation (collectively, the
"Steel Companies") and the Georgia Department of Natural
Resources -- Environmental Protection Division, the Steel Companies have been
engaged in removing a flue dust pile, and also have undertaken an assessment of
groundwater, at this site. In addition, pursuant to a U.S. EPA unilateral order,
the Steel Companies apparently are engaged in a removal action to remediate
contaminated soils, and are undertaking the cleanup of non-metal contaminants,
at the site. The notice also indicates that the Steel Companies settled, for
approximately $3 million, a class action brought by residents of the area near
the site alleging property damage due to the proximity of the residents'
neighborhood to the site. The notice alleges that CBCC may be liable for
contribution with respect to prior cleanup costs incurred by the Steel Companies
and may be required to participate in funding future cleanup costs at the site.
According to the notice, the Steel Companies currently have expended or are
committed to expend approximately $17 million (including settlement of the class
action) on matters related to the site. The Company believes that CBCC has had
no contact with this site and that this site received waste materials from an
entity named "Chase Brass & Copper Co.," which may have been a division of Old
Chase (not related to the brass rod division acquired by the Company), located
in North Carolina. BP has been notified and has assumed defense of this matter.
The Jack's Creek, or Sitkin Smelting & Refining, site located in Mifflin
County, Pennsylvania, was placed on the U.S. EPA's National Priorities List in
1989. While CBCC has not received any formal notification from the U.S. EPA or
any third party, the Company believes that Old Chase has been identified by the
U.S. EPA as a PRP. To the Company's knowledge, however, neither CBCC nor the
brass rod division
8
<PAGE> 11
of Old Chase directly disposed of hazardous waste 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).
In March 1998 CBCC received a notice from the U.S. EPA of its potential
identification as a PRP at two 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 1500 parties
sent materials containing polychlorinated biphenyls ("PCB's") to the site. Based
on information provided by the notice, it appears that a third party firm
employed by Old Chase to dispose of PCB-containing materials delivered
PCB-containing materials to these sites for treatment and/or disposal, and
certain of such materials came from Old Chase. Pursuant to an Administrative
Order on Consent with the U.S. EPA, a group of PRP's at the sites are performing
an Engineering Evaluation/Cost Analysis ("EE/CA") to evaluate and compare
different cleanup alternatives at these sites. In addition to the EE/CA, the
notice indicates that the U.S. EPA is planning to conduct removal activities at
both facilities, which activities may include a range of possibilities from
cleaning up the contamination inside the buildings and in the surrounding soils
to demolition of the buildings, and to perform follow-through activities to
monitor, operate and maintain the completed removal action. 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. 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, and BP has been notified and has agreed to assume the defense
of this matter.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The Company completed its initial public offering of Common Stock on
November 10, 1994 (the "Offering"), pursuant to which the Company sold 3,200,000
shares of Common Stock at a price to the public of $10.00 per share (4,800,000
shares at a price of $6.67 per share after giving effect to the stock split
described below). The Company's Board of Directors declared, and the
stockholders approved, a three-for-two split of the Company's outstanding common
stock for shareholders of record as of June 6, 1998. As of March 18, 1999, the
Company had outstanding 9,084,052 shares of Common Stock and 6,150,118 shares of
Nonvoting Common Stock exchangeable on a share-for-share basis into shares of
Common Stock at the option of the holder thereof. There is no established public
trading market for the Company's Nonvoting Common Stock, all of which currently
is held of record by Citicorp Venture Capital Ltd.
The Company's Common Stock is listed and traded on the New York Stock
Exchange (the "NYSE") under the symbol "CSI." The Common Stock began trading on
the NYSE on November 4, 1994.
9
<PAGE> 12
The following table sets forth, for the periods shown, the high and low
sales prices for the Common Stock as reported by the NYSE. No cash dividends
were paid or declared with respect to such periods. All per share figures are
adjusted for the three-for-two stock split effective June 6, 1998.
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter..................................... $21 $14 9/16 $16 $13 1/4
Second quarter.................................... $21 7/8 $19 11/16 $16 1/4 $12 3/4
Third quarter..................................... $19 7/8 $11 1/2 $19 15/16 $15 11/16
Fourth quarter.................................... $13 7/8 $10 1/4 $20 $15
</TABLE>
As of March 18, 1999, the last reported sales price of the Company's Common
Stock, as reported by the NYSE, was $9.00 per share, and the Common Stock was
held of record by approximately 137 holders.
The Company has not paid or declared any dividends on shares of its Common
Stock. The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future and anticipates that future earnings will be retained
to finance operations, expansion and acquisitions. The payment of future cash
dividends will be at the sole discretion of the Company's Board of Directors and
will depend upon the Company's profitability, financial condition, cash
requirements, future earnings prospects and other factors deemed relevant by the
Company's Board of Directors.
The Bank Credit Facility (as hereinafter defined) entered into by the
Company in conjunction with the Leavitt Acquisition also contains certain
restrictions on the Company's ability to pay dividends. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Bank Credit Facility."
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $433,436 $487,783 $366,991 $313,097 $260,096
Cost of goods sold (exclusive of
depreciation and amortization shown
separately below).................. 371,234 419,412 311,345 270,022 224,532
Lower of cost-or-market inventory
writedowns......................... 6,794 -- -- -- --
-------- -------- -------- -------- --------
Gross profit....................... 55,408 68,371 55,646 43,075 35,564
Selling, general and administrative
expenses........................... 15,960 15,418 12,121 8,264 6,193
Depreciation and amortization......... 10,876 9,875 6,710 5,537 5,795
-------- -------- -------- -------- --------
Operating income................... 28,572 43,078 36,815 29,274 23,576
Interest expense...................... 3,152 4,653 2,612 1,530 3,911
-------- -------- -------- -------- --------
Income before income taxes......... 25,420 38,425 34,203 27,744 19,665
Provision for income taxes............ 9,660 14,603 13,564 11,043 7,111
-------- -------- -------- -------- --------
Net income......................... 15,760 23,822 20,639 16,701 12,554
Preferred stock dividends and
accretion.......................... -- -- -- -- 2,244
-------- -------- -------- -------- --------
Net income available for common
stock......................... $ 15,760 $ 23,822 $ 20,639 $ 16,701 $ 10,310
-------- -------- -------- -------- --------
BASIC PER SHARE INFORMATION:*
Average shares outstanding............ 15,216 15,141 15,095 15,092 11,052
Net income available for common
stock.............................. $ 1.04 $ 1.57 $ 1.37 $ 1.11 $ 0.93
-------- -------- -------- -------- --------
DILUTED PER SHARE INFORMATION:*
Average shares outstanding............ 15,561 15,483 15,289 15,149 11,054
Net income available for common
stock.............................. $ 1.01 $ 1.54 $ 1.35 $ 1.10 $ 0.93
-------- -------- -------- -------- --------
BALANCE SHEET DATA (AT YEAR END):
Working capital....................... $ 54,671 $ 59,950 $ 48,649 $ 36,798 $ 16,786
Total assets.................. 212,804 209,501 204,751 103,003 81,542
Total debt.................... 27,491 48,209 70,762 18,784 17,018
Stockholder's equity.................. 115,420 98,713 74,333 53,645 36,944
OTHER DATA:
Operating cash flow................... $ 41,279 $ 18,930 $ 39,531 $ 21,265 $ 21,171
Capital expenditures.................. 15,232 15,774 4,092 4,465 3,391
</TABLE>
- - ---------------
* Adjusted for the three-for-two stock split effective June 6, 1998.
11
<PAGE> 14
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Stock Split
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. As a
result of the split, 5,075,996 additional shares were issued. Fractional shares
resulting from the stock split were paid in cash, without interest. All
references to the number of shares and per share amounts have been restated to
reflect the stock split.
Corporate Name Change
Effective May 15, 1997, the Company changed its name from Chase Brass
Industries, Inc. to Chase Industries Inc. Management's decision to change the
name was to eliminate any possible confusion between the parent corporation and
its brass rod subsidiary, Chase Brass & Copper Company, Inc. ("CBCC"), as well
as to better describe the diversity of the business following the acquisition of
Leavitt Tube Company, Inc.
Leavitt Acquisition
On August 30, 1996, the Company acquired, through Leavitt, the assets and
operations of the steel tube division of UNR Industries, Inc. ("UNR") (the
"Leavitt Acquisition"). Upon consummation of the Leavitt Acquisition, Leavitt
continued operations in the manufacture and sale of structural and mechanical
steel tubing and is a leading producer and supplier of steel tubing in the
United States. See Note 2 of Notes to Consolidated Financial Statements.
Operations
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 and structural pipe.
CBCC. 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.
CBCC obtains approximately 80% of the brass scrap used in its operations
from its customers through purchase and tolling arrangements. The metal price
charged to customers (the "Metal Selling Price") had been four cents per pound
higher than the price at which brass scrap is purchased from customers (the
"Metal Buying Price") since December 1994. In December 1997 the difference was
increased to five cents per pound, and in January 1999 the difference was
increased to seven cents per pound. CBCC also purchases approximately 20% of its
brass scrap 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 prices for copper and zinc (the major components of brass), and
generally are less than the Metal Buying Price. Since 1990, free-market prices,
as compared to Metal Buying Prices, have been favorable to CBCC by historical
standards and the supply of brass scrap in the United States has increased in
excess of demand as a result of increased imports of brass rod. Although the
increased supply of brass scrap has resulted in continued favorable free-market
scrap prices through December 1998, there can be no assurance that such
discounts will continue. Decreasing imports of brass rod and increasing demand
for brass scrap could cause free-market brass scrap prices to increase, and
increased pressure from customers to purchase brass scrap directly from them at
the Metal Buying Price could reduce CBCC's ability to take advantage of
free-market discounts.
As noted above, CBCC's pricing structure consists of the Metal Selling
Price and the fabrication price as separate components. The 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
12
<PAGE> 15
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 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 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, where the customer consigns brass scrap to
CBCC and is charged a fabrication price for processing the brass scrap into
finished rod. Tolling transactions affect net sales by the Metal Selling Price
that otherwise would be charged to the customer in a sale of finished brass rod.
To a lesser extent, tolling transactions also affect 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
gross profit, CBCC requires tolling customers to deliver additional pounds of
brass scrap in exchange for each pound of finished rod shipped.
Leavitt. 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, based on the market conditions in domestic and international
flat-rolled steel industry. Based on the then-current market conditions in the
steel tubing industry and the level of capacity utilization, Leavitt may or may
not be able to pass the economic impact of steel price changes on to its
customers through changes in the selling price. The steel tubing industry is
highly fragmented and suppliers may reduce prices or fail to increase prices as
a result of flat-rolled steel price increases, depending on their individual
financial and operational motivation.
General Economic and Industry Conditions
The demand for the Company's products in the United States and Canada
generally is dependent upon business conditions in the industries which use
products made from copper alloy rod and structural and mechanical steel tubing
and structural pipe. Manufacturers of products used in building and construction
and manufacturers of industrial machinery and equipment are the primary users of
copper alloy rod. Primary users of steel tubing are non-residential
construction, farm equipment and steel tube commercial products manufacturers.
Therefore, the Company's operating results during any given period depend
significantly on business conditions in its industries. These activities, in
turn, are sensitive to fluctuations in overall economic activity, movement in
interest rates and availability of short-and long-term financing. The Company's
operating results also depend on its manufacturing capacity, as well as industry
production levels and other market factors.
CBCC. During 1998, United States and Canadian apparent consumption of
copper alloy rod was approximately 1.1 billion pounds, which included industry
shipments of approximately 965 million pounds plus net imports of approximately
105 million pounds. Industry shipments were flat with 1997 while imports
decreased approximately 17%. Imports were at record levels during first quarter
1998; then, as a result of reductions in the Metal Selling Price in December
1997 and February and June 1998, imports declined by approximately 33% during
second half 1998 compared to 1997. Also, the Metal Selling Price was reduced on
January 6, 1999, by an additional two cents. The economic problems in Asia
resulted in increased imports of brass rod in 1998 from South Korea and other
Asian nations who aggressively competed with the domestic copper alloy rod
industry by offering lower prices than domestic mills. Excluding South Korea,
which was the largest country of origin in 1998, imports were down by 33% in
1998 compared to 1997. Since 1990, apparent consumption has fluctuated based on
demand, while over the same period CBCC's shipments have continually increased,
with 1998 being another record year.
The strong 1998 industry demand was predominantly in the industry's largest
end use market, building and construction. CBCC targeted specific plumbing
customers for growth in this market, which now represents over 50% of CBCC's
shipments and is expected to remain strong through 2000. The building and
construction market continues to be impacted by the high level of new homes
built, a higher use of brass plumbing fixtures per home and a high level of home
remodeling, which has increased plumbing fixture demand.
13
<PAGE> 16
Leavitt. The structural steel tubing industry has substantially more
capacity than demand in a highly competitive environment. Newly-constructed tube
mills began operation, further increasing excess capacity in the industry.
Leavitt believes its share of this industry is approximately 9%, about the same
as the prior year. Use of structural steel in construction is increasing, with
market growth of 5% in 1998. An intense marketing effort by the Steel Tube
Institute, in which Leavitt is an active member, targets significant growth over
the next five years. The marketing efforts of the Steel Tube Institute are to
educate construction companies, architects and industry executives on the
benefits and cost effectiveness of the use of structural steel tubing in lieu of
other products. This industry wide marketing effort has helped increase the use
of structural steel tubing, with 1998 being nearly double the level in 1992.
In 1998, imports of flat-rolled steel, Leavitt's raw material, increased
substantially as a result of poor economic conditions in Asia, Russia and South
America. Tubing prices moved lower with flat-rolled steel prices. Meanwhile,
steel service centers, expecting lower tubing prices, curtailed purchases
waiting for the prices to decline further. As this was happening, the
agricultural equipment industry usage of structural tubing declined due to lower
agricultural prices and reduced exports of agricultural products resulting from
depressed economic conditions in Asia and South America. The same depressed
economic conditions also reduced sales of construction equipment. These factors
reduced Leavitt's shipments in 1998.
1999 Outlook. Forecasts of future industry consumption, future levels of
imports and future shipments by the Company are forward-looking and are subject
to risks and uncertainties, including without limitation those identified below,
which could cause actual results to differ materially from historical results or
those anticipated. There can be no assurance that 1999 industry consumption will
be similar to 1998 levels. Actual results and developments in these areas will
be affected by the general economic and industry conditions discussed above.
Foreign economic activity and the relationship of the U.S. dollar to other
currencies also affects import levels and exports of U.S. manufactured products
containing parts made from brass rod and steel tubing. The Company's 1999
shipments also will be affected by its ability to maintain manufacturing
operations at its current levels without significant interruption.
Inventories
At the time of the CBCC and Leavitt Acquisitions, assets purchased,
including inventory, were valued at net realizable value in accordance with
purchase accounting rules. The Company elected the last-in, first-out ("LIFO")
method of inventory accounting for financial reporting purposes. During 1998,
the Company recorded non-cash lower of cost-or-market inventory writedowns
totaling $6.8 million. The writedowns to market were due to the decreasing
prices of flat-rolled steel, steel tubing and brass metal. If the first-in,
first-out ("FIFO") method for determining cost had been used, at December 31,
1998, inventories would have been approximately 1.7 million lower.
14
<PAGE> 17
RESULTS OF OPERATIONS
The following table is derived from the Company's Consolidated Statement of
Income for the periods indicated and presents the results of operations as a
percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 85.6 86.0 84.8
Lower of cost-or-market inventory writedowns................ 1.6 -- --
----- ----- -----
Gross profit.............................................. 12.8 14.0 15.2
Selling, general and administrative expenses................ 3.7 3.2 3.3
Depreciation and amortization............................... 2.5 2.0 1.8
----- ----- -----
Operating income.......................................... 6.6 8.8 10.1
Interest expense, net....................................... .7 .9 .7
----- ----- -----
Income before income taxes................................ 5.9 7.9 9.4
Provision for income taxes.................................. 2.2 3.0 3.7
----- ----- -----
Net income................................................ 3.7% 4.9% 5.7%
===== ===== =====
</TABLE>
1998 Compared with 1997
Net sales decreased $54.3 million, or 11%, to $433.4 million in 1998.
Despite record brass rod shipments in 1998, net sales declined primarily as a
result of a 21% reduction in the average Metal Selling Price for brass rod in
1998 compared to 1997. In addition, net sales decreased due to slightly lower
steel tubing shipments and reduced steel tubing prices. These factors were
previously discussed above under "General Economic and Industry Conditions."
Gross profit excluding lower of cost-or-market inventory writedowns
decreased $6.2 million, or 9%, to $62.2 million in 1998. Gross profit was
adversely effected by declining flat-rolled steel prices and competitive steel
tubing price pressures, which have reduced steel tubing margins. Overall
profitability was unfavorably affected by lower margins on brass rod shipments
because fabrication prices decreased due to competitive pressures in the market.
Margins were also decreased due to the decline in the profitability of brass
purchased on the open market.
The Company recorded non-cash lower of cost-or-market inventory writedowns
totaling $6.8 million. The writedowns to market were due to the decreasing
prices of flat-rolled steel, steel tubing and brass metal. The 10
cents-per-pound reduction on June 1, 1998, and the 2 cents-per-pound reduction
on January 6, 1999, of the Metal Selling Price resulted in $3.2 million in
inventory writedowns during 1998. These brass price reductions brought the
cumulative Metal Selling Price reduction to 27 cents-per-pound, or 27%, since
December 1997. The current Metal Selling Price is the lowest since 1987, and
management believes the lower price will encourage demand for brass rod. The
remaining lower of cost-or-market inventory writedowns of $3.6 million resulted
from declining flat-rolled steel prices and lower steel tubing prices.
Selling, general and administrative ("SG&A") expenses increased $0.5
million, or 4%, to $16.0 million. SG&A expenses increased due to a write-off of
accounts receivable from a bankrupt customer and higher due diligence costs
related to investigating potential acquisitions that were not consummated.
Depreciation and amortization increased $1.0 million, or 10%, to $10.9
million due to 1997 and 1998 capital additions.
As a result of the above factors, operating income decreased $14.5 million,
or 34%, to $28.6 million.
Net interest expense decreased $1.5 million, or 32%, to $3.2 million due to
repayments on the Revolving Credit Facility (hereinafter defined) of $7.6
million and the Term Loan (hereinafter defined) of $13.0 million.
15
<PAGE> 18
The decrease in the provision for income taxes of $4.9 million, or 34%, to
$9.7 million corresponded to a decrease in pre-tax income of 34%. The effective
tax rates for 1998 and 1997 were 38%.
As a result of the above factors, net income excluding lower of
cost-or-market inventory writedowns decreased $3.8 million, or 16%, to $20.0
million in 1998. Diluted earnings per share excluding lower of cost-or-market
inventory writedowns decreased to $1.28 per share compared with $1.54 per share
in 1997. After the inventory writedowns, net income was $15.8 million, or $1.04
per basic share, or $1.01 per diluted share, a decrease of 34% from 1997.
1997 Compared with 1996
Net sales increased $120.8 million, or 33%, to $487.8 million in 1997.
Gross profit increased $12.7 million, or 23%, to $68.4 million, principally due
to record brass rod shipments and the impact of a full year of Leavitt's
results. Record brass rod shipments were fueled by continued strong demand in
the industry's largest end use market, construction and remodeling, and record
apparent consumption of copper alloy rod in 1997.
SG&A expenses increased $3.3 million, or 27%, to $15.4 million, due
primarily to a full year of Leavitt's operations. Depreciation and amortization
increased $3.2 million, or 47%, due to a full year of Leavitt's results and
increased depreciation on CBCC capital additions.
As a result of the above factors, operating income increased $6.3 million,
or 17%, to $43.1 million in 1997.
Net interest expense increased $2.0 million, or 78%, to $4.7 million due to
interest expense incurred on the Leavitt Acquisition debt as well as reduced
interest income of $108,000 compared with $720,000 in 1996.
The provision for income taxes increased $1.0 million, or 8%, to $14.6
million in 1997 as a result of a $4.2 million, or 12%, increase in pretax
income.
As a result of the above factors, net income increased $3.2 million, or
15%, to $23.8 million in 1997. Basic earnings per share increased to $1.57 from
$1.37 in 1996. Diluted earnings per share increased to $1.54 from $1.35 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
General
At December 31, 1998, long-term debt totaled $27.3 million, a $20.7
million, or 43%, decrease from year end 1997. The decline represents prepayments
on the Term Loan totaling $13.0 million and repayment of borrowings under the
Revolving Credit Facility of $7.6 million. Term Loan payments originally due
through April 2001 had been prepaid as of December 31, 1998. Cash and cash
equivalents of $9.2 million at year end 1998 increased from $0.9 million as of
year end 1997 resulting in net debt as of December 31, 1998 of $18.3 million.
The Company currently is meeting its operational and liquidity needs with
cash on hand, internally generated funds and amounts available under the
Revolving Credit Facility.
Working Capital
At December 31, 1998, working capital was $54.7 million, a $5.3 million, or
9% decrease from 1997. An increase in cash and cash equivalents of $8.3 million
and inventory of $2.1 million was more than offset by a reduction in accounts
receivable of $12.2 million and an increase in accounts payable of $4.2 million.
Metal price decreases of steel tubing and brass rod contributed to the working
capital decrease.
The Company's current ratio follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1998 1997
----- -----
<S> <C> <C>
Current ratio............................................... 1.97 2.19
Current ratio excluding cash................................ 1.81 2.17
</TABLE>
16
<PAGE> 19
Cash Flow Provided by Operating Activities
In 1998, net cash provided by operating activities reached a record $41.3
million compared to $18.9 million in 1997. The primary sources of cash from
operating activities in 1998 were net income of $15.8 million, depreciation and
amortization of $10.9 million and a reduction in working capital, excluding cash
and debt, of $13.6 million.
In 1997, net cash provided by operating activities decreased $20.6 million
to $18.9 million compared with 1996. The primary sources of cash from operating
activities in 1997 were net income of $23.8 million, depreciation and
amortization of $9.9 million, and deferred tax expense of $4.6 million,
partially offset by an increase in working capital, excluding cash and debt, of
$20.2 million.
In 1996, net cash provided by operating activities was $39.5 million. The
primary sources of cash from operating activities in 1996 were net income of
$20.6 million, depreciation and amortization of $6.7 million, accretion of
discount on the BP Note (as hereinafter defined) of $1.2 million, and a decrease
in working capital, excluding cash, of $10.6 million.
Cash Flow (Used in) Investing Activities
Capital expenditures were $15.2 million, $15.8 million and $4.1 million in
1998, 1997 and 1996, respectively. Capital expenditures included initial costs
for the new foundry and installation costs for the three new billet heaters in
1998, equipment and construction costs for the billet heater project in 1997 and
improvements to the extrusion press system and finishing lines in 1996. Cash
used in investing activities in 1996 includes $91.7 million for the acquisition
of Leavitt.
Cash Flow (Used in) Provided by Financing Activities
During 1998, the Company prepaid $13.0 million on the Term Loan (as
hereinafter defined) used to fund the Leavitt Acquisition. Net repayments on the
Revolving Credit Facility totaled $7.6 million. The Company also received
proceeds of $2 million in conjunction with a lease of new billet heating
equipment. See Notes 6 and 11 of Notes to Consolidated Financial Statements.
During 1997, the Company prepaid $30 million on the Term Loan. Net
borrowings under the Revolving Credit Facility totaled $7.6 million during 1997.
The Company also received proceeds of $10 million in conjunction with a lease of
new billet heating equipment in 1997.
The Company received proceeds from issuance of the Term Loan totaling $60
million during 1996 to fund the Leavitt Acquisition, of which $10 million was
prepaid prior to year end 1996.
Capital Resources
In 1996 the Company launched a capital project referred to as "Project
400." The project is designed to increase foundry, extrusion 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 was completed in early 1998 with the installation of three
new billet heaters that increased finished brass rod capacity by about 17
percent. The new billet heaters will also increase productivity and improve
quality. The total cost of the first phase of the project was approximately $12
million and was financed through a six-year operating lease as described in Note
11 of Notes to Consolidated Financial Statements.
In second quarter 1998, the Company announced Phase II of Project 400,
which is a $30 million multi-year investment to construct an additional brass
foundry enabling CBCC to increase casting capacity and to provide customers with
multiple alloys. New casting equipment has been ordered and a new building is
under construction and is expected to be operational during first quarter 2000.
The Company anticipates that capital projects will be paid for with cash flows
provided by operating activities and the Bank Credit Facility, as necessary.
17
<PAGE> 20
Bank Credit Facility
In connection with the Leavitt Acquisition, the Company entered into a
credit facility (the "Bank Credit Facility") of $100 million agented by PNC
Bank, National Association ("PNC Bank"). The Bank Credit Facility includes a $60
million term loan ("Term Loan") and a $40 million revolving credit facility
("Revolving Credit Facility"). The Company prepaid $13 million on the Term Loan
in 1998, $30 million in 1997 and $10 million in 1996, including all amounts
originally due through April 2001. The remaining balance of $7 million on the
Term Loan is payable in quarterly installments in amounts ranging from
$2,975,000 in July 2001 to $1,025,000 due January 2002. The total borrowing
capacity under the Revolving Credit Facility is determined monthly by a formula
based on levels of accounts receivable and inventory, 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 weighted average interest rate on the Bank Credit Facility was 5.7%
and 6.5% at December 31, 1998 and 1997, respectively.
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 December 31, 1998, $7 million was outstanding under the Term Loan and
no amounts were outstanding under the Revolving Credit Facility. Total
availability under the Revolving Credit Facility was $40 million.
Average Revolving Credit Facility Borrowings
The average outstanding balance under the Revolving Credit Facility in 1998
was $5.6 million. The average outstanding balance under the Revolving Credit
Facility in 1997 was $9.4 million. As of March 18, 1999, the Company had
available $36.4 million under the Revolving Credit Facility. For a discussion of
long-term borrowings under the Bank Credit Facility, see Note 6 of Notes to
Consolidated Financial Statements.
IMPACT OF THE YEAR 2000
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 assessments to date of its Year 2000 risk and for
other business purposes as well, CBCC implemented modifications to its
management information systems in years 1995 through 1997, including the
conversion of its management information processing software to new software.
The Company conducted extensive testing of the software, including transactions
scheduled to occur after the beginning of the year 2000, and determined that the
software was not completely Year 2000 compliant. As a result, the software
vendor has issued an upgraded release of the software and this upgraded software
is in the process of being installed. The software vendor represents the new
release as Year 2000 compliant. As the new release is installed and tested,
transactions occurring in 2000 and beyond will again be simulated. The
installation is expected to be completed prior to the end of third quarter 1999
and CBCC is not projected to incur a significant cost to complete the upgrade,
as the upgraded version of the software is included with CBCC's annual software
maintenance fee.
18
<PAGE> 21
Leavitt's 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 has been represented as Year 2000 compliant
and which management believes also will assist in improved management of the
business. Substantial conversion tasks have been completed. The capital
expenditures for the systems implementation are projected to be approximately
$2.5 million, and it is expected that the upgrade to the new software will be
completed in third quarter 1999. This project is being funded from internal
funds, and a substantial portion of the projected expenditures has been spent or
committed. Testing of the software for Year 2000 compliance will occur as the
systems are implemented.
The Company also utilizes software and systems in its internal
manufacturing processes and instrumental control functions. The Company has
evaluated these systems, developed plans to upgrade non-compliant systems, and
expects to complete these plans by the end of third quarter 1999.
The Company is in the process of assessing its vulnerability to Year 2000
failures on the part of its suppliers, vendors and customers and has surveyed
major suppliers, vendors and customers to determine their vulnerability to Year
2000 failures, including assessing the potential impact of any such failures on
the Company. Although the Company's survey results and assessment activities to
date have not identified any Year 2000 problems originating with its suppliers,
vendors or customers that the Company reasonably anticipates will have a
material adverse effect on the Company, the Company cannot control the conduct
of its suppliers, vendors or customers and, therefore, cannot guarantee that
Year 2000 problems originating with a supplier, vendor or customer will not
occur. The Company has not yet developed contingency plans in the event of a
Year 2000 failure caused by a supplier or third party, but would do so if a
specific problem is identified. In some cases, especially with respect to its
utility vendors, alternative suppliers may not be available.
The Company believes that its new management information systems are, or
will be by year end 1999, Year 2000 compliant. The Company has conducted
evaluations of operating systems in its internal manufacturing processes and
instrumental control functions and expects to bring those systems into Year 2000
compliance, if they are not already Year 2000 compliant, by year end 1999.
Consequently, the Company has not established contingency plans to deal with
Year 2000 issues. However, if this assessment changes, the Company will
establish contingency plans as deemed necessary.
The statements set forth herein regarding the Year 2000 compliance
capabilities of the Company's systems, as well as future estimated expenditures
necessary to cause Year 2000 compliance by the Company's systems, are forward
looking and are based on evaluations by Company personnel and independent
consultants engaged by the Company. Actual effects on the Company of the Year
2000 compliance issues, as well as costs that may be incurred by the Company to
address Year 2000 compliance issues, may differ materially from those currently
anticipated if the Company's evaluation of its systems is incorrect.
Furthermore, in the event any of the foregoing contingencies occurs, the
operations at CBCC and/or Leavitt could be adversely affected until such Year
2000 compliance issues are corrected by the Company and/or its vendors and
suppliers, as applicable.
CONTINGENCIES -- ENVIRONMENTAL MATTERS
As discussed in "Item 1. Business -- Environmental Regulation" and Note 12
of Notes to Consolidated Financial Statements included in Item 8., each of CBCC
and Leavitt are subject to certain contingent liabilities relating to
environmental conditions at their respective facilities.
CBCC. Based on the aggregate sampling results currently available with
respect to CBCC's site, interim remediation for a portion of the site has been
completed at a cost of approximately $1 million, which was recorded in third
quarter 1998. Under the terms of the Remediation Agreement, BP is required to
fund the remediation costs. Accordingly, the Company recorded a corresponding $1
million receivable from BP.
Because the development of a comprehensive remediation action plan (the
"RAP") for CBCC's site is not yet complete, the Company presently is unable to
estimate with any degree of certainty the amount of cleanup costs associated
with execution of the RAP, although such costs may be material. Although BP has
19
<PAGE> 22
acknowledged its contractual obligation to fund certain investigatory and
cleanup activities related to site contamination attributable to Old Chase's
operations, as described in Note 12 of Notes to Consolidated Financial
Statements included in Item 8., BP and CBCC currently are involved in litigation
regarding, among other things, BP's obligations under the Remediation Agreement
and CBCC Purchase 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, other than the $1 million spent for interim remediation
activities as described above, 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 has incurred, and incurs future, cleanup cost with
respect to investigatory and remedial activities at its site, the Company
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 recover from BP pursuant to the Remediation Agreement, the CBCC
Purchase Agreement or otherwise, the Company may elect to offset the amounts of
such recoveries from BP and prior offsets against amounts owing under the $20
million BP Note. See Notes 5 and 12 of Notes to Consolidated Financial
Statements included in Item 8., for a discussion of the receivable from BP and
prior offsets against amounts owing under the BP Note and pending litigation
regarding BP's obligations under the Remediation Agreement and CBCC Purchase
Agreement.
Leavitt. Pending receipt of Leavitt's independent consultant's
recommendations 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, ROHN Industries, Inc. (formerly UNR Industries,
Inc.), is contractually obligated 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 (approximately $140,000 has been incurred for various matters and
charged against this basket). 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.
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. 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 finalization of a comprehensive RAP for CBCC's entire site, acceptance
by applicable governmental agencies of proposed cleanup standards for the
remainder of CBCC's site, discovery of additional contaminants during
remediation, 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.
20
<PAGE> 23
CONTINGENCIES -- LEGAL PROCEEDINGS
As discussed in Note 12 of Notes To Consolidated Financial Statements
included in Item 8., 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 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.
INFLATION
The Company does not believe that its operations have been significantly
affected by inflation.
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 by 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 primarily include 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.
21
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHASE INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants......................... 23
Consolidated Balance Sheet as of December 31, 1998 and
1997................................................... 24
Consolidated Statement of Income for the Years Ended
December 31, 1998, 1997 and 1996....................... 25
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996... 26
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996....................... 27
Notes to Consolidated Financial Statements................ 28-42
Unaudited Quarterly Financial Information................. 41
FINANCIAL STATEMENT SCHEDULES:
Valuation and Qualifying Accounts......................... S-1
</TABLE>
22
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Chase Industries Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Chase Industries Inc. and its subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14(a)(2)
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 12, 1999
23
<PAGE> 26
CHASE INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 9,200 $ 924
Receivables, net of allowance for doubtful accounts and
claims of $1,060 and $1,286 in 1998 and 1997,
respectively........................................... 30,180 42,368
Inventories............................................... 65,776 63,688
Prepaid expenses.......................................... 698 922
Deferred income taxes..................................... 4,982 2,509
-------- --------
Total current assets.............................. 110,836 110,411
Property, plant and equipment, net........................ 97,152 94,162
Other assets.............................................. 4,816 4,928
-------- --------
Total assets...................................... $212,804 $209,501
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 41,399 $ 37,244
Accrued compensation and benefits......................... 7,017 6,651
Accrued income taxes...................................... 2,196 --
Other accrued liabilities................................. 5,401 6,425
Current portion of long-term debt......................... 152 141
-------- --------
Total current liabilities......................... 56,165 50,461
Long-term debt.............................................. 27,339 48,068
Deferred income taxes....................................... 13,880 12,259
-------- --------
Total liabilities................................. 97,384 110,788
-------- --------
Commitments and contingencies............................... -- --
Stockholders' equity:
Common stock, $.01 par value, 36,310,000 and 25,000,000
shares authorized in 1998 and 1997, respectively;
9,083,452 and 6,002,046 shares issued and outstanding
in 1998 and 1997, respectively......................... 91 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............. 61 41
Additional paid-in capital............................. 31,493 30,597
Retained earnings...................................... 83,775 68,015
-------- --------
Total stockholders' equity........................ 115,420 98,713
-------- --------
Total liabilities and stockholders' equity........ $212,804 $209,501
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE> 27
CHASE INDUSTRIES INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $433,436 $487,783 $366,991
Cost of goods sold (exclusive of depreciation and
amortization shown separately below)...................... 371,234 419,412 311,345
Lower of cost-or-market inventory writedowns................ 6,794 -- --
-------- -------- --------
Gross profit.............................................. 55,408 68,371 55,646
Selling, general and administrative expenses................ 15,960 15,418 12,121
Depreciation and amortization............................... 10,876 9,875 6,710
-------- -------- --------
Operating income.......................................... 28,572 43,078 36,815
Interest expense, net....................................... 3,152 4,653 2,612
-------- -------- --------
Income before income taxes................................ 25,420 38,425 34,203
Provision for income taxes.................................. 9,660 14,603 13,564
-------- -------- --------
Net income................................................ $ 15,760 $ 23,822 $ 20,639
======== ======== ========
Earnings per share*:
Basic..................................................... $ 1.04 $ 1.57 $ 1.37
======== ======== ========
Diluted................................................... $ 1.01 $ 1.54 $ 1.35
======== ======== ========
</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.
25
<PAGE> 28
CHASE INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
<S> <C> <C> <C> <C>
Balances, January 1, 1996............................ $101 $29,990 $23,554 $ 53,645
Net income......................................... -- -- 20,639 20,639
Exercised stock options............................ -- 49 -- 49
---- ------- ------- --------
Balances, December 31, 1996.......................... 101 30,039 44,193 74,333
Net income......................................... -- -- 23,822 23,822
Exercised stock options............................ -- 558 -- 558
---- ------- ------- --------
Balances, December 31, 1997.......................... 101 30,597 68,015 98,713
Net income......................................... -- -- 15,760 15,760
Exercised stock options............................ -- 947 -- 947
Three-for-two stock split.......................... 51 (51) -- --
---- ------- ------- --------
Balances, December 31, 1998.......................... $152 $31,493 $83,775 $115,420
==== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 29
CHASE INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income................................................ $ 15,760 $ 23,822 $ 20,639
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 10,876 9,875 6,710
Deferred income tax (benefit) expense.................. (852) 4,566 (142)
Lower of cost-or-market inventory writedowns........... 6,794 -- --
Accretion of discount on BP Note....................... -- -- 1,216
Changes in assets and liabilities:
Decrease (increase) in receivables................... 12,188 (7,854) 7,034
(Increase) in inventories............................ (8,882) (11,638) (6,874)
Decrease (increase) in prepaid expenses.............. 224 209 (325)
(Increase) decrease in other assets.................. (522) 1,205 362
Increase in accounts payable......................... 4,155 1,110 7,692
Increase (decrease) in accrued liabilities........... 1,538 (2,365) 3,219
-------- -------- --------
Net cash provided by operating activities......... 41,279 18,930 39,531
-------- -------- --------
Investing activities:
Purchase of Leavitt....................................... -- -- (91,665)
Expenditures for property, plant and equipment............ (15,232) (15,774) (4,092)
(Increase) in intangibles................................. -- -- (1,005)
-------- -------- --------
Net cash (used in) investing activities........... (15,232) (15,774) (96,762)
Financing activities:
Revolving credit loan (repayments) borrowings, net........ (7,578) 7,578 --
Principal payments on bank term loan...................... (13,000) (30,000) (10,000)
Proceeds from issuance of a bank term loan................ -- -- 60,000
Equipment financing....................................... 2,000 10,000 --
Other, net................................................ 807 427 21
-------- -------- --------
Net cash (used in) provided by financing
activities...................................... (17,771) (11,995) 50,021
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 8,276 (8,839) (7,210)
Cash and cash equivalents, beginning of year................ 924 9,763 16,973
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 9,200 $ 924 $ 9,763
======== ======== ========
Supplemental cash flow information:
Cash flow data:
Interest paid.......................................... $ 1,582 $ 2,894 $ 2,291
Income taxes paid...................................... $ 7,955 $ 13,558 $ 13,008
Non-cash investing activity:
Liabilities assumed in connection with the acquisition
of Leavitt........................................... -- -- $ 20,190
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 30
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Organization
The consolidated balance sheet as of December 31, 1998 and 1997, and the
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years ended December 31, 1998, 1997 and 1996, 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.
On August 24, 1990, the Company acquired, through CBCC, the assets and
assumed certain liabilities 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.
Nature of Operations
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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 reduced amounts are considered cost for
subsequent years. During 1998, the Company recorded non-cash inventory
writedowns totaling $6.8 million due to decreasing flat-rolled steel prices and
reductions 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 at December
31, 1998, and $3.0 million higher at December 31, 1997.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
by the straight-line method based on estimated useful lives of the assets. Upon
retirement or disposal, the cost and accumulated depreciation are removed from
the accounts, and any gain or loss is included in income. Maintenance and repair
costs are charged to expense as incurred.
Intangibles
Intangible assets are amortized on a straight-line basis over their
estimated economic lives. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that their carrying amounts may not
be recoverable.
28
<PAGE> 31
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Flows
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments, with a maturity of three months or less
when purchased, to be cash equivalents. The carrying value of all financial
instruments approximates market value.
Concentration of Credit Risk
Accounts receivable is the principal financial instrument, which subjects
the Company to concentration of credit risk. Credit is extended based upon an
evaluation of the customer's financial condition and, generally, collateral is
not required. Concentrations of credit risk with respect to receivables are
somewhat limited due to the Company's large number of customers, the diversity
of these customers' businesses and the dispersion of such customers throughout
the continental United States and parts of Canada. The Company maintains an
allowance for doubtful accounts and claims based upon the expected
collectibility of all trade receivables.
Recently Issued Accounting Pronouncements
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 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.
The American Institute of Certified Public Accountants issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities," ("SOP 98-5"),
which is effective for fiscal years beginning after December 15, 1998. SOP 98-5
provides guidance on financial reporting for start-up costs. Management of the
Company believes that SOP 98-5 will not have a material effect on its financial
position or results of operations.
2. LEAVITT ACQUISITION:
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. Leavitt's results of operations for the period since the Leavitt
Acquisition date are included in the Company's results of operations. The
Leavitt Acquisition was accounted for as a purchase.
As of the Leavitt Acquisition date, the value of Leavitt's property, plant
and equipment was increased $31.3 million over its then-current book value to
reflect the estimated fair value of the assets purchased. Assets totaling $4.4
million were recorded as of the Leavitt Acquisition date to reflect a
non-compete agreement, and a supply agreement with an affiliate of UNR
Industries, Inc. and to reflect the actual purchase price in excess of the fair
value of the assets acquired. The Company also incurred certain closing and
financing costs in connection with the Leavitt Acquisition approximating $1
million.
The pro forma data outlined below reflects pro forma adjustments to the
statement of income for the year ended December 31, 1996, as if the Leavitt
Acquisition occurred as of the beginning of the year. The pro forma adjustments
reflect the impact of additional depreciation and amortization expenses. The pro
forma adjustments also reflect the impact of additional interest expense
resulting from the Leavitt Acquisition debt and the elimination of the Company's
interest income partially offset by the elimination of interest expense on the
portion of Leavitt debt not assumed by the Company. The income tax effect of the
pro forma adjustments is based on an effective income tax rate of 40%. Pro forma
results for the year ended December 31, 1996,
29
<PAGE> 32
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
follow (unaudited; in thousands, except per share amount which has been adjusted
for the three-for-two stock split effective June 6, 1998):
<TABLE>
<S> <C>
Net sales................................................... $468,881
Net income.................................................. $ 23,020
Basic earnings per share.................................... $ 1.53
</TABLE>
3. INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Raw materials............................................... $33,657 $22,891
Work in progress............................................ 10,174 12,631
Finished goods.............................................. 22,383 29,369
------- -------
66,214 64,891
Tolling metal due customers................................. (438) (1,203)
------- -------
$65,776 $63,688
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment and the related depreciable lives consisted
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Land and land improvements (15-20 years).................... $ 3,545 $ 3,331
Buildings and improvements (10-39 years).................... 24,484 22,445
Machinery and equipment (2-15 years)........................ 97,761 92,631
Construction in progress.................................... 9,383 5,957
-------- --------
135,173 124,364
Accumulated depreciation.................................... (38,021) (30,202)
-------- --------
$ 97,152 $ 94,162
======== ========
</TABLE>
5. OTHER ASSETS:
Intangibles. Intangible assets recorded in conjunction with the Leavitt
Acquisition and the related period of amortization consisted of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------- ------
<S> <C> <C>
Covenant not-to-compete (5 years)........................... $ 500 $ 500
Supply agreement (5 years).................................. 560 560
Deferred financing costs (5 years).......................... 450 450
Acquisition costs (5 years)................................. 555 555
Excess of cost over estimated fair value of net assets
acquired (15 years)....................................... 3,321 3,321
------- ------
5,386 5,386
Accumulated amortization.................................... (1,480) (846)
------- ------
$ 3,906 $4,540
======= ======
</TABLE>
30
<PAGE> 33
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Receivable from BP. The receivable from BP represented certain amounts
arising from claims by the Company against BP under the CBCC Purchase Agreement
and a Remediation Agreement (as hereinafter defined). At December 31, 1998, the
receivable from BP totaled $910,000. The receivable from BP, which in the
aggregate totaled $5.5 million, included $1.3 million resulting from certain
post-closing adjustments under the CBCC Purchase Agreement, $1.4 million in
environmental-related capital expenditures, $0.4 million of other costs and
claims, and $2.4 million in environmental remediation costs for which the
Company expects reimbursement under the terms of the CBCC Purchase Agreement and
a Remediation Agreement dated August 24, 1990, entered into by and among BPE,
The Standard Oil Company, the Company and CBCC concerning the performance of
remedial and certain other environmental matters by the parties thereto. If the
Company does not receive payment on the receivable balance due from BP, the
Company intends to offset any such amounts against amounts payable under the $20
million Subordinated Promissory Note issued to Old Chase as partial
consideration for the CBCC Acquisition (the "BP Note").
At December 31, 1998, the receivable from BP reflected a reduction of $4.6
million, which reduction resulted from the Company offsetting interest payable
under the BP Note of $254,000 payable August 24, 1996, $1,856,000 payable on
each of August 24, 1997, and August 24, 1998. It is the Company's intent to
offset additional interest payable under the BP Note of approximately $660,000
accrued as of December 31, 1998, and which becomes due and payable August 24,
1999, against amounts owed by BP to the extent it is legally entitled to do so.
See Note 6, Financing Arrangements, and Note 12, Commitments and Contingencies,
for further discussion of the BP Note.
6. FINANCING ARRANGEMENTS:
Debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
BP Note..................................................... $20,000 $20,000
Term Loan................................................... 7,000 20,000
Revolving Credit Facility................................... -- 7,578
Other....................................................... 491 631
------- -------
27,491 48,209
Current portion of long-term debt........................... 152 141
------- -------
Long-term debt.............................................. $27,339 $48,068
======= =======
</TABLE>
In connection with the CBCC Acquisition, the Company issued the BP Note in
the original principal amount of $20.0 million. The BP Note was recorded at the
CBCC Acquisition date at a discount using a 10.4% effective interest rate. The
BP Note initially matured in August 1996, and the Company, at its option,
extended the maturity date for three additional years to August 1999 with
interest payable annually at 9.28%. The BP Note contained a contingent interest
payment based upon average Company earnings (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 and 1998, were offset against the receivable from BP. The Company continues
to classify the BP Note as long-term because, if necessary, it has the ability
to repay the amount on a long-term basis with borrowings obtained under the Bank
Credit Facility. See Note 5, Other Assets, and Note 12, Commitments and
Contingencies, for further discussion of the BP Note.
In connection with the Leavitt Acquisition, the Company entered into a
credit facility (the "Bank Credit Facility") of $100 million. The Bank Credit
Facility includes a $60 million term loan ("Term Loan") and a $40 million
revolving credit facility ("Revolving Credit Facility"). Total borrowing
capacity under the
31
<PAGE> 34
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revolving Credit Facility is determined monthly by a formula based on levels of
accounts receivable and inventory, 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. The Term Loan is
payable quarterly and matures January 2002. The Company prepaid $13 million on
the Term Loan in 1998 and $30 million in 1997, including all amounts originally
due through April 2001.
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 weighted average interest rate on the Bank Credit Facility was 5.7%
and 6.5% at December 31, 1998 and 1997, respectively.
The Bank Credit Facility contains certain covenants that, among other
things, limit the Company's ability to incur additional debt, make capital
expenditures 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.
Aggregate maturities of long-term debt are as follows: $152,000 in 1999,
$163,000 in 2000, $26.2 million in 2001, and $1.0 million in 2002.
7. RETIREMENT PLANS:
The Company provides various contributory and noncontributory benefit plans
covering substantially all of its employees, including profit sharing plans,
employee savings plans under Section 401(k) of the Internal Revenue Code, and
defined benefit pension plans.
For plans to which the Company contributes, the contributions become fully
vested after five years of service. The amount of Company contributions to the
employee savings plans are based on formulas outlined in the plans. Company
contributions under the noncontributory qualified profit sharing plans are based
on a percentage of eligible employees' compensation. Contributions to the trust
fund of the profit sharing plans are discretionary, and the Company has the
right to amend, modify or terminate the plans, but in no event will any portion
of vested contributions revert to the Company. Charges to expense under the
defined contribution plans, for the years ended December 31, 1998, 1997 and
1996, were $899,000, $832,000 and $588,000, respectively.
The defined benefit retirement plans provide benefits based on a
participant's years of service and stated monthly benefit amounts based on the
date of retirement. The Company's policy is to make periodic contributions as
required by contract or applicable regulations.
32
<PAGE> 35
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables provide a reconciliation for the years ended December
31, 1998 and 1997, of the changes in the defined benefit retirement plans'
benefit obligations and fair value of assets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- ------
<S> <C> <C>
Change in plan assets:
Fair value at beginning of year........................... $ 8,937 $8,143
Actual return on plan assets.............................. 536 773
Employer contributions.................................... 434 474
Benefit payments.......................................... (135) (453)
Other..................................................... (20) --
------- ------
Fair value at end of year................................. $ 9,752 $8,937
======= ======
Change in benefit obligation:
Obligation at beginning of year........................... $ 8,834 $8,472
Service cost.............................................. 317 284
Interest cost............................................. 671 610
Plan amendments........................................... 678 --
Assumption changes........................................ 745 --
Actuarial loss (gain)..................................... 554 (79)
Benefit payments.......................................... (135) (453)
Other..................................................... (12) --
------- ------
Obligation at end of year................................. $11,652 $8,834
======= ======
Funded Status:
Balance at end of year.................................... $(1,900) $ 103
Unrecognized net actuarial loss........................... 441 66
Unrecognized prior service cost........................... 895 230
------- ------
Pension (accrual) prepaid expense......................... $ (564) $ 399
======= ======
</TABLE>
For the year ended December 31, 1998, the discount rate used in determining
the projected benefit obligation was 6.75% and the expected long-term rate of
return on assets ranged from 7.0% to 8.5%. For the year ended December 31, 1997,
the discount rate used in determining the projected benefit obligation was 7.5%
and the expected long-term rate of return on assets ranged from 8.0% to 8.5%.
The defined benefit retirement plans' net periodic pension expense was as
follows (in thousands):.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Service cost................................................ $ 317 $ 284 $ 156
Interest cost............................................... 671 610 308
Expected return on plan assets.............................. (962) (786) (340)
Net amortization and deferral............................... 235 144 55
----- ----- -----
Net periodic pension expense................................ $ 261 $ 252 $ 179
===== ===== =====
</TABLE>
33
<PAGE> 36
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
The consolidated provision for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current taxes:
Federal............................................. $ 9,216 $ 8,598 $11,327
State............................................... 1,296 1,439 2,379
------- ------- -------
Total current taxes................................... 10,512 10,037 13,706
Deferred taxes (benefit) expense...................... (852) 4,566 (142)
------- ------- -------
Provision for income taxes............................ $ 9,660 $14,603 $13,564
======= ======= =======
</TABLE>
Deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the financial statement and tax bases of
assets and liabilities and were composed of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Net current deferred tax asset:
Inventory reserves........................................ $ 2,893 $ 656
Accrued employee benefits................................. 1,219 1,014
Allowance for doubtful accounts and claims................ 41 675
Other, net................................................ 829 164
------- -------
$ 4,982 $ 2,509
======= =======
Net long-term deferred tax liability:
Depreciation and basis differences........................ $13,564 $11,910
Other, net................................................ 316 349
------- -------
$13,880 $12,259
======= =======
</TABLE>
A reconciliation of the provision for income taxes compared with the
amounts at the federal statutory tax rate follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Tax provision at statutory rate of 35%................. $8,897 $13,449 $11,971
State taxes............................................ 842 1,185 1,547
Other, net............................................. (79) (31) 46
------ ------- -------
Provision for income taxes............................. $9,660 $14,603 $13,564
====== ======= =======
Effective tax rate..................................... 38.0% 38.0% 39.7%
</TABLE>
9. STOCK OPTIONS:
In November 1994, the Company implemented its 1994 Long-Term Incentive Plan
(the "1994 Plan"). Under the 1994 Plan, as amended, 2,107,612 shares of Common
Stock are reserved for option grants. Stock options granted on or before
December 31, 1998, become exercisable over five years from the grant date
(subject to acceleration under certain circumstances), expire after 10 years and
have an exercise price approximating the Common Stock fair market value on the
grant date.
In May 1997, the Company implemented its 1997 Non-Employee Director Stock
Option Plan (the "Director Plan") which provides for the granting of stock
options to non-employee directors upon their election to the Board of Directors
and, at the election of each non-employee director, in lieu of all or a portion
34
<PAGE> 37
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of their annual retainer and meeting fees. Under the Director Plan, 150,000
shares of Common Stock are reserved for option grants. Stock options granted in
lieu of the annual retainer and meeting fees are granted quarterly at the end of
each quarter, become exercisable immediately upon grant and expire after ten
years. The exercise price is based on the average closing market price of Common
Stock for the five trading days of the quarter to which the grant relates.
In May 1997, the Company implemented its 1997 Executive Deferred
Compensation Stock Option Plan (the "Executive Plan") which provides for the
granting of stock options to eligible executives of the Company and its
subsidiaries who elect to participate in the Executive Plan and receive stock
options in lieu of all or a portion of their annual cash bonus. Under the
Executive Plan, 450,000 shares of Common Stock are reserved for option grants.
Stock options granted under the Executive Plan are granted on the date of
determination of a participant's annual cash bonus, become exercisable
immediately upon grant and expire after ten years. The stock options related to
each annual bonus amount deferred are granted in four series of equal numbers of
options, with each series attributed to a calendar quarter in the calendar year
to which the bonus relates. Stock options granted in each series have an
exercise price based on the average closing market price of Common Stock for the
last five trading days of the calendar quarter to which such series relates.
The following summary includes stock options granted under the Plans as of
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICES SHARES PRICES SHARES PRICES
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the
year.............................. 1,189,621 $ 9.00 1,195,575 $ 6.77 815,250 $ 6.77
Granted............................. 486,392 16.66 129,984 14.98 477,450 11.54
Exercised........................... 80,400 7.28 54,638 7.26 7,275 6.67
Canceled/Forfeited.................. 8,820 13.11 81,300 13.84 89,850 7.38
Outstanding at end of year.......... 1,586,793 11.42 1,189,621 9.00 1,195,575 8.63
Exercisable at end of year.......... 736,818 8.13 531,406 7.55 350,460 6.77
</TABLE>
The following table summarizes information about employee stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER EXERCISE REMAINING NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING PRICES LIFE EXERCISABLE PRICES
--------------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.14 to $10.83.......................... 664,908 $ 6.84 6.0 547,683 $ 6.87
10.84 to 15.17........................... 503,835 11.98 7.6 188,760 11.76
17.34 to 21.67........................... 418,050 18.01 9.1 375 17.96
--------- -------
5.14 to 21.67............................ 1,586,793 11.42 7.3 736,818 8.13
</TABLE>
Effective January 1, 1996, the Company adopted the disclosure requirements
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). However, as permitted under SFAS 123,
the Company has elected to continue accounting for the Plan in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), which is an intrinsic value based method of accounting.
Had stock option compensation for the Plan been determined based on the fair
value of the stock options on the respective grant dates consistent with the
methodology of SFAS 123, the pro forma reduction to the Company's net income and
basic earnings per share would have been $904,000, $494,000 and $148,000 and
$.06, $.03, and $.01 in 1998, 1997 and 1996, respectively.
35
<PAGE> 38
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each stock option grant was estimated as of the grant
date using the Black-Scholes option-pricing model with the following assumptions
used for stock options granted in:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Estimated fair value per share of options granted during the
year...................................................... $6.72 $6.88 $5.57
Assumptions:
Annualized dividend yield................................. -- -- --
Common stock price volatility (peer index)................ 29.2% 35.7% 37.6%
Risk-free rate of return.................................. 5.6% 6.4% 6.7%
Expected option term (in years)........................... 6 6 6
</TABLE>
10. 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. As a
result of the split, 5,075,996 additional shares were issued and Additional
Paid-in Capital was reduced by $51,000. Fractional shares resulting from the
stock split were paid in cash, without interest. All references in the
accompanying financial statements to the number of shares and per share amounts
have been restated to reflect the stock split. In conjunction with the stock
split, the Company's Restated Certificate of Incorporation was amended by
stockholder vote to increase the number of authorized shares from 25 million to
36,310,000 for Common Stock and 5 million to 12.3 million for Nonvoting Common
Stock.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). This
Statement establishes standards for computing and presenting earnings per share
and amends the standards for computing earnings per share previously found in
Accounting Principles Board Opinion No. 15, "Earnings per Share."
The following is a reconciliation of the denominator used in the
computation of basic and diluted earnings per share. Average shares are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Basic.......................................... 15,215,658 15,141,203 15,094,878
Stock options.................................. 345,211 341,544 193,802
---------- ---------- ----------
Diluted........................................ 15,560,869 15,482,747 15,288,680
========== ========== ==========
</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 December 31, 1998 and 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.
11. OPERATING LEASE OBLIGATIONS:
Rental expense under operating leases was $1,744,000, $541,000 and $648,000
for the years ended December 31, 1998, 1997 and 1996, respectively. As of
December 31, 1998, the minimum rental commit-
36
<PAGE> 39
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ments under long-term operating leases were as follows: $1,531,000 in 1999,
$1,405,000 in 2000, $1,183,000 in 2001, $1,066,000 in 2002, and $1,034,000 in
2003.
In December 1997, CBCC entered into a six-year operating lease agreement
for certain manufacturing equipment. There are several options available to the
Company at the end of the lease term, which include renewal of the lease,
purchase of the equipment by CBCC, or sale of the equipment.
12. COMMITMENTS AND CONTINGENCIES:
Both CBCC and Leavitt are subject to certain contingent environmental
liabilities. Because 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 or range
of amounts of cleanup costs associated therewith. However, it is reasonably
possible that 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 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.
The Company does not believe that it will be required to make material
expenditures with respect to the environmental conditions at Leavitt's
facilities, or that the cleanup costs or other liabilities associated with such
conditions will have a material effect on the Company's financial condition,
results of operations or liquidity.
CBCC. With respect to CBCC's facility, 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. 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.
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 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
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. CBCC has substantially concluded the additional sampling that it
believes is necessary.
Based on the aggregate sampling results, interim remediation for a portion
of the site was completed in fourth quarter 1998 at a cost of approximately $1
million, which was recorded in third quarter 1998. Under the terms of the
Remediation Agreement, BP is required to fund the remediation costs.
Accordingly, the Company recorded a corresponding $1 million receivable from BP.
The Company anticipates undertaking additional remedial actions in third
and fourth quarters 1999 and, in connection with these activities, to conduct
additional sampling of certain areas of the site. The results of the initial
sampling conducted by BP, the additional sampling conducted (and to be
conducted) by CBCC and input from the Ohio EPA are being (and will be) used to
develop a comprehensive remediation plan for the site. Until the completion of
these additional interim and investigatory activities and the development of a
remedial plan for the site, the Company will be unable to estimate with any
degree of certainty the extent of
37
<PAGE> 40
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contamination or the amount of cleanup costs associated therewith. The
investigation has been conducted on a voluntary basis with the concurrence of
the Ohio EPA.
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 currently are
involved in litigation regarding, among other things, BP's obligations under the
Remediation Agreement and the CBCC Purchase 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, other than the
approximately $1 million spent in 1998 for interim remediation activities as
described above, 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 has incurred, or incurs future, cleanup cost with
respect to investigatory and remedial activities at its site, the Company
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 recover from BP pursuant to the Remediation Agreement, the CBCC
Purchase Agreement or otherwise, the Company may elect to offset the amounts of
such recoveries against amounts payable under the $20 million BP Note.
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 possibly a fifth
site). 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 a
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.
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 "Complaint"). In the Complaint, plaintiffs seek
declaratory judgement regarding the calculation of interest payable under the
$20 million 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 on 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 $254,746, 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.
38
<PAGE> 41
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, under the BP Note, interest is payable on 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 on each of August 24, 1998 and 1997, was
$1,856,000, which amount the Company also offset against the receivable from BP.
Plaintiffs also seek money judgment against the Company for payment of accrued
interest under the BP Note.
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 is seeking recovery of the $20 million principal
amount of the BP Note. On April 6, 1998, the Company filed an Answer and
Counterclaim (the "Answer and Counterclaim") disputing the allegations set forth
in the Complaint 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 Answer and 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. On June 8, 1998, plaintiffs
filed a Reply to Counterclaim in response to the Answer and Counterclaim. In
plaintiff's Reply to Counterclaim, plaintiffs deny any breach by BP of any
representations, warranties or covenants contained in the CBCC Purchase
Agreement or the Remediation Agreement and deny the existence of any prior
settlement agreement reached between the Company and BP regarding certain
disputes under the CBCC Purchase Agreement and the Remediation Agreement.
Although the Company disputes the plaintiffs' allegations, the Company believes
that, even if plaintiffs were to prevail in their positions as set forth in the
Complaint, 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.
Discovery is proceeding in this case, and it currently is scheduled for
trial in the summer of 2000.
Leavitt. Prior to the Leavitt Acquisition, five underground storage tanks
("UST's") were removed from Leavitt's facility in Hammond, Indiana. Prior to
removal, one or more of the UST's 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.
The sampling results, which indicated the continued presence in the groundwater
of certain contaminants, were submitted to the IDEM for review. Based on these
test results, the IDEM has indicated that it would not yet issue a "closure"
letter.
Leavitt has engaged an independent consultant to evaluate appropriate
actions to be taken with regard to the groundwater at Hammond in order to
receive a closure letter from the IDEM. The consultant has completed its review
and analysis of the Hammond facility and has recommended additional on-site
investigation and further discussions with IDEM. Until these actions are carried
out, the Company will be 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, ROHN Industries, Inc.
(formerly UNR Industries, Inc.), is contractually obligated to indemnify Leavitt
for 90% of losses related to certain environmental conditions, including costs
incurred with
39
<PAGE> 42
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
13. BUSINESS SEGMENTS:
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). This statement establishes standards for
reporting information about operating segments, products and services and
geographic areas, and major customers. The Company has two business segments.
One, brass products, is engaged in the manufacture and sale of free-machining
and forging brass rod; the second, steel products, manufactures and sells
structural and mechanical steel tubing and structural pipe.
The brass products segment, employing more than 300 people at its
Montpelier, Ohio, plant, is an ISO 9002 certified manufacturer and supplier of
free-machining and forging brass rod in the United States and Canada. Its
diverse customer base of more than 250 companies uses CBCC's "Blue Dot"
trademark rod to produce a variety of products, such as plumbing fixtures,
heating and air conditioning components, industrial valves, automotive parts and
numerous hardware components.
The steel products segment is a leading producer of structural and
mechanical steel tubing and structural pipe with two plants in Chicago,
Illinois, and one plant in Jackson, Mississippi, employing approximately 400
people. Leavitt's structural steel tubing is used in farm equipment,
non-residential construction and other commercial applications. The mechanical
steel tubing is used in a broad range of consumer and commercial products,
including furniture and fixtures, lawn-care products, storage racks, exercise
equipment, bicycles and machine tools. Structural pipe is used for handrails,
scaffolding and communications towers.
Income and expenses not allocated to business segments in computing
operating income include certain corporate expenses, interest expense and
interest income. There are no intersegment sales. The business segment
information is prepared consistent with the accounting policies outlined in Note
1, Significant Accounting Policies, except for income taxes which are recorded
at the corporate level.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------
BRASS STEEL
PRODUCTS PRODUCTS CORPORATE TOTAL
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $287,863 $145,573 -- $433,436
======== ======== ========
Operating income................................... 28,352 870 (650) 28,572
Interest expense, net.............................. -- -- 3,152 3,152
-------- -------- ------ --------
Income before income taxes......................... 28,352 870 (3,802) 25,420
Selected non-cash charges included in operating
income:
Lower of cost-or-market inventory writedowns..... 3,174 3,620 -- 6,794
Depreciation and amortization.................... 5,758 5,118 -- 10,876
Total assets....................................... 84,017 114,124 14,663 212,804
Capital expenditures............................... 11,516 3,716 -- 15,232
</TABLE>
40
<PAGE> 43
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------
<S> <C> <C> <C> <C>
Net sales............................................ $332,334 $155,449 -- $487,783
======== ======== ========
Operating income..................................... 35,288 7,930 (140) 43,078
Interest expense, net................................ -- -- 4,653 4,653
-------- -------- ------ --------
Income before income taxes........................... 35,288 7,930 (4,793) 38,425
Selected non-cash charges included in operating
income:
Depreciation and amortization...................... 4,995 4,880 -- 9,875
Total assets......................................... 92,008 113,584 3,909 209,501
Capital expenditures................................. 11,611 4,163 -- 15,774
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996*
--------------------------------------
<S> <C> <C> <C> <C>
Net sales............................................. $317,733 $49,258 -- $366,991
======== ======= ========
Operating income...................................... 35,207 2,315 (707) 36,815
Interest expense, net................................. -- -- 2,612 2,612
-------- ------- ------ --------
Income before income taxes............................ 35,207 2,315 (3,319) 34,203
Selected non-cash charges included in operating
income:
Depreciation and amortization....................... 5,128 1,582 -- 6,710
Capital expenditures.................................. 3,587 505 -- 4,092
</TABLE>
- - ---------------
* Amounts include acquisition of Leavitt in August 1996.
14. QUARTERLY FINANCIAL INFORMATION (unaudited; in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1998*
-------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net sales........................................ $125,118 $112,253 $102,580 $93,485
Gross profit..................................... $ 18,477 $ 14,757 $ 12,106 $10,068
Net income....................................... $ 6,979 $ 4,721 $ 2,752 $ 1,308
Average shares outstanding:
Basic.......................................... 15,172 15,223 15,233 15,233
Diluted........................................ 15,545 15,698 15,545 15,437
Earnings per share:
Basic.......................................... $ .46 $ .31 $ .18 $ .09
Diluted........................................ $ .45 $ .30 $ .18 $ .08
</TABLE>
41
<PAGE> 44
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales....................................... $126,074 $129,080 $116,215 $116,414
Gross profit.................................... $ 18,152 $ 17,955 $ 16,042 $ 16,222
Net income...................................... $ 6,554 $ 6,366 $ 5,354 $ 5,548
Average shares outstanding:
Basic......................................... 15,115 15,147 15,148 15,152
Diluted....................................... 15,415 15,435 15,536 15,530
Earnings per share:
Basic......................................... $ .43 $ .42 $ .35 $ .37
Diluted....................................... $ .43 $ .41 $ .34 $ .36
</TABLE>
- - ---------------
* The second, third and fourth quarters included lower of cost-or-market
inventory writedowns of $2,424,000, $1,000,000, and $3,370,000, respectively.
42
<PAGE> 45
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is included in the Company's Proxy Statement for
its Annual Meeting of Stockholders to be held in 1999 and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is included in the Company's Proxy Statement for
its Annual Meeting of Stockholders to be held in 1999 and is incorporated herein
by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is included in the Company's Proxy Statement for
its Annual Meeting of Stockholders to be held in 1999 and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is included in the Company's Proxy Statement for
its Annual Meeting of Stockholders to be held in 1999 and is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)1. For a list of Financial Statements filed as part of this Annual Report,
see "Item 8. Financial Statements and Supplementary Data."
2.Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts (page S-1)
All other schedules are omitted because they are not applicable or not
required or because the required information is included in the financial
statements or notes thereto.
3.Exhibits
Exhibits followed by an (*) constitute management contracts or
compensatory plans or arrangements.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Sale and Purchase Agreement dated May 15, 1996, among
Chase Brass Industries, Inc. (the "Company"), Leavitt
Structural Tubing Co. and UNR Industries, Inc.
(incorporated by reference to Exhibit 2.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
2.2 -- Amendment No. 1 to Sale and Purchase Agreement dated July
1, 1996, by and among the Company, Leavitt Tube Company,
Inc., a Delaware corporation and a wholly owned
subsidiary of the Company, Leavitt Structural Tubing Co.
and UNR Industries, Inc. (incorporated by reference to
Exhibit 2.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.3 -- Amendment No. 2 to Sale and Purchase Agreement dated as
of August 29, 1996, among the Company, Leavitt Tube
Company, Inc., Leavitt Structural Tubing Co. and UNR
Industries, Inc. (incorporated by reference to Exhibit
2.4 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on September
13, 1996).
2.4 -- Assignment and Assumption Agreement dated June 27, 1996,
by and between the Company and Leavitt Tube Company, Inc.
(incorporated by reference to Exhibit 2.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
3.1 -- Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998).
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).
10.1 -- Credit Agreement by and among the Company, the banks
referred to therein and PNC Bank, National Association,
as Agent, dated as of August 30, 1996 (incorporated by
reference to Exhibit 99.1 to the Company's Current Report
on Form 8-K filed with the Securities and Exchange
Commission on September 13, 1996).
+10.2 -- First Amendment to Credit Agreement by and among the
Company, the banks referred to therein and PNC Bank,
National Association, as Agent, dated June 16, 1997.
10.3* -- Employment Agreement dated November 10, 1994, between the
Company and Mr. Alonzo (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.4* -- Employment Agreement dated October 28, 1996, between
Chase Brass & Copper Company, Inc., a wholly owned
subsidiary of the Company, and Duane R. Grossett
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
+10.5* -- Chase Industries Inc., 1994 Long-Term Incentive Plan, as
amended.
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+10.6* -- Chase Industries Inc., 1997 Non-Employee Director Stock
Option Plan.
+10.7* -- Chase Industries Inc., 1997 Executive Deferred
Compensation Stock Option Plan.
10.8 -- Indemnification Agreement dated November 10, 1994,
between the Company and Mr. Alonzo (incorporated by
reference to Exhibit 10.6 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
+10.9 -- Schedule identifying additional documents substantially
identical to the Indemnification Agreement included as
Exhibit 10.8 and setting forth the material details in
which those documents differ from that document.
10.10 -- Registration Rights Agreement dated November 10, 1994, by
and among the Company, CVC and Mr. Alonzo (incorporated
by reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.11 -- Asset Purchase Agreement dated May 10, 1990, as amended,
by and among the Company, CBC Acquisition Corporation (a
wholly-owned subsidiary of the Company now named Chase
Brass & Copper Company, Inc. ("CBCC"), Chase Brass &
Copper Company, Incorporated, a Delaware corporation now
named Ken-Chas Reserve Co. ("Old Chase"), BP Exploration
(Alaska), Inc. ("BP") and The Standard Oil Company
("Standard") (incorporated by reference to Exhibit 10.5
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).
10.12 -- Subordinated Promissory Note dated August 24, 1990,
executed by the Company and payable to Old Chase
(incorporated by reference to Exhibit 10.8 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).
10.13 -- Remediation Agreement dated August 24, 1990, by and among
the Company, CBCC, BP and Standard (incorporated by
reference to Exhibit 10.10 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).
10.14 -- Lease Agreement dated October 14, 1985, between UNR
Industries, Inc., UNR-Leavitt Division, as lessee, and
Madison County Economic Development Authority (formerly
known as Industrial Development Authority of Madison
County), as lessor, regarding certain real property and
improvements located in Madison County, Mississippi
("Madison Lease (1985)") (incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10.15 -- Assignment and Consent Agreement dated August 28, 1996,
assigning the Madison Lease (1985) from UNR Industries,
Inc. to Leavitt Tube Company, Inc. ("Leavitt")
(incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.16 -- Lease Agreement dated October 14, 1988, between UNR
Industries, Inc., UNR-Leavitt Division, as lessee, and
Madison County Economic Development Authority (formerly
known as Industrial Development Authority of Madison
County), as lessor, regarding certain real property and
improvements located in Madison County, Mississippi
("Madison Lease (1988)") (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17 -- Assignment and Consent Agreement dated August 28, 1996,
assigning the Madison Lease (1988) from UNR Industries,
Inc. to Leavitt (incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.18* -- CBCC Benefit Restoration Plan (incorporated by reference
to Exhibit 10.16 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
10.19* -- Leavitt Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.20 -- Participation Agreement dated as of December 23, 1997,
among CBCC, as Lessee, ABN Amro Bank N.V., as Lessor, ABN
Amro Bank N.V. and Credit Agricole IndoSuez, as
Participants, and ABN Amro Bank N.V., as Agent, regarding
lease of equipment at CBCC's Montpelier, Ohio, facility
(incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.21 -- Master Lease dated as of December 23, 1997, between ABN
Amro Bank N.V., as Lessor, and CBCC, as Lessee, regarding
lease of equipment at CBCC's Montpelier, Ohio, facility
(incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.22 -- Lease Supplement No. 1 dated as of December 23, 1997,
between ABN Amro Bank N.V., as Lessor, and CBCC, as
Lessee, supplementing the Master Lease filed herewith as
Exhibit 10.21 (incorporated by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.23 -- Lease Supplement No. 2 dated as of February 2, 1998,
between ABN Amro Bank N.V., as Lessor, and CBCC, as
Lessee, supplementing the Master Lease filed herewith as
Exhibit 10.21 (incorporated by reference to Exhibit 10.21
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.24 -- Appendix 1 (Definitions) to Participation Agreement filed
herewith as Exhibit 10.20 and Master Lease filed herewith
as Exhibit 10.21 (incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.25 -- Guarantee dated as of December 23, 1997, from the
Company, as Obligor, to ABN Amro Bank N.V., as Agent,
guaranteeing obligations of CBCC under Participation
Agreement filed herewith as Exhibit 10.20 and Master
Lease filed herewith as Exhibit 10.21 (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
+10.26* -- Change of Control Agreement dated as of March 31, 1997,
as amended, between the Company and Michael T. Segraves.
21 -- List of Subsidiaries of the Company (incorporated by
reference to Exhibit 21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996).
+23 -- Consent of PricewaterhouseCoopers LLP
+27 -- Financial Data Schedules (EDGAR filing only).
</TABLE>
- - ---------------
+ Filed herewith
(b)Reports on Form 8-K
No Current Report on Form 8-K was filed by the Company during the fourth
quarter of 1998.
46
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHASE INDUSTRIES INC.
Date: March 30, 1999 By: /s/ MARTIN V. ALONZO
----------------------------------
Martin V. Alonzo
Chairman of the Board, President
and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARTIN V. ALONZO Chairman of the Board, March 30, 1999
- - ----------------------------------------------------- President, Chief Executive
Martin V. Alonzo Officer and Director (Principal
Executive Officer)
/s/ MICHAEL T. SEGRAVES Chief Financial Officer March 30, 1999
- - ----------------------------------------------------- (Principal Financial Officer
Michael T. Segraves and Principal Accounting
Officer)
/s/ RAYMOND E. CARTLEDGE Director March 30, 1999
- - -----------------------------------------------------
Raymond E. Cartledge
/s/ CHARLES E. CORPENING Director March 29, 1999
- - -----------------------------------------------------
Charles E. Corpening
/s/ DONALD J. DONAHUE Director March 30, 1999
- - -----------------------------------------------------
Donald J. Donahue
/s/ JOHN R. KENNEDY Director
- - -----------------------------------------------------
John R. Kennedy
/s/ THOMAS F. MCWILLIAMS Director March 26, 1999
- - -----------------------------------------------------
Thomas F. McWilliams
/s/ WILLIAM R. TOLLER Director March 30, 1999
- - -----------------------------------------------------
William R. Toller
</TABLE>
47
<PAGE> 50
CHASE INDUSTRIES INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS CHARGED TO
BALANCE AT --------------------- BALANCE AT
BEGINNING COST AND OTHER END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts and
claims................................ $1,286 $720 $-- $946 $1,060
====== ==== == ==== ======
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts and
claims................................ $1,236 $ 84 $-- $ 34 $1,286
====== ==== == ==== ======
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts and
claims................................ $1,036 $201 $-- $ 1 $1,236
====== ==== == ==== ======
</TABLE>
S-1
<PAGE> 51
INDEX TO EXHIBITS
Exhibits followed by an (*) constitute management contracts or compensatory
plans or arrangements.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Sale and Purchase Agreement dated May 15, 1996, among
Chase Brass Industries, Inc. (the "Company"), Leavitt
Structural Tubing Co. and UNR Industries, Inc.
(incorporated by reference to Exhibit 2.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
2.2 -- Amendment No. 1 to Sale and Purchase Agreement dated July
1, 1996, by and among the Company, Leavitt Tube Company,
Inc., a Delaware corporation and a wholly owned
subsidiary of the Company, Leavitt Structural Tubing Co.
and UNR Industries, Inc. (incorporated by reference to
Exhibit 2.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
2.3 -- Amendment No. 2 to Sale and Purchase Agreement dated as
of August 29, 1996, among the Company, Leavitt Tube
Company, Inc., Leavitt Structural Tubing Co. and UNR
Industries, Inc. (incorporated by reference to Exhibit
2.4 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on September
13, 1996).
2.4 -- Assignment and Assumption Agreement dated June 27, 1996,
by and between the Company and Leavitt Tube Company, Inc.
(incorporated by reference to Exhibit 2.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
3.1 -- Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998).
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).
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 -- Credit Agreement by and among the Company, the banks
referred to therein and PNC Bank, National Association,
as Agent, dated as of August 30, 1996 (incorporated by
reference to Exhibit 99.1 to the Company's Current Report
on Form 8-K filed with the Securities and Exchange
Commission on September 13, 1996).
+10.2 -- First Amendment to Credit Agreement by and among the
Company, the banks referred to therein and PNC Bank,
National Association, as Agent, dated June 16, 1997.
10.3* -- Employment Agreement dated November 10, 1994, between the
Company and Mr. Alonzo (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.4* -- Employment Agreement dated October 28, 1996, between
Chase Brass & Copper Company, Inc., a wholly owned
subsidiary of the Company, and Duane R. Grossett
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
+10.5* -- Chase Industries Inc., 1994 Long-Term Incentive Plan, as
amended.
+10.6* -- Chase Industries Inc., 1997 Non-Employee Director Stock
Option Plan.
+10.7* -- Chase Industries Inc., 1997 Executive Deferred
Compensation Stock Option Plan.
10.8 -- Indemnification Agreement dated November 10, 1994,
between the Company and Mr. Alonzo (incorporated by
reference to Exhibit 10.6 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
+10.9 -- Schedule identifying additional documents substantially
identical to the Indemnification Agreement included as
Exhibit 10.8 and setting forth the material details in
which those documents differ from that document.
10.10 -- Registration Rights Agreement dated November 10, 1994, by
and among the Company, CVC and Mr. Alonzo (incorporated
by reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.11 -- Asset Purchase Agreement dated May 10, 1990, as amended,
by and among the Company, CBC Acquisition Corporation (a
wholly-owned subsidiary of the Company now named Chase
Brass & Copper Company, Inc. ("CBCC"), Chase Brass &
Copper Company, Incorporated, a Delaware corporation now
named Ken-Chas Reserve Co. ("Old Chase"), BP Exploration
(Alaska), Inc. ("BP") and The Standard Oil Company
("Standard") (incorporated by reference to Exhibit 10.5
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).
10.12 -- Subordinated Promissory Note dated August 24, 1990,
executed by the Company and payable to Old Chase
(incorporated by reference to Exhibit 10.8 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).
10.13 -- Remediation Agreement dated August 24, 1990, by and among
the Company, CBCC, BP and Standard (incorporated by
reference to Exhibit 10.10 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).
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14 -- Lease Agreement dated October 14, 1985, between UNR
Industries, Inc., UNR-Leavitt Division, as lessee, and
Madison County Economic Development Authority (formerly
known as Industrial Development Authority of Madison
County), as lessor, regarding certain real property and
improvements located in Madison County, Mississippi
("Madison Lease (1985)") (incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10.15 -- Assignment and Consent Agreement dated August 28, 1996,
assigning the Madison Lease (1985) from UNR Industries,
Inc. to Leavitt Tube Company, Inc. ("Leavitt")
(incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.16 -- Lease Agreement dated October 14, 1988, between UNR
Industries, Inc., UNR-Leavitt Division, as lessee, and
Madison County Economic Development Authority (formerly
known as Industrial Development Authority of Madison
County), as lessor, regarding certain real property and
improvements located in Madison County, Mississippi
("Madison Lease (1988)") (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10.17 -- Assignment and Consent Agreement dated August 28, 1996,
assigning the Madison Lease (1988) from UNR Industries,
Inc. to Leavitt (incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.18* -- CBCC Benefit Restoration Plan (incorporated by reference
to Exhibit 10.16 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
10.19* -- Leavitt Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.20 -- Participation Agreement dated as of December 23, 1997,
among CBCC, as Lessee, ABN Amro Bank N.V., as Lessor, ABN
Amro Bank N.V. and Credit Agricole IndoSuez, as
Participants, and ABN Amro Bank N.V., as Agent, regarding
lease of equipment at CBCC's Montpelier, Ohio, facility
(incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.21 -- Master Lease dated as of December 23, 1997, between ABN
Amro Bank N.V., as Lessor, and CBCC, as Lessee, regarding
lease of equipment at CBCC's Montpelier, Ohio, facility
(incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.22 -- Lease Supplement No. 1 dated as of December 23, 1997,
between ABN Amro Bank N.V., as Lessor, and CBCC, as
Lessee, supplementing the Master Lease filed herewith as
Exhibit 10.21 (incorporated by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.23 -- Lease Supplement No. 2 dated as of February 2, 1998,
between ABN Amro Bank N.V., as Lessor, and CBCC, as
Lessee, supplementing the Master Lease filed herewith as
Exhibit 10.21 (incorporated by reference to Exhibit 10.21
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.24 -- Appendix 1 (Definitions) to Participation Agreement filed
herewith as Exhibit 10.20 and Master Lease filed herewith
as Exhibit 10.21 (incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.25 -- Guarantee dated as of December 23, 1997, from the
Company, as Obligor, to ABN Amro Bank N.V., as Agent,
guaranteeing obligations of CBCC under Participation
Agreement filed herewith as Exhibit 10.20 and Master
Lease filed herewith as Exhibit 10.21 (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
+10.26* -- Change of Control Agreement dated as of March 31, 1997,
as amended, between the Company and Michael T. Segraves.
21 -- List of Subsidiaries of the Company (incorporated by
reference to Exhibit 21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996).
+23 -- Consent of PricewaterhouseCoopers LLP
+27 -- Financial Data Schedules (EDGAR filing only).
</TABLE>
- - ---------------
+ Filed herewith
<PAGE> 1
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT dated as of June 16, 1997 (the
"Amendment") is made by and among CHASE INDUSTRIES INC. (formerly, "Chase Brass
Industries, Inc."), a Delaware corporation (the "Borrower"), the Guarantors and
the Banks referred to in the Credit Agreement (as defined below) and PNC BANK,
NATIONAL ASSOCIATION, a national banking association, as agent for the Banks
under the Credit Agreement (the "Agent").
WITNESSETH:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent are parties
to that certain Credit Agreement dated as of August 30, 1996 (as hereafter
amended, the "Credit Agreement");
WHEREAS, the parties to the Credit Agreement desire to amend the provisions
thereof as set forth herein;
WHEREAS, some of the modifications to the Credit Agreement described herein
relate to transactions described in that certain Letter dated as of June 7, 1997
(the "June 7, 1997 Letter") from Borrower's counsel, Fulbright & Jaworski,
L.L.P., to counsel for the Agent, Buchanan Ingersoll Professional Corporation
set forth on Exhibit 1 hereto; and
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have meanings assigned to them in the Credit Agreement.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT RELATED TO THE PERMITTED SYNTHETIC LEASE.
The Credit Agreement is hereby amended as follows:
A. Defined Terms (Section 1.1).
(a) Permitted Liens.
Clause (vii) of the definition of "Permitted Liens" is hereby amended
and restated in its entirety to read as set forth below:
"(vii) Claims or Liens in favor of lessors on assets of the Loan
Parties leased under the Permitted Synthetic Lease or under other leases
permitted under Section 8.2(d)(i) ("Other Permitted Secured Leases") or
claims or Liens on assets of Unrestricted Subsidiaries or Unrestricted
Joint Ventures in favor of lessors under leases for such assets;"
<PAGE> 2
(b) Amended Definitions.
The title of the definition of "Permitted Secured Leases" is
hereby amended to read: "Other Permitted Secured Leases."
(c) New Definitions.
The following new definition is hereby added to Section 1.1 of
the Credit Agreement in appropriate alphabetical order:
"Permitted Synthetic Lease shall mean a lease by CBCC, as lessee,
and a bank or affiliate of a bank, as lessor (the "Owner") for production
equipment utilized at the manufacturing facility of CBCC located in
Montpelier and/or Holiday City, Ohio with respect to which the total annual
lease payments by CBCC shall not exceed $2,500,000 and the purchase price
to be paid by the Owner for such equipment shall not exceed $15,000,000.
B. Indebtedness (Section 8.2(d)).
Clause (i) of Section 8.2(d) is hereby amended and restated to read as
follows:
"(i) (A) the Permitted Synthetic Lease and (B) Other Permitted
Secured Leases and Permitted Purchase Money Indebtedness of the Loan
Parties provided that the unpaid aggregate principal amount of items
permitted under this clause (B) does not exceed $5,000,000;"
2. AMENDMENTS TO CREDIT AGREEMENT RELATED TO CHANGES IN THE APPLICABLE
PERCENTAGE, REVOLVING CREDIT EURO-RATE SPREAD AND TERM LOAN EURO-RATE
SPREAD.
The Credit Agreement is hereby amended as follows:
A. Commitment Fees (Section 2.3).
The grid in Section 2.3 (Commitment Fees) which immediately follows
the words, "Letters of Credit Outstanding:" is hereby amended and restated to
read as follows:
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Leverage Ratio Level in Effect Applicable Percentage
- - ------------------------------ ---------------------
<S> <C>
I .15%
II .175
III .20
IV .225
V .275
VI .325%
</TABLE>
B. Revolving Credit Euro-Rate Option (Section 4.1(a)(ii)).
The grid in Section 4.1(a)(ii) (Revolving Credit Euro-Rate Option)
which immediately follows the words "as follows:" is hereby amended and restated
to read as set forth below:
<TABLE>
<CAPTION>
Leverage Ratio Level in Effect Revolving Credit Euro-Rate Spread
- - ------------------------------ ---------------------------------
<S> <C>
I .375%
II .50%
III .625%
IV .75%
V 1.00%
VI 1.25%
</TABLE>
C. Term Loan Euro-Rate Option. (Section 4. 1 (b)(ii)).
(i) The grid in Section 4.1(b)(ii) (Term Loan Euro-Rate Option) which
immediately follows the words "as follows:" is hereby amended and restated to
read as set forth below:
-3-
<PAGE> 4
<TABLE>
<CAPTION>
Leverage Ratio Level in Effect Term Loan Euro-Rate Spread
- - ------------------------------ --------------------------
<S> <C>
I .375%
II .50%
III .625%
IV .75%
V 1.00%
VI 1.25%
</TABLE>
3. AMENDMENTS TO CREDIT AGREEMENT RELATED TO TERM LOAN BORROWING TRANCHES
AND PREPAYMENTS.
The Credit Agreement is hereby amended as follows:
A. Interest Periods (Section 4.2).
Clause (c) of Section 4.2 is hereby amended and restated to read
as follows:
"(c) the Euro-Rate Portion for each Interest Period shall be
not less than $2,000,000 and in integral multiples of $1,000,000,
except that the Euro-Rate Portion applicable to the Term Loans may be
in an integral multiple of less than $1,000,000 if all outstanding
Term Loans bear interest under the Euro-Rate Option and the amount of
such outstanding Term Loans is not an integral multiple of
$1,000,000;"
B. Voluntary Prepayments (Section 5.4(a)(z)).
Clause (z) contained in Subsection (a) of Section 5.4 (Voluntary
Prepayments) is hereby amended and restated to read as follows:
"(z) the total principal amount of such prepayment, which
shall not be less than $250,000 in the case of Revolving Credit Loans
and $2,000,000 and an integral multiple of $500,000 in the case of
Term Loans, provided that the Borrower may make a prepayment of the
Term Loans in an amount which is not an integral multiple of $500,000
if such payment shall cause the amount of outstanding Term Loans to
become an integral multiple of $500,000."
4. AMENDMENTS TO CREDIT AGREEMENT RELATED TO THE NEW REVOLVING CREDIT FEDERAL
FUNDS RATE OPTION.
The Credit Agreement is hereby amended as follows:
-4-
<PAGE> 5
A. Amended Definitions.
The definitions listed below are amended and restated to read as set
forth below:
"Borrowing Tranche shall mean at the time in question that
portion of the Loans accruing interest (i) under any Base Rate Option
all of which Loans shall be deemed to be one Borrowing Tranche, (ii)
under the Federal Funds Rate Option all of which Loans shall be deemed
to be one Borrowing Tranche, (iii) under the Revolving Credit
Euro-Rate Option having the same Borrowing Date, interest rate and
Euro-Rate Interest Period, all of which Revolving Credit Loans having
such same Borrowing Date, interest rate and Interest Period shall
constitute one Borrowing Tranche and (iv) under the Term Loan
Euro-Rate Option having the same Borrowing Date, interest rate and
Interest Period, all of which Term Loans having such same Borrowing
Date, interest rate and Interest Period shall constitute one Borrowing
Tranche.
Interest Rate Option shall mean the Term Loan Euro-Rate Option,
Revolving Credit Euro-Rate Option, Term Loan Base Rate Option, the
Revolving Credit Base Rate Option or the Revolving Credit Federal
Funds Rate Option."
B. New Definitions.
The following new definitions are hereby added to Section 1.1 of the
Credit Agreement in appropriate alphabetical order:
"Federal Funds Rate Option shall mean the Revolving Credit
Federal Funds Rate Option.
Revolving Credit Federal Funds Rate Option shall mean the option
of the Borrower to have Revolving Credit Loans bear interest at the
rate and under the terms and conditions set forth in Section
4.1(a)(iii).
Revolving Credit Federal Funds Rate Spread shall have the meaning
assigned to such term in Section 4.1(a)(iii)."
C. Loan Requests (Section 2.4).
Section 2.4(a) (Revolving Credit Loan Requests) is hereby amended and
restated to read as set forth below:
"(a) Revolving Credit Loan Requests.
Except as otherwise provided herein, the Borrower may from time
to time prior to the Expiration Date request the Banks to make
Revolving Credit Loans, or renew or convert the Interest Rate Option
applicable to existing
-5-
<PAGE> 6
Revolving Credit Loans, by the delivery to the Agent, not later than
9:30 a.m. Pittsburgh time (i) two (2) Business Days prior to the
proposed Borrowing Date (which shall be a Settlement Date) with
respect to the making of Revolving Credit Loans to which the Euro-Rate
Option applies or the conversion to or the renewal of the Euro-Rate
Option for any Revolving Credit Loans; and (ii) one (1) Business Day
prior to either the proposed Borrowing Date (which shall be a
Settlement Date) with respect to the making of a Revolving Credit Loan
to which the Base Rate Option or the Federal Funds Rate Option applies
or the last day of the preceding Interest Period with respect to the
conversion to the Base Rate Option or the Federal Funds Rate Option
for any Revolving Credit Loan, of a duly completed request therefor
substantially in the form of Exhibit 2.4(a) hereto or a request by
telephone immediately confirmed in writing by letter, facsimile or
telex (each, a "Revolving Credit Loan Request"), it being understood
that the Agent may rely on the Authorized Officer making such a
telephonic request without the necessity of receipt of such written
confirmation. Each Revolving Credit Loan Request shall be irrevocable
and shall specify (i) the proposed Borrowing Date (which shall be a
Settlement Date); (ii) the aggregate amount of the proposed Revolving
Credit Loans comprising the Borrowing Tranche, which shall be in
integral multiples of $1,000,000 and not less than $2,000,000 for
Revolving Credit Loans to which the Euro-Rate Option applies and not
less than the lesser of $250,000 or the difference between the
Revolving Credit Commitments and the Revolving Facility Usage for
Revolving Credit Loans to which the Revolving Credit Base Rate Option
or Revolving Credit Federal Funds Rate Option applies; (iii) whether
the Euro-Rate Option, the Federal Funds Rate Option or the Base Rate
Option shall apply to the proposed Revolving Credit Loans comprising
the Borrowing Tranche; and (iv) in the case of Revolving Credit Loans
to which the Euro-Rate Option applies, an appropriate Interest Period
for the proposed Revolving Credit Loans comprising the Borrowing
Tranche.
(b) Swing Loans.
Except as otherwise provided herein, the Borrower may from
time to time prior to the Expiration Date request Swing Loans not
later than 11:00 a.m. Pittsburgh time on the proposed Borrowing Date
by written request to PNC substantially in the form of Exhibit 2.4(a)
hereto or a request by telephone immediately confirmed in writing by
letter, facsimile or telex (each, a "Swing Loan Request"), it being
understood that PNC may rely on the authority of any person making a
telephonic request without the necessity of receipt of written
confirmation. Each Swing Loan Request shall be irrevocable and shall
specify (i) the proposed Borrowing Date (which shall be a Settlement
Date); (ii) the aggregate amount of the proposed Swing Loans
comprising the Borrowing
-6-
<PAGE> 7
Tranche; and (iii) whether the Base Rate Option or the Federal Funds
Rate Option shall apply to the proposed Swing Loans comprising the
Borrowing Tranche"
D. Borrowings to Repay Swing Loans.
Section 2.9 (Borrowings to Repay Swing Loans) is hereby amended
and restated to read as set forth below:
"2.9 Borrowings to Repay Swing Loans.
PNC may at its option, exercisable at any time for any reason
whatsoever, demand repayment of the Swing Loans, and each Bank shall
make a Revolving Credit Loan in an amount sufficient to result in each
Bank having its Ratable Share of all outstanding Revolving Credit
Loans after repayment of the Swing Loans under this Section D,
provided that no Bank shall be obligated in any event to make
Revolving Credit Loans in excess of its Revolving Credit Commitment.
Revolving Credit Loans made under this Section shall bear interest at
the Base Rate Option or Federal Funds Rate Option as applicable to the
Swing Loan being repaid and shall be deemed to have been properly
requested in accordance with Section 2.4(c) without regard to any of
the requirements of that provision. PNC shall provide notice to the
Banks (which may be telephonic or written notice by letter, facsimile
or telex) that such Revolving Credit Loans are to be made under this
Section D and of the apportionment among the Banks, and the Banks
shall be unconditionally obligated to fund such Revolving Credit Loans
(whether or not the conditions specified in Section 7.2 are then
satisfied) by 3:00 p.m. Pittsburgh time on the Business Day on which
the Banks receive PNC's notice provided that PNC has delivered such
notice by 12:00 noon on such Business Day, and if PNC delivers such
notice after 12:00 noon on such Business Day, then by 3:00 p.m.
Pittsburgh time on the Business Day next succeeding the date on which
the Banks receive such notice from PNC."
E. Interest Rate Options (Section 4.1).
The first Paragraph of Section 4.1 (Interest Rate Options),
beginning "The Borrower" and ending "the Revolving Credit Loans" is hereby
amended and restated to read as follows:
"The Borrower shall pay interest in respect of the
outstanding unpaid principal amount of the Loans as selected by it
from the Revolving Credit Base Rate Option, Revolving Credit Federal
Funds Rate Option or Revolving Credit Euro-Rate Option set forth below
applicable to the Revolving Credit Loans or the Term Loan Base Rate
Option or Term Loan Euro-Rate Option set forth below applicable to the
Term Loans, it being understood that subject to the provisions of this
Agreement, the Borrower may select different Interest Rate
-7-
<PAGE> 8
Options and different Interest Periods to apply simultaneously to the
Loans comprising different Borrowing Tranches and may convert to or
renew one or more Interest Rate Options with respect to all or any
portion of the Loans comprising any Borrowing Tranche provided that
there shall not be at any one time outstanding more than seven (7)
Borrowing Tranches in the aggregate (including the Base Rate Option
Borrowing Tranche and the Federal Funds Rate Option Borrowing Tranche,
each of which shall be deemed to be one Borrowing Tranche). The
Borrower shall have the right to select between the Base Rate Option
and the Federal Funds Rate Option to be applicable to the Swing Loans.
The Borrower shall have the right to select from the following
Interest Rate Options applicable to the Revolving Credit Loans:"
F. Revolving Credit Federal Funds Rate Option (New Section
4.1(a)(iii)).
A new Section 4.1(a)(iii) is hereby added to the Credit Agreement
to immediately follow Section 4.1(a)(ii) and shall read as follows:
"(iii) Revolving Credit Federal Funds Rate Option.
A fluctuating rate per annum (computed on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed)
equal to the Federal Funds Effective Rate plus a percentage rate per
annum (the "Revolving Credit Federal Funds Rate Spread"), which shall
be based on the Leverage Ratio Level then in effect as set forth in
the grid below. The Federal Funds Effective Rate shall change
automatically from time to time and the Revolving Credit Federal Funds
Rate Spread shall change at the times described below.
<TABLE>
<CAPTION>
Leverage Ratio Level in Effect Revolving Credit Federal Funds-Rate Spread
- - ------------------------------ ------------------------------------------
<S> <C>
I .75%
II .875%
III 1.00%
IV 1.125%
V 1.375%
VI 1.625%
</TABLE>
The Revolving Credit Federal Funds Rate Spread applicable to all Revolving
Credit Loans outstanding under the Revolving Credit Federal Funds Option
shall change on the effective date of any change in the Leverage Ratio
Level pursuant to the definition of Leverage Ratio Level."
-8-
<PAGE> 9
G. Default Interest.
The words "and Swing Loans" which appear in the first sentence of
Section 4.3 (Default Interest) immediately after the words, "at a rate per annum
equal to two hundred (200) basis points (2% per annum) above the rate payable on
Revolving Credit Loans subject to the Base Rate Option" and before the words
"from time to time" are hereby deleted.
H. Interest Payment Dates (Section 5.3).
Section 5.3 (Interest Payment Dates) is hereby amended and restated to
read as follows:
"5.3 Interest Payment Dates.
Interest on Loans to which a Base Rate Option or the Federal
Funds Rate Option applies shall be due and payable in arrears on the first
Business Day of each October, January, April and July after the date
hereof, on the Expiration Date and upon acceleration of the Notes. Interest
on Loans to which a Euro-Rate Option applies shall be due and payable on
the last day of each Interest Period for those Loans and, if such Interest
Period is longer than three months, also on each quarterly anniversary of
such first day of such Interest Period."
I. Voluntary Prepayments (Section 5.4).
Clause (i) of subsection (a) of Section 5.4 (Voluntary Prepayments) is
hereby amended and restated to read as follows:
"(i) on any Business Day with respect to the Swing Loans and on
any day which is a Settlement Date with respect to any Revolving Credit
Loan to which the Federal Funds Rate Option applies or to any Revolving
Credit Loan or Term Loan to which the Base Rate Option applies,"
The last paragraph of clause (a) of Section 5.4, which begins "Unless
otherwise specified" and ends "subject to Section 5.5(b) hereof", is hereby
amended and restated to read as set forth below:
"Unless otherwise specified by Borrower with respect to
prepayments of the Euro-Rate Portion of the Loans permitted under (ii) or
(iii) above, all prepayments shall be applied first to Loans subject to the
Base Rate Option, then to Loans subject to the Federal Funds Rate Option
and then to the Loans subject to the Euro-Rate Option, subject to Section
5.5(b) hereof."
-9-
<PAGE> 10
J. Mandatory Prepayments--Application Among Interest Rate Options
(Section 5.7(e)).
Section 5.7(e), Application Among Interest Rate Options, is hereby
amended and restated to read as follows:
"All prepayments required pursuant to this Section 5.7 shall
first be applied among the Interest Rate Options to the principal amount of
the Loans subject to a Base Rate Option, then to Loans subject to the
Federal Funds Rate Option and then to Loans subject to the Euro-Rate
Option. In accordance with Section 5.5(b), the Borrower shall indemnify the
Banks for any loss or expense, including loss of margin, incurred with
respect to any such prepayments applied against Loans subject to a
Euro-Rate Option on any day other than the last day of the applicable
Interest Period."
K. Amendments to Exhibits.
The following exhibits to the Credit Agreement are hereby amended and
restated in the form of such exhibits attached hereto:
Exhibit 2.4(a) - Revolving Credit Loan Request
Exhibit 2.4(b) - Swing Loan Request
5. AMENDMENTS RELATED TO NEW STOCK OPTION PLANS AND CHANGES IN THE OWNERSHIP
OF THE BORROWER.
A. Capitalization and Ownership.
The warranty contained in Section 6.1(b) is hereby amended and
restated to read as follows:
"(b) Capitalization and Ownership.
The authorized capital stock of Borrower consists of 25,000,000
shares of Voting Common Stock, which are issued, outstanding and owned as
indicated on Schedule 6.1 (b) hereto, 5,000,000 shares of Nonvoting Common
Stock, 4,100,079 of which are issued and outstanding on the Closing Date
and 1,000,000 shares of preferred stock (collectively "Borrower Shares"),
none of which are issued and outstanding. There are no options, warrants or
other rights outstanding to purchase any such Borrower Shares, except
pursuant to the Company's 1994 Long Term Incentive Plan, 1997 Non-Employee
Director Stock Option Plan and 1997 Executive Deferred Compensation Stock
Option Plan. Borrower is not a party to any agreement respecting the right
of the holders of the Borrower Shares to vote such Borrower Shares, except
for the Voting Agreement
-10-
<PAGE> 11
of CVC and MVA. The Borrower has delivered a true and correct copy of the
Voting Agreement to the Agent."
B. Amendment to Schedules.
The text of item 4 (Employment Agreement of Robert Meyer) on Schedule
6.1(q), Material Contracts, is hereby deleted and the words "intentionally
omitted" are inserted in lieu thereof. The following schedules (or portions of
schedules) to the Credit Agreement are hereby amended and restated in the form
of such schedules (or such portions of schedules) attached hereto:
Schedule 6.1 (b) - Holders of Voting Common Stock of
Borrower
Schedule 6.1(q) (Page 4 only) - Material Contracts.
6. AMENDMENTS AND WAIVERS RELATED TO TRANSFERS OF CERTAIN INTELLECTUAL
PROPERTY FROM CBCC TO LEAVITT TUBE.
A. Dispositions of Assets of the Loan Parties. A new clause (viii) is
hereby added to Section 8.2(h), Dispositions of Assets of the Loan Parties, to
read as set forth below and to follow clause (vii) and clauses (viii) and (ix)
are renumbered as clauses (ix) and (x), respectively.
"(ix) any sale, transfer or lease of assets by one Loan Party to
another Loan Party;"
B. Liquidations, Mergers, Consolidations, Acquisitions. Clause (1),
Transaction With Other Loan Parties, of Section 8.2(j), Liquidations, Mergers,
Consolidation, Acquisitions, is hereby amended and restated to read as set forth
below:
"(1) Transactions Among Loan Parties. Any Loan Party other than the
Borrower may merge into another Loan Party or the Borrower and any Loan
Party may acquire by purchase, lease or otherwise all or substantially all
of the assets or capital stock of another Loan Party other than the
Borrower, provided that if any Loan Party acquires any stock of another
Loan Party the acquirer shall amend Schedule A to the Pledge Agreement and
deliver to the Agent the certificates representing the new or acquired
shares, together with appropriate executed undated stock powers, at least
two(2) Business Days before the date on which such acquirer acquires such
shares."
C. Affiliate Transactions.
Section 8.2(k), Affiliate Transactions, is hereby amended and restated
to read as follows:
"(k) Affiliate Transactions.
-11-
<PAGE> 12
Each of the Loan Parties shall not enter into or carry out any
transaction with or among any Affiliates (including, without limitation,
purchasing property or services from, or selling property or services to,
any Affiliate, Unrestricted Subsidiary, Unrestricted Joint Venture or other
Person, but excluding compensation arrangements approved by such Loan
Party's board of directors, Equity Contributions permitted under Section
8.2(g) and transactions solely by and among Loan Parties), unless such
transaction is not otherwise prohibited by this Agreement and is entered
into in the ordinary course of business upon arm's length terms and
conditions and is in accordance with all applicable Law.
D. Waivers.
The Banks hereby waive any violations of Sections 8.2(h), (j) and (k)
of the Credit Agreement by the Loan Parties resulting from the transactions
described in Section II of the June 7, 1997 Letter to the extent any such
transaction occurred prior to the effective date of this Amendment.
E. Schedules.
The following schedules (or portions of schedules) to the Credit
Agreement are hereby amended and restated in the form of such schedules (or such
portions of schedules) attached hereto:
Schedule 6.1 (c) Subsidiaries of Borrower
Page 3 of Schedule 6.1(m) - Patents, Trademarks, Copyrights and
Licenses
Schedule A to the Pledge Agreement, Description of Stock Pledged as
Collateral, is hereby amended and restated in the form of such Schedule A to the
Pledge Agreement attached hereto.
7. AMENDMENTS RELATED TO CHANGE OF NAME OF THE BORROWER.
It is acknowledged that the Borrower changed its name, effective May
14, 1997, from "Chase Brass Industries, Inc." to "Chase Industries Inc." All
references to "Chase Brass Industries, Inc." contained in the Credit Agreement,
or the exhibits or schedules thereto, the Notes, the Intercompany Loan
Subordination Agreement, the Intercompany Notes, the Agent's Fee Letter, any
Application, the Guaranty Agreement, the Pledge Agreement and any other Loan
Document are hereby amended to read: "Chase Industries Inc." The Borrower is
hereby instructed to revise appropriately the references to the Borrower in all
compliance certificates, notice certificates, loan requests and other documents
which the Borrower delivers to the Agent or the Banks after May 14, 1997 to
reflect the foregoing name change, provided that it is
-12-
<PAGE> 13
acknowledged that any reference to "Chase Brass Industries, Inc." in any such
documents shall be deemed to refer to Chase Industries Inc.
8. AMENDMENT TO ADDRESSES FOR NOTICES.
Schedule 11.6, Addresses for Notices, is hereby amended and restated to
read as set forth on Schedule 11.6 hereto.
9. EFFECTIVE DATE OF CHANGES IN INTEREST RATES AND COMMITMENT Fees.
The Applicable Percentage (with respect to Commitment Fees) and Revolving
Credit Euro-Rate Spread and Term Loan Euro-Rate Spread shall change in
accordance with the grids set forth in Section 2 of this Amendment on June 16,
1997.
10. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to Banks that after giving
effect to this Amendment, the representations and warranties of Borrower
contained in the Credit Agreement are true and correct on and as of the date
hereof with the same force and effect as though made by Borrower on such date,
except to the extent that any such representation or warranty expressly relates
solely to a previous date. After giving effect to this Amendment, the Borrower
is in compliance with all terms, conditions, provisions, and covenants contained
in the Loan Agreement and the execution, delivery, and performance of this
Amendment have been duly authorized by all necessary corporate action, require
no governmental approval, and will neither contravene, conflict with, nor result
in the breach of any law, charter, articles, or certificate of incorporation,
bylaws, or agreement governing or binding upon Borrower or any of its property;
and, no Event of Default or Potential Default has occurred and is continuing or
would result from the making of this Amendment.
11. ASSIGNMENT OF NATIONAL CITY BANK INTEREST.
The parties hereto acknowledge that National City Bank is selling and
assigning its outstanding Loans and Commitment and other rights and interests
under the Credit Agreement (the "NCB Interest") to PNC Bank, National
Association effective on the effective date of this Amendment.
12. CONDITIONS OF EFFECTIVENESS OF AMENDMENT.
This Amendment shall be effective upon execution by each of the Borrower,
the Guarantors, the Banks and the Agent and the satisfaction of all of the
following conditions:
A. Representations and Warranties.
The representations and warranties contained in Section 6 of this
Amendment shall be true and correct.
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<PAGE> 14
B. Secretary's Certificate.
There shall be delivered to the Agent for the benefit of each Bank a
certificate dated the effective date of this Amendment and signed by the
Secretary or an Assistant Secretary of each of the Loan Parties, certifying as
appropriate as to:
(i) all action taken by each Loan Party in connection with this
Amendment; and
(ii) the names of the officer or officers authorized to sign this
Amendment and the true signatures of such officer or officers.
C. Opinion of Counsel.
There shall be delivered to the Agents for the benefit of each Bank
written opinion of counsel for the Borrower and its Subsidiaries dated as of the
effective date of this Amendment and in form and substance satisfactory to the
Agents and their counsel as to the matters set forth in Exhibit 7(C) hereto.
D. Schedules and Exhibits.
The Borrower shall have delivered to the Agent each of the Schedules
to this Amendment and the parties shall have completed and attached hereto each
of the Exhibits to this Amendment.
E. Deliveries Under the Pledge Agreement.
The Borrower or CBCC shall deliver to the Agent for the benefit of the
Banks the following documents:
(a) New Stock Certificates and Stock Powers--Shares of Leavitt Tube
Owned by CBCC. New stock certificate for 965 shares of common
stock of Leavitt Tube in issued to CBCC, together with an
appropriate stock power signed and undated.
(b) UCC-1 Financing Statements--CBCC as Debtor--UCC-1 financing
statements in forms acceptable to the Agent executed by CBCC, as
debtor, to be filed in all applicable jurisdictions as necessary
to perfect the Agent's security interest in the pledged shares
described in clause (a) above. Such jurisdictions shall include
the Secretary of State of Ohio and the Williams County Ohio
recorder's office.
(c) New Stock Certificates and Stock Powers--Shares of Leavitt Tube
and CBCC Owned by the Borrower. New stock certificates for the
shares held by the Borrower in the Subsidiaries listed below.
Each such new
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<PAGE> 15
certificate shall name "Chase Industries, Inc." (and not "Chase
Brass Industries, Inc.") as the owner of such shares and shall be
accompanied by an appropriate stock power relating to such
certificate which shall be signed but not dated. (The Agent shall
return to the Loan Parties the stock certificates for such shares
and the related stock powers currently in the possession of the
Agent.)
<TABLE>
<CAPTION>
Company Shares
------- ------
<S> <C>
CBCC 1,000 shares of common stock
Leavitt Tube 1,000 shares of common stock
</TABLE>
(d) UCC-1 Statements and Amendments--Borrower as Debtor. Amendments
to the following financing statements, and/or new financing
statements replacing or supplementing such statements, in forms
acceptable to the Agent, changing the name of the debtor thereon
from "Chase Brass Industries, Inc." to "Chase Industries, Inc.":
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------
SECURED FILING FILE DATE
DEBTOR PARTY OFFICE NUMBER FILED
- - -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CBI Agent Secretary of State - 180172 9/11/96
New York
- - -----------------------------------------------------------------------
CBI Agent City Register, New 96PN40713 9/13/96
York County, NY
- - -----------------------------------------------------------------------
CBI Agent Secretary of State - AN02150 9/11/96
Ohio
- - -----------------------------------------------------------------------
CBI Agent Recorder, Williams 59149 9/11/96
County, OH
- - -----------------------------------------------------------------------
</TABLE>
13. REFERENCES TO CREDIT AGREEMENT; INCONSISTENCY.
On and after the effective date of this Amendment, any reference to the
Credit Agreement in any document, instrument, or agreement shall hereafter mean
and include the Credit Agreement as amended hereby. In the event of
inconsistency between the terms or provisions hereof and the terms or provisions
of the Credit Agreement or any Loan Document, the terms and provisions hereof
shall control.
14. FORCE AND EFFECT.
Each of the Guarantors and the Borrower reconfirms, restates, and ratifies
the Credit Agreement and all other documents executed in connection therewith
except to the extent any
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<PAGE> 16
such documents are expressly modified by this Amendment and confirms that all
such documents have remained in full force and effect since the date of their
execution.
15. GOVERNING LAW.
This Amendment shall be deemed to be a contract under the laws of the
Commonwealth of Pennsylvania and for all purposes shall be governed by and
construed and enforced in accordance with the internal laws of the Commonwealth
of Pennsylvania without regard to its conflict of laws principles.
16. COUNTERPARTS.
This Amendment may be signed in any number of counterparts each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
[SIGNATURES BEGIN ON NEXT PAGE]
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<PAGE> 17
[SIGNATURE PAGE 1 OF 3 TO FIRST AMENDMENT]
<TABLE>
<S> <C>
BORROWER:
ATTEST: CHASE INDUSTRIES INC.
/s/ Julie E. Wonderly By: /s/ Michael T. Segraves
- - -------------------------------------- --------------------------------------
Name: Julie E. Wonderly Name: Michael T. Segraves
--------------------------------- ------------------------------------
Title: Executive Secretary Title: Chief Financial Officer
-------------------------------- -----------------------------------
GUARANTORS:
ATTEST: CHASE BRASS & COPPER COMPANY,
INC.
/s/ Julie E. Wonderly By: /s/ Michael T. Segraves
- - -------------------------------------- --------------------------------------
Name: Julie E. Wonderly Name: Michael T. Segraves
--------------------------------- ------------------------------------
Title: Executive Secretary Title: Chief Financial Officer
-------------------------------- -----------------------------------
ATTEST: LEAVITT TUBE COMPANY, INC.
/s/ Julie E. Wonderly By: /s/ Michael T. Segraves
- - -------------------------------------- --------------------------------------
Name: Julie E. Wonderly Name: Michael T. Segraves
--------------------------------- ------------------------------------
Title: Executive Secretary Title: Chief Financial Officer, Vice
-------------------------------- -----------------------------------
President and Assistant Treasurer
-----------------------------------
ATTEST: HOLCO CORPORATION
/s/ Julie E. Wonderly By: /s/ Michael T. Segraves
- - -------------------------------------- --------------------------------------
Name: Julie E. Wonderly Name: Michael T. Segraves
--------------------------------- ------------------------------------
Title: Executive Secretary Title: Chief Financial Officer, Vice
-------------------------------- -----------------------------------
President and Assistant Treasurer
-----------------------------------
</TABLE>
<PAGE> 18
[SIGNATURE PAGE 2 OF 3 TO FIRST AMENDMENT]
<TABLE>
<S> <C>
AGENT AND BANKS:
PNC BANK, NATIONAL ASSOCIATION,
individually and as the Agent
By: /s/ Mark Rutherford
-----------------------------------
Name: Mark Rutherford
-----------------------------------
Title: Vice-President
----------------------------------
ABN AMRO BANK N.V.
By: ABN AMRO NORTH AMERICA,
INC., its agent
By: /s/ Christopher S. Helmicci
-----------------------------------
Name: Christopher S. Helmicci
-----------------------------------
Title: Vice President
----------------------------------
By: /s/ Kathryn C. Toth
-----------------------------------
Name: Kathryn C. Toth
-----------------------------------
Title: Group Vice President and
----------------------------------
Operational Manager
----------------------------------
COMERICA BANK
By: /s/ Lee J. Santioni
-----------------------------------
Name: Lee J. Santioni
-----------------------------------
Title: First Vice President
----------------------------------
</TABLE>
<PAGE> 19
[SIGNATURE PAGE 3 OF 3 TO FIRST AMENDMENT]
<TABLE>
<S> <C>
IBJ SCHRODER BANK & TRUST
COMPANY
By: /s/ Mary McLaughlin
-----------------------------------
Name: Mary McLaughlin
-----------------------------------
Title: Vice President
----------------------------------
NATIONAL CITY BANK
By: /s/ M. M. Orsini
-----------------------------------
Name: M. M. Orsini
-----------------------------------
Title: Vice President
----------------------------------
NBD BANK
By: /s/ Daniel J. Pienta
-----------------------------------
Name: Daniel J. Pienta
-----------------------------------
Title: Vice President
----------------------------------
STAR BANK, N.A.
By: /s/ David J. Dannemiller
-----------------------------------
Name: David J. Dannemiller
-----------------------------------
Title: Vice President
----------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.4
CHASE INDUSTRIES INC.
1994 LONG-TERM INCENTIVE PLAN
(AS AMENDED AS OF MAY 14, 1997)
SCOPE AND PURPOSE OF PLAN
Chase Industries Inc., a Delaware corporation (the "Corporation"), has
adopted this 1994 Long-Term Incentive Plan (the "Plan") to provide for the
granting of:
(a) Incentive Options (hereafter defined) to certain Key Employees
(hereafter defined);
(b) Nonstatutory Options (hereafter defined) to certain Key Employees
and Non-Employee Directors (hereafter defined);
(c) Restricted Stock Awards (hereafter defined) to certain Key
Employees; and
(d) Stock Appreciation Rights (hereafter defined) to certain Key
Employees.
The purpose of the Plan is to provide an incentive for Key Employees
and directors of the Corporation or its Subsidiaries (hereafter defined) to
remain in the service of the Corporation or its Subsidiaries, to extend to them
the opportunity to acquire a proprietary interest in the Corporation so that
they will apply their best efforts for the benefit of the Corporation, and to
aid the Corporation in attracting able persons to enter the service of the
Corporation and its Subsidiaries.
SECTION 1. DEFINITIONS
1.1 "Acquiring Person" means any Person other than (a) the Corporation,
any Subsidiary of the Corporation, any employee benefit plan of the Corporation
or of a Subsidiary of the Corporation or of a corporation owned directly or
indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of Stock of the Corporation, or any trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation or of a Subsidiary of the Corporation or of a corporation owned
directly or indirectly by the stockholders of the Corporation in substantially
the same proportions as their ownership of Stock of the Corporation (b) Citicorp
Venture Capital, Ltd., a New York corporation ("CVC"), or (c) any Affiliate of
CVC that is directly controlled by Citicorp or Citibank, N.A., or otherwise is
in the same tier as CVC of Affiliates under the control of such entities
("Direct Affiliates"), but shall not include any entities that may be deemed an
Affiliate of CVC as a result of the investment by any Direct Affiliate in such
entity.
1.2 "Affiliate" means (a) any Person who is directly or indirectly the
beneficial owner of at least 10% of the voting power of the outstanding Voting
Securities of the Corporation or (b) any Person controlling, controlled by, or
under common control with the Corporation or any Person contemplated in clause
(a) of this Subsection 1.2.
1.3 "Award" means the grant of any form of Option, Restricted Stock
Award, or Stock Appreciation Right under the Plan, whether granted individually,
in combination, or in tandem, to a Holder pursuant to the terms, conditions, and
limitations that the Committee may establish in order to fulfill the objectives
of the Plan.
1.4 "Award Agreement" means the written agreement between the
Corporation and a Holder evidencing the terms, conditions, and limitations of
the Award granted to that Holder.
1.5 "Board of Directors" means the board of directors of the
Corporation.
- 1 -
<PAGE> 2
1.6 "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in the state of Ohio are authorized or
obligated by law or executive order to close.
1.7 "Change in Control" means the event that is deemed to have occurred
if:
(a) any Acquiring Person is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing fifty percent
or more of the combined voting power of the then outstanding Voting
Securities of the Corporation; or
(b) a public announcement is made of a tender or exchange
offer by any Acquiring Person for fifty percent or more of the
outstanding Voting Securities of the Corporation, and the Board of
Directors approves or fails to oppose that tender or exchange offer in
its statements in Schedule 14D-9 under the Exchange Act; provided,
however, that the events to occur under Subsection 9.2 hereof shall not
occur solely as a result of an event described in this clause (b)
unless, within one year after the occurrence of such event, an event
described in clauses (a), (c) or (d) hereof shall have occurred, in
which case such events to occur under Subsection 9.2 hereof shall occur
upon the occurrence of such event but shall be deemed to have been
effective as of the time of the occurrence of the event described in
this clause (b); or
(c) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation or
partnership (or, if no such approval is required, the consummation of
such a merger or consolidation of the Corporation), other than a merger
or consolidation that would result in the Voting Securities of the
Corporation outstanding immediately before the consummation thereof
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity or of a parent
of the surviving entity) a majority of the combined voting power of the
Voting Securities and Convertible Voting Securities (on a fully-diluted
basis assuming full conversion thereof) of the surviving entity (or its
parent) outstanding immediately after that merger or consolidation; or
(d) the stockholders 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 the
Corporation's assets (or, if no such approval is required, the
consummation of such a liquidation, sale, or disposition in one
transaction or series of related transactions) other than a
liquidation, sale or disposition of all or substantially all the
Corporation's assets in one transaction or a series of related
transactions to a Subsidiary of the Corporation or any other
corporation owned directly or indirectly by the stockholders of the
Corporation in substantially the same proportions as their ownership of
stock in the Corporation.
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
1.9 "Committee" means the committee appointed pursuant to Section 3 by
the Board of Directors to administer the Plan.
1.10 "Convertible Voting Securities" means any and all options,
warrants, or other rights to purchase, or securities convertible into or
exchangeable or exercisable for, directly or indirectly, Voting Securities of
any Person.
1.11 "Corporation" means Chase Industries Inc., a Delaware corporation
(f/k/a Chase Brass Industries, Inc.).
1.12 "Date of Grant" has the meaning given it in Subsection 4.3.
1.13 "Disability" has the meaning given it in Subsection 10.3.
1.14 "Disinterested Person" means a Person that meets the definition of
both a "Non-Employee Director" under Rule 16b-3(b)(3) and an "outside director"
under Section 162(m).
- 2 -
<PAGE> 3
1.15 "Effective Date" means the later of (a) the date the Plan is
adopted by the Board of Directors, (b) the date the Plan is approved by the
stockholders of the Corporation and (c) the closing date of the Initial Public
Offering.
1.16 "Eligible Individuals" means (a) Key Employees, (b) Non-Employee
Directors, and (c) any other Person that the Committee designates as eligible
for an Award (other than for Incentive Options) because the Person performs, or
has performed, bona fide consulting or advisory services for the Corporation or
any of its Subsidiaries (other than services in connection with the offer or
sale of securities in a capital-raising transaction) and the Committee
determines that the Person has a direct and significant effect on the financial
development of the Corporation or any of its Subsidiaries. Notwithstanding the
foregoing provisions of this Subsection 1.16, to ensure that the requirements of
the fourth sentence of Subsection 3.1 are satisfied, the Board of Directors may
from time to time specify individuals who shall not be eligible for the grant of
Awards or equity securities under any plan of the Corporation or its Affiliates.
Nevertheless, the Board of Directors may at any time determine that an
individual who has been so excluded from eligibility shall become eligible for
grants of Awards and grants of such other equity securities under any plans of
the Corporation or its Affiliates so long as that eligibility will not impair
the Plan's satisfaction of the conditions of Rule 16b-3.
1.17 "Employee" means any employee of the Corporation or of any of its
Subsidiaries, including officers and directors of the Corporation who are also
employees of the Corporation or of any of its Subsidiaries.
1.18 "Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.
1.19 "Exercise Notice" has the meaning given it in Subsection 5.5.
1.20 "Exercise Price" has the meaning given it in Subsection 5.4.
1.21 "Fair Market Value" means, for a particular day:
(a) If shares of Stock of the same class are listed or
admitted to unlisted trading privileges on any national or regional
securities exchange at the date of determining the Fair Market Value,
then the last reported sale price, regular way, on the composite tape
of that exchange on the last Business Day before the date in question
or, if no such sale takes place on that Business Day, the average of
the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to unlisted trading
privileges on that securities exchange; or
(b) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices for shares of Stock of the same class in the
over-the-counter market are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ") National
Market System (or such other system then in use) at the date of
determining the Fair Market Value, then the last reported sales price
so reported on the last Business Day before the date in question or, if
no such sale takes place on that Business Day, the average of the high
bid and low asked prices so reported; or
(c) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices for shares of Stock of the same class are not
reported by the NASDAQ National Market System (or a similar system then
in use) as provided in Subsection 1.21(b), and if bid and asked prices
for shares of Stock of the same class in the over-the-counter market
are reported by NASDAQ (or, if not so reported, by the National
Quotation Bureau Incorporated) at the date of determining the Fair
Market Value, then the average of the high bid and low asked prices on
the last Business Day before the date in question; or
(d) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices or bid and asked prices therefor are not
reported by
- 3 -
<PAGE> 4
NASDAQ (or the National Quotation Bureau Incorporated) as provided in
Subsection 1.21(b) or Subsection 1.21(c) at the date of determining the
Fair Market Value, then the value determined in good faith by the
Committee, which determination shall be conclusive for all purposes; or
(e) If shares of Stock of the same class are listed or
admitted to unlisted trading privileges as provided in Subsection
1.21(a) or sales prices or bid and asked prices therefor are reported
by NASDAQ (or the National Quotation Bureau Incorporated) as provided
in Subsection 1.21(b) or Subsection 1.21(c) at the date of determining
the Fair Market Value, but the volume of trading is so low that the
Board of Directors determines in good faith that such prices are not
indicative of the fair value of the Stock, then the value determined in
good faith by the Committee, which determination shall be conclusive
for all purposes notwithstanding the provisions of Subsections 1.21(a),
(b), or (c).
For purposes of valuing Incentive Options, the Fair Market Value of Stock shall
be determined without regard to any restriction other than one that, by its
terms, will never lapse. For purposes of the redemption provided for in
Subsection 9.3(d)(v), Fair Market Value shall have the meaning and shall be
determined as set forth above; provided, however, that the Committee, with
respect to any such redemption, shall have the right to determine that the Fair
Market Value for purposes of the redemption should be an amount measured by the
value of the shares of Stock, other securities, cash, or property otherwise
being received by holders of shares of Stock in connection with the
Restructuring and upon that determination the Committee shall have the power and
authority to determine Fair Market Value for purposes of the redemption based
upon the value of such shares of stock, other securities, cash, or property. Any
such determination by the Committee, as evidenced by a resolution of the
Committee, shall be conclusive for all purposes.
1.22 "Fair Value" means such value as is determined by a majority of
the "disinterested" directors of the Corporation, as evidenced by a resolution
of such disinterested directors, even if the disinterested directors of the
Corporation constitute less than a quorum. If the Corporation does not have any
disinterested directors, the Fair Value shall be such value as is determined by
a nationally recognized investment banking firm selected by the Corporation, the
expenses of which shall be borne by the Corporation.
1.23 "Holder" means an Eligible Individual to whom an outstanding Award
has been granted or a transferee of any Award as permitted under Section 4.7.
1.24 "Incentive Option" means an incentive stock option as defined
under Section 422 of the Code and regulations thereunder.
1.25 "Initial Public Offering" means the first public offering of Stock
by the Corporation effected pursuant to an effective registration statement
under the Securities Act.
1.26 "Key Employee" means any Employee whom the Committee identifies as
having a direct and significant effect on the performance of the Corporation or
any of its Subsidiaries.
1.27 "Non-Employee Director" means a director of the Corporation who
while a director is not an Employee or an officer of the Corporation or any
subsidiary of the Corporation.
1.28 "Nonstatutory Option" means a stock option that does not satisfy
the requirements of Section 422 of the Code or that is designated at the Date of
Grant or in the applicable Award Agreement to be an option other than an
Incentive Option.
1.29 "Non-Surviving Event" means an event of Restructuring as described
in either Subsection 1.36(b) or Subsection 1.36(c).
1.30 "Normal Retirement" means the separation of a Holder from
employment with the Corporation and its Subsidiaries on or after the attainment
of age 59 1/2 with the right to receive an immediate benefit under a
tax-qualified retirement plan under Section 401(a) of the Code approved by the
Corporation or any Subsidiary thereof.
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1.31 "Option" means either an Incentive Option or a Nonstatutory
Option, or both.
1.32 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company, a
corporation, a partnership, a trust, or other entity. A Person, together with
that Person's affiliates and associates (as "affiliate" and "associate" are
defined in Rule 12b-2 under the Exchange Act for purposes of this definition
only), and any Persons acting as a partnership, limited partnership, joint
venture, association, syndicate, or other group (whether or not formally
organized), or otherwise acting jointly or in concert or in a coordinated or
consciously parallel manner (whether or not pursuant to any express agreement),
for the purpose of acquiring, holding, voting, or disposing of securities of the
Corporation with that Person, shall be deemed a single "Person."
1.33 "Plan" means the Corporation's 1994 Long-Term Incentive Plan, as
it may be amended from time to time.
1.34 "Restricted Stock" means Stock that is nontransferable or subject
to substantial risk of forfeiture until specific conditions are met.
1.35 "Restricted Stock Award" means the grant of or the right to
purchase, on the terms and conditions of Section 7 or that the Committee
otherwise determines, Restricted Stock.
1.36 "Restructuring" means the occurrence of any one or more of the
following:
(a) The merger or consolidation of the Corporation with any
Person, whether effected as a single transaction or a series of related
transactions, with the Corporation remaining the continuing or
surviving entity of that merger or consolidation and the Stock
remaining outstanding and not changed into or exchanged for stock or
other securities of any other Person or of the Corporation, cash, or
other property;
(b) The merger or consolidation of the Corporation with any
Person, whether effected as a single transaction or a series of related
transactions, with (i) the Corporation not being the continuing or
surviving entity of that merger or consolidation or (ii) the
Corporation remaining the continuing or surviving entity of that merger
or consolidation but all or a part of the outstanding shares of Stock
are changed into or exchanged for stock or other securities of any
other Person or the Corporation, cash, or other property; or
(c) The transfer, directly or indirectly, of all or
substantially all of the assets of the Corporation (whether by sale,
merger, consolidation, liquidation, or otherwise) to any Person,
whether effected as a single transaction or a series of related
transactions.
1.37 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange
Act, or any successor rule, as it may be amended from time to time, and
references to paragraphs or clauses of Rule 16b-3 shall refer to the
corresponding paragraphs or clauses of Rule 16b-3 as it exists at the Effective
Date or the comparable paragraph or clause of Rule 16b-3 as it may thereafter be
amended.
1.38 "Section 162(m)" means Section 162(m) of the Code, or any
successor section under the Code, as it may be amended from time to time and as
interpreted by final or proposed regulations promulgated thereunder from time to
time.
1.39 "Securities Act" means the Securities Act of 1933 and the rules
and regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.
1.40 "Stock" means the Corporation's authorized common stock, par value
$.01 per share, or any other securities that are substituted for the Stock as
provided in Section 9.
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1.41 "Stock Appreciation Right" means the right to receive an amount
equal to the excess of the Fair Market Value of a share of Stock (as determined
on the date of exercise) over, as appropriate, the Exercise Price of a related
Option or the Fair Market Value of the Stock on the Date of Grant of the Stock
Appreciation Right.
1.42 "Subsidiary" means, with respect to any Person, any corporation,
or other entity of which a majority of the Voting Securities is owned, directly
or indirectly, by that Person.
1.43 "Total Shares" has the meaning given it in Subsection 9.2.
1.44 "Voting Securities" means (i) any securities that are entitled to
vote generally in the election of directors, in the admission of general
partners or in the selection of any other similar governing body and (ii) with
respect to the Corporation, all shares of the Corporation's nonvoting common
stock, par value $.01 per share (all of which are convertible into shares of the
Corporation's common stock, par value $.01 per share).
SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN
2.1 Maximum Number of Shares. Subject to the provisions of Subsections
2.2 and 2.5 and Section 9 of this Plan, the aggregate number of shares of Stock
that may be issued, transferred or exercised pursuant to Awards under the Plan
shall be one million five hundred thousand (1,500,000) shares of Stock. Except
as provided in Section 8, awards to which shares of such Stock relate may be
awarded to any one Eligible Individual or allocated among the Eligible
Individuals, as determined by the Committee; provided that no more than 100,000
shares of Stock may be subject to Options and Stock Appreciation Rights granted
under this Plan to any single Eligible Individual during any two-year period.
2.2 Limitation of Shares. For purposes of the limitations specified in
Subsection 2.1, the following principles shall apply:
(a) the following shall count against and decrease the number
of shares of Stock that may be issued for purposes of Subsection 2.1:
(i) shares of Stock subject to outstanding Options, outstanding shares
of Restricted Stock, and shares subject to outstanding Stock
Appreciation Rights granted independent of Options (based on a good
faith estimate by the Corporation or the Committee of the maximum
number of shares for which the Stock Appreciation Right may be settled
(assuming payment in full in shares of Stock)), and (ii) in the case of
Options granted in tandem with Stock Appreciation Rights, the greater
of the number of shares of Stock that would be counted if one or the
other alone was outstanding (determined as described in clause (i)
above);
(b) the following shall be added back to the number of shares
of Stock that may be issued for purposes of Subsection 2.1: (i) shares
of Stock with respect to which Options, Stock Appreciation Rights
granted independent of Options, or Restricted Stock Awards expire, are
canceled, or otherwise terminate without being exercised, converted, or
vested, as applicable, and (ii) in the case of Options granted in
tandem with Stock Appreciation Rights, shares of Stock as to which an
Option has been surrendered in connection with the exercise of a
related ("tandem") Stock Appreciation Right, to the extent the number
surrendered exceeds the number issued upon exercise of the Stock
Appreciation Right;
(c) shares of Stock subject to Stock Appreciation Rights
granted independent of Options (calculated as provided in clause (a)
above) that are exercised and paid in cash shall be added back to the
number of shares of Stock that may be issued for purposes of Subsection
2.1;
(d) shares of Stock that are transferred by a Holder of an
Award (or withheld by the Corporation) as full or partial payment to
the Corporation of the purchase price of shares of Stock subject to an
Option or the Corporation's or any Subsidiary's tax withholding
obligations shall not be added back to the number of shares of Stock
that may be issued for purposes of Subsection 2.1 and shall not again
be subject to Awards; and
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(e) if the number of shares of Stock counted against the
number of shares that may be issued for purposes of Subsection 2.1 is
based upon an estimate made by the Corporation or the Committee as
provided in clause (a) above and the actual number of shares of Stock
issued pursuant to the applicable Award is greater or less than the
estimated number, then, upon such issuance, the number of shares of
Stock that may be issued pursuant to Subsection 2.1 shall be further
reduced by the excess issuance or increased by the shortfall, as
applicable.
Notwithstanding the provisions of this Subsection 2.2, (i) no Stock
shall be treated as issuable under the Plan to Eligible Individuals (A) subject
to Section 16 of the Exchange Act if otherwise prohibited from issuance under
Rule 16b-3 or (B) subject to Section 162(m) if otherwise prohibited from
issuance under Section 162(m) and (ii) the Committee may impose restrictions
which are more limited than set forth herein with respect to shares of stock
subject to Awards that may be added back to the number of shares of stock that
may be issued for purposes of Subsection 2.1.
2.3 Description of Shares. The shares to be delivered under the Plan
shall be made available from (a) authorized but unissued shares of Stock, (b)
Stock held in the treasury of the Corporation, or (c) previously issued shares
of Stock reacquired by the Corporation, including shares purchased on the open
market, in each situation as the Board of Directors or the Committee may
determine from time to time at its sole option.
2.4 Registration and Listing of Shares. From time to time, the Board of
Directors and appropriate officers of the Corporation shall and are authorized
to take whatever actions are necessary to file required documents with
governmental authorities, stock exchanges, and other appropriate Persons to make
shares of Stock available for issuance pursuant to the exercise of Awards.
2.5 Reduction in Outstanding Shares of Stock. Nothing in this Section 2
shall impair the right of the Corporation to reduce the number of outstanding
shares of Stock pursuant to repurchases, redemptions, or otherwise; provided,
however, that no reduction in the number of outstanding shares of Stock shall
(a) impair the validity of any outstanding Award, whether or not that Award is
fully exercisable or fully vested, or (b) impair the status of any shares of
Stock previously issued pursuant to the exercise of an Award or thereafter
issued pursuant to a then-outstanding Award as duly authorized, validly issued,
fully paid, and nonassessable shares.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 Committee. The Board of Directors may administer the Plan with
respect to all Eligible Individuals or may delegate all or part of that duty to
the Committee; provided that the Committee shall not have the power to appoint
members of the Committee. Except for references in Subsections 3.1, 3.2, and
3.3, and unless the context otherwise requires, references herein to the
Committee shall also refer to the Board of Directors as administrator of the
Plan. The Committee shall be constituted so that, as long as Stock is registered
under Section 12 of the Exchange Act, each member of the Committee shall be a
Disinterested Person and so that the Plan in all other applicable respects will
qualify transactions related to the Plan for the exemptions from Section 16(b)
of the Exchange Act provided by Rule 16b-3 and the exemption from the
deductibility limitation imposed by Section 162(m) provided by the
performance-based compensation exception described in Section 162(m), to the
extent exemptions thereunder may be available. The number of Persons that shall
constitute the Committee shall be determined from time to time by a majority of
all the members of the Board of Directors and, unless that majority of the Board
of Directors determines otherwise or Rule 16b-3 or Section 162(m) is amended to
require otherwise, shall be no less than two Persons. Notwithstanding the
foregoing, the Board of Directors may designate the Compensation Committee of
the Board of Directors to serve as the Committee hereunder, provided that each
member of such Compensation Committee is a Disinterested Person.
3.2 Duration, Removal, Etc. The members of the Committee shall serve at
the discretion of the Board of Directors, which shall have the power, at any
time and from time to time, to remove members from or add members to the
Committee. Removal from the Committee may be with or without cause. Any
individual serving as a member of the Committee shall have the right to resign
from membership in the Committee by at least three days' written notice to the
Board of Directors. The Board of Directors, and not the remaining members of the
Committee,
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shall have the power and authority to fill all vacancies on the Committee. The
Board of Directors shall promptly fill any vacancy that causes the number of
members of the Committee to be below two or any other number that Rule 16b-3 or
Section 162(m) may require from time to time.
3.3 Meetings and Actions of Committee. The Board of Directors shall
designate which of the Committee members shall be the chairman of the Committee.
If the Board of Directors fails to designate a Committee chairman, the members
of the Committee shall elect one of the Committee members as chairman, who shall
act as chairman until he ceases to be a member of the Committee or until the
Board of Directors elects a new chairman. The Committee shall hold its meetings
at those times and places as the chairman of the Committee may determine. At all
meetings of the Committee, a quorum for the transaction of business shall be
required and a quorum shall be deemed present if at least a majority of the
members of the Committee are present. At any meeting of the Committee, each
member shall have one vote. All decisions and determinations of the Committee
shall be made by the majority vote or majority decision of all of its members
present at a meeting at which a quorum is present; provided, however, that any
decision or determination reduced to writing and signed by all of the members of
the Committee shall be as fully effective as if it had been made at a meeting
that was duly called and held. The Committee may make any rules and regulations
for the conduct of its business that are not inconsistent with the provisions of
the Plan, the Certificate of Incorporation of the Corporation, the by-laws of
the Corporation, and Rule 16b-3 and Section 162(m) so long as applicable, as the
Committee may deem advisable.
3.4 Committee's Powers. Subject to the express provisions of the Plan
and Rule 16b-3, the Committee shall have the authority, in its sole and absolute
discretion, to (a) adopt, amend, and rescind administrative and interpretive
rules and regulations relating to the Plan; (b) determine the Eligible
Individuals to whom, and the time or times at which, Awards shall be granted;
(c) determine the amount of cash and the number of shares of Stock, Stock
Appreciation Rights, or Restricted Stock Awards, or any combination thereof,
that shall be the subject of each Award; (d) determine the terms and provisions
of each Award Agreement (which need not be identical), including provisions
defining or otherwise relating to (i) the term and the period or periods and
extent of exercisability of the Options, (ii) the extent to which the
transferability of shares of Stock issued or transferred pursuant to any Award
is restricted, (iii) the effect of termination of employment of a Holder on the
Award, and (iv) the effect of approved leaves of absence (consistent with any
applicable regulations of the Internal Revenue Service); (e) accelerate the time
of exercisability of any Option that has been granted; (f) construe the
respective Award Agreements and the Plan; (g) make determinations of the Fair
Market Value of the Stock pursuant to the Plan; (h) delegate its duties under
the Plan to such agents as it may appoint from time to time, provided that the
Committee may not delegate its duties with respect to making Awards to, or
otherwise with respect to Awards granted to, Eligible Individuals who are
subject to Section 16(b) of the Exchange Act or Section 162(m); (i) subject to
ratification by the Board of Directors, terminate, modify, or amend the Plan;
and (j) make all other determinations, perform all other acts, and exercise all
other powers and authority necessary or advisable for administering the Plan,
including the delegation of those ministerial acts and responsibilities as the
Committee deems appropriate. Subject to Rule 16b-3 and Section 162(m), the
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, in any Award, or in any Award Agreement in the manner
and to the extent it deems necessary or desirable to carry the Plan into effect,
and the Committee shall be the sole and final judge of that necessity or
desirability. The determinations of the Committee on the matters referred to in
this Subsection 3.4 shall be final and conclusive.
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 Eligible Individuals. Awards may be granted pursuant to the Plan
only to persons who are Eligible Individuals at the time of the grant thereof.
4.2 Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine which Eligible Individuals shall be granted Awards
from time to time. In making grants, the Committee shall take into consideration
the contribution that the potential Holder has made or may make to the success
of the Corporation or its Subsidiaries and such other considerations as the
Board of Directors may from time to time specify. The Committee shall also
determine the number of shares subject to each of the Awards and shall authorize
and cause the Corporation to grant Awards in accordance with those
determinations.
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4.3 Date of Grant. Subject to the penultimate sentence of this
Subsection 4.3 and clause (ii) of the first sentence of Subsection 10.9, the
date on which the Committee completes all action resolving to offer an Award to
an individual, including the specification of the number of shares of Stock to
be subject to the Award, shall be the date on which the Award covered by an
Award Agreement is granted (the "Date of Grant"), even though certain terms of
the Award Agreement may not be determined at that time and even though the Award
Agreement may not be executed until a later time. With respect to Awards granted
to Non-Employee Directors under Subsection 8.2(b) or 8.2(c), the Date of Grant
shall be the date identified in the applicable subsection. In no event shall a
Holder gain any rights in addition to those specified by the Committee in its
grant, regardless of the time that may pass between the grant of the Award and
the actual execution of the Award Agreement by the Corporation and the Holder.
4.4 Award Agreements. Each Award granted under the Plan shall be
evidenced by an Award Agreement that is executed by the Corporation
incorporating those terms that the Committee shall deem necessary or desirable.
More than one Award may be granted under the Plan to the same Eligible
Individual and be outstanding concurrently. In the event an Eligible Individual
is granted both one or more Incentive Options and one or more Nonstatutory
Options, those grants shall be evidenced by separate Award Agreements, one for
each of the Incentive Option grants and one for each of the Nonstatutory Option
grants.
4.5 Limitation for Incentive Options. Notwithstanding any provision
contained herein to the contrary, (a) a person shall not be eligible to receive
an Incentive Option unless he is an Employee of the Corporation or a corporate
Subsidiary (but not a partnership Subsidiary) and (b) a Person shall not be
eligible to receive an Incentive Option if, immediately before the time the
Option is granted, that person owns (within the meaning of Sections 422 and
424(d) of the Code) stock possessing more than ten percent of the total combined
voting power or value of all classes of outstanding stock of the Corporation or
a Subsidiary; provided, however, Subsection 4.5(b) shall not apply if, at the
time the Incentive Option is granted, the Exercise Price of the Incentive Option
is at least one hundred ten percent of Fair Market Value and the Incentive
Option is not, by its terms, exercisable after the expiration of five years from
the Date of Grant.
4.6 No Right to Award. The adoption of the Plan shall not be deemed to
give any Person a right to be granted an Award.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Except as otherwise provided in Section 8 with respect to Awards to
Non-Employee Directors, all Options granted under the Plan shall comply with,
and the related Award Agreements shall be deemed to include and be subject to,
the terms and conditions set forth in this Section 5 (to the extent each term
and condition applies to the form of Option) and also to the terms and
conditions set forth in Sections 9 and 10; provided, however, that the Committee
may authorize an Award Agreement that expressly contains terms and provisions
that differ from the terms and provisions set forth in Subsections 9.2, 9.3, and
9.4 and any of the terms and provisions of Section 10 (other than Subsections
10.5, 10.8 and 10.9).
5.1 Number of Shares. Each Award Agreement shall state the total number
of shares of Stock to which it relates.
5.2 Vesting. Each Award Agreement shall state the time or periods in
which, or the conditions upon satisfaction of which, the right to exercise the
Option or a portion thereof shall vest and the number of shares of Stock for
which the right to exercise the Option shall vest at each such time, period, or
fulfillment of condition.
5.3 Expiration of Options. Options may be exercised during the term
determined by the Committee and set forth in the Award Agreement; provided that
no Incentive Option shall by its terms be exercisable after the expiration of a
period of ten years commencing on the Date of Grant of the Incentive Option.
5.4 Exercise Price. Each Award Agreement shall state the exercise price
per share of Stock (the "Exercise Price"); provided, however, that the exercise
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price per share of Stock subject to an Incentive Option shall not be less than
the greater of (a) the par value per share of the Stock or (b) 100% of the Fair
Market Value per share of the Stock on the Date of Grant of the Option, and the
exercise price per share of Stock subject to a Nonstatutory Option shall not be
less than the par value per share of the Stock (but may be less than the Fair
Market Value of a share of the Stock on the Date of Grant).
5.5 Method of Exercise. The Option shall be exercisable only by written
notice of exercise (the "Exercise Notice") delivered to the Corporation during
the term of the Option, which notice shall (a) state the number of shares of
Stock with respect to which the Option is being exercised, (b) be signed by the
Holder of the Option or, if the Holder is dead or becomes affected by a
Disability, by the person authorized to exercise the Option pursuant to
Subsection 10.3, (c) be accompanied by the Exercise Price for all shares of
Stock for which the Option is being exercised, and (d) include such other
information, instruments, and documents as may be required to satisfy any other
condition to exercise contained in the Award Agreement. The Option shall not be
deemed to have been exercised unless all of the requirements of the preceding
provisions of this Subsection 5.5 have been satisfied.
5.6 Incentive Option Exercises. Except as otherwise provided in
Subsection 10.3, during a Holder's lifetime, only the Holder may exercise an
Incentive Option.
5.7 Medium and Time of Payment. The Exercise Price of an Option shall
be payable in full upon the exercise of the Option (a) in cash or by an
equivalent means acceptable to the Committee, (b) on the Committee's prior
consent, with shares of Stock owned by the Holder (including shares received
upon exercise of the Option or shares of Restricted Stock already held by the
Holder) and having a Fair Market Value at least equal to the aggregate Exercise
Price payable in connection with such exercise, or (c) by any combination of
clauses (a) and (b). If the Committee elects to accept shares of Stock in
payment of all or any portion of the Exercise Price, then (for purposes of
payment of the Exercise Price) those shares of Stock shall be deemed to have a
cash value equal to their aggregate Fair Market Value determined as of the date
the certificate for such shares is delivered to the Corporation. If the
Committee elects to accept shares of Restricted Stock in payment of all or any
portion of the Exercise Price, then an equal number of shares issued pursuant to
the exercise shall be restricted on the same terms and for the restriction
period remaining on the shares used for payment.
5.8 Payment with Sale Proceeds. In addition, at the request of a Holder
and to the extent permitted by applicable law, the Committee may (but shall not
be required to) approve arrangements with a brokerage firm under which that
brokerage firm, on behalf of the Holder, shall pay to the Corporation the
Exercise Price of the Option being exercised and the Corporation shall promptly
deliver the exercised shares of Stock to the brokerage firm. To accomplish this
transaction, the Holder must deliver to the Corporation an Exercise Notice
containing irrevocable instructions from the Holder to the Corporation to
deliver the Stock certificates representing the shares of Stock directly to the
broker. Upon receiving a copy of the Exercise Notice acknowledged by the
Corporation, the broker shall sell that number of shares of Stock or loan the
Holder an amount sufficient to pay the Exercise Price and any withholding
obligations due. The broker then shall deliver to the Corporation that portion
of the sale or loan proceeds necessary to cover the Exercise Price and any
withholding obligations due. The Committee shall not approve any transaction of
this nature if the Committee believes that the transaction would give rise to
the Holder's liability for short-swing profits under Section 16(b) of the
Exchange Act.
5.9 Payment of Taxes. The Committee may, in its discretion, require a
Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder
is an employee of a Subsidiary of the Corporation), at the time of the exercise
of an Option or thereafter, the amount that the Committee deems necessary to
satisfy the Corporation's or its Subsidiary's current or future obligation to
withhold federal, state, or local income or other taxes that the Holder incurs
by exercising an Option. In connection with the exercise of an Option requiring
tax withholding, a Holder may (a) direct the Corporation to withhold from the
shares of Stock to be issued to the Holder the number of shares necessary to
satisfy the Corporation's obligation to withhold taxes, that determination to be
based on the shares' Fair Market Value as of the date of exercise; (b) deliver
to the Corporation sufficient shares of Stock (based upon the Fair Market Value
as of the date of such delivery) to satisfy the Corporation's tax withholding
obligation, which tax withholding obligation is based on the shares' Fair Market
Value as of the later of the date of exercise or the date as of which the shares
of Stock issued in connection with such exercise become includable in the income
of the Holder;
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or (c) deliver sufficient cash to the Corporation to satisfy its tax withholding
obligations. Holders who elect to use such a Stock withholding feature must make
the election at the time and in the manner that the Committee prescribes. The
Committee may, at its sole option, deny any Holder's request to satisfy
withholding obligations through Stock instead of cash. In the event the
Committee subsequently determines that the aggregate Fair Market Value (as
determined above) of any shares of Stock withheld or delivered as payment of any
tax withholding obligation is insufficient to discharge that tax withholding
obligation, then the Holder shall pay to the Corporation, immediately upon the
Committee's request, the amount of that deficiency in the form of payment
requested by the Committee.
5.10 Limitation on Aggregate Value of Shares That May Become First
Exercisable During Any Calendar Year Under an Incentive Option. Except as
otherwise provided in Subsection 9.3, with respect to any Incentive Option
granted under the Plan, the aggregate Fair Market Value of shares of Stock
subject to an Incentive Option and the aggregate Fair Market Value of shares of
Stock or stock of any Subsidiary (or a predecessor of the Corporation or a
Subsidiary) subject to any other incentive stock option (within the meaning of
Section 422 of the Code) of the Corporation or its Subsidiaries (or a
predecessor corporation of any such corporation) that first become purchasable
by a Holder in any calendar year may not (with respect to that Holder) exceed
$100,000, or such other amount as may be prescribed under Section 422 of the
Code or applicable regulations or rulings from time to time. As used in the
previous sentence, Fair Market Value shall be determined as of the Date of Grant
of the Incentive Option. For purposes of this Subsection 5.10, "predecessor
corporation" means (a) a corporation that was a party to a transaction described
in Section 424(a) of the Code (or which would be so described if a substitution
or assumption under that Section had been effected) with the Corporation, (b) a
corporation which, at the time the new incentive stock option (within the
meaning of Section 422 of the Code) is granted, is a Subsidiary of the
Corporation or a predecessor corporation of any such corporations, or (c) a
predecessor corporation of any such corporations. Failure to comply with this
provision shall not impair the enforceability or exercisability of any Option,
but shall cause the excess amount of shares to be reclassified in accordance
with the Code.
5.11 No Fractional Shares. The Corporation shall not in any case be
required to sell, issue, or deliver a fractional share with respect to any
Option. In lieu of the issuance of any fractional share of Stock, the
Corporation shall pay to the Holder an amount in cash equal to the same fraction
(as the fractional Stock) of the Fair Market Value of a share of Stock
determined as of the date of the applicable Exercise Notice.
5.12 Modification, Extension, and Renewal of Options. Subject to the
terms and conditions of and within the limitations of the Plan, Rule 16b-3, and
any consent required by the last sentence of this Subsection 5.12, the Committee
may (a) modify, extend, or renew outstanding Options granted under the Plan, (b)
accept the surrender of Options outstanding hereunder (to the extent not
previously exercised) and authorize the granting of new Options in substitution
for outstanding Options (to the extent not previously exercised), and (c) amend
the terms of an Incentive Option at any time to include provisions that have the
effect of changing the Incentive Option to a Nonstatutory Option. Nevertheless,
without the consent of the Holder, the Committee may not modify any outstanding
Options so as to specify a higher or lower Exercise Price or accept the
surrender of outstanding Incentive Options and authorize the granting of new
Options in substitution therefor specifying a higher or lower Exercise Price. In
addition, no modification of an Option granted hereunder shall, without the
consent of the Holder, alter or impair any rights or obligations under any
Option theretofore granted to such Holder under the Plan except, with respect to
Incentive Options, as may be necessary to satisfy the requirements of Section
422 of the Code or as permitted in clause (c) of this Subsection 5.12.
5.13 Other Agreement Provisions. The Award Agreements authorized under
the Plan shall contain such provisions in addition to those required by the Plan
(including, without limitation, restrictions or the removal of restrictions upon
the exercise of the Option and the retention or transfer of shares thereby
acquired) as the Committee may deem advisable. Each Award Agreement shall
identify the Option evidenced thereby as an Incentive Option or Nonstatutory
Option, as the case may be, and no Award Agreement shall cover both an Incentive
Option and a Nonstatutory Option. Each Award Agreement relating to an Incentive
Option granted hereunder shall contain such limitations and restrictions upon
the exercise of the Incentive Option to which it relates as shall be necessary
for the Incentive Option to which such Award Agreement relates to constitute an
incentive stock option, as defined in Section 422 of the Code.
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<PAGE> 12
5.14 Option Status. To the extent an Incentive Option (or any portion
thereof) fails to constitute an incentive stock option under Section 422 of the
Code, such portion of the Incentive Option which fails to so qualify shall be
deemed to be a Nonstatutory Option under this Plan.
SECTION 6. STOCK APPRECIATION RIGHTS
All Stock Appreciation Rights granted under the Plan shall comply with,
and the related Award Agreements shall be deemed to include and be subject to,
the terms and conditions set forth in this Section 6 (to the extent each term
and condition applies to the form of Stock Appreciation Right) and also the
terms and conditions set forth in Sections 9 and 10; provided, however, that the
Committee may authorize an Award Agreement related to a Stock Appreciation Right
that expressly contains terms and provisions that differ from the terms and
provisions set forth in Subsections 9.2, 9.3, and 9.4 and any of the terms and
provisions of Section 10 (other than Subsection 10.9).
6.1 Form of Right. A Stock Appreciation Right may be granted to an
Eligible Individual (a) in connection with an Option, either at the time of
grant or at any time during the term of the Option, or (b) independent of an
Option.
6.2 Rights Related to Options. A Stock Appreciation Right granted
pursuant to an Option shall entitle a Holder, upon exercise, to surrender that
Option or any portion thereof, to the extent unexercised, and to receive payment
of an amount computed pursuant to Subsection 6.2(b). That Option shall then
cease to be exercisable to the extent surrendered. Stock Appreciation Rights
granted in connection with an Option shall be subject to the terms of the Award
Agreement governing the Option, which shall comply with the following provisions
in addition to those applicable to Options:
(a) Exercise and Transfer. Subject to Subsection 10.8, a Stock
Appreciation Right granted in connection with an Option shall be
exercisable only at such time or times and only to the extent that the
related Option is exercisable and shall not be transferable except to
the extent that the related Option is transferable.
(b) Value of Right. Upon the exercise of a Stock Appreciation
Right related to an Option, a Holder shall be entitled to receive
payment from the Corporation of an amount determined by multiplying:
(i) the difference obtained by subtracting the
Exercise Price of a share of Stock specified in the related
Option from the Fair Market Value of a share of Stock on the
date of exercise of the Stock Appreciation Right, by
(ii) the number of shares as to which that Stock
Appreciation Right has been exercised.
6.3 Right Without Option. A Stock Appreciation Right granted
independent of an Option shall be exercisable as determined by the Committee and
set forth in the Award Agreement governing the Stock Appreciation Right, which
Award Agreement shall comply with the following provisions:
(a) Number of Shares. Each Award Agreement shall state the
total number of shares of Stock to which the Stock Appreciation Right
relates.
(b) Vesting. Each Award Agreement shall state the time or
periods in which the right to exercise the Stock Appreciation Right or
a portion thereof shall vest and the number of shares of Stock for
which the right to exercise the Stock Appreciation Right shall vest at
each such time or period.
(c) Expiration of Rights. Each Award Agreement shall state the
date at which the Stock Appreciation Rights shall expire if not
previously exercised.
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<PAGE> 13
(d) Value of Right. Each Stock Appreciation Right shall
entitle a Holder, upon exercise thereof, to receive payment of an
amount determined by multiplying:
(i) the difference obtained by subtracting the Fair
Market Value of a share of Stock on the Date of Grant of the
Stock Appreciation Right from the Fair Market Value of a share
of Stock on the date of exercise of that Stock Appreciation
Right, by
(ii) the number of shares as to which the Stock
Appreciation Right has been exercised.
6.4 Limitations on Rights. Notwithstanding Subsections 6.2(b) and
6.3(d), the Committee may limit the amount payable upon exercise of a Stock
Appreciation Right. Any such limitation must be determined as of the Date of
Grant and be noted on the Award Agreement evidencing the Holder's Stock
Appreciation Right.
6.5 Payment of Rights. Payment of the amount determined under
Subsection 6.2(b) or 6.3(d) and Subsection 6.4 may be made, in the sole
discretion of the Committee, unless specifically provided otherwise in the Award
Agreement, solely in whole shares of Stock valued at Fair Market Value on the
date of exercise of the Stock Appreciation Right, solely in cash, or in a
combination of cash and whole shares of Stock. If the Committee decides to make
full payment in shares of Stock and the amount payable results in a fractional
share, payment for the fractional share shall be made in cash.
6.6 Payment of Taxes. The Committee may, in its discretion, require a
Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder
is an employee of a Subsidiary of the Corporation), at the time of the exercise
of a Stock Appreciation Right or thereafter, the amount that the Committee deems
necessary to satisfy the Corporation's or its Subsidiary's current or future
obligation to withhold federal, state, or local income or other taxes that the
Holder incurs by exercising a Stock Appreciation Right. In connection with the
exercise of a Stock Appreciation Right requiring tax withholding, a Holder may
(a) direct the Corporation to withhold from the shares of Stock to be issued to
the Holder the number of shares necessary to satisfy the Corporation's
obligation to withhold taxes, that determination to be based on the shares' Fair
Market Value as of the date of exercise; (b) deliver to the Corporation
sufficient shares of Stock (based upon the Fair Market Value as of the date of
such delivery) to satisfy the Corporation's tax withholding obligation, which
tax withholding obligation is based on the shares' Fair Market Value as of the
later of the date of exercise or the date as of which the shares of Stock issued
in connection with such exercise become includable in the income of the Holder;
or (c) deliver sufficient cash to the Corporation to satisfy its tax withholding
obligation. Holders who elect to have Stock withheld pursuant to (a) or (b)
above must make the election at the time and in the manner that the Committee
prescribes. The Committee may, in its sole discretion, deny any Holder's request
to satisfy withholding obligation through Stock instead of cash. In the event
the Committee subsequently determines that the aggregate Fair Market Value (as
determined above) of any shares of Stock withheld or delivered as payment of any
tax withholding obligation is insufficient to discharge that tax withholding
obligation, then the Holder shall pay to the Corporation, immediately upon the
Committee's request, the amount of that deficiency in the form of payment
requested by the Committee.
6.7 Other Agreement Provisions. The Award Agreements authorized
relating to Stock Appreciation Rights shall contain such provisions in addition
to those required by the Plan (including, without limitation, restrictions or
the removal of restrictions upon the exercise of the Stock Appreciation Right
and the retention or transfer of shares thereby acquired) as the Committee may
deem advisable.
SECTION 7. RESTRICTED STOCK AWARDS
All Restricted Stock Awards granted under the Plan shall comply with
and be subject to, and the related Award Agreements shall be deemed to include,
the terms and conditions set forth in this Section 7 and also to the terms and
conditions set forth in Sections 9 and 10; provided, however, that the Committee
may authorize an Award Agreement related to a Restricted Stock Award that
expressly contains terms and provisions that differ from the terms and
provisions set forth in Subsections 9.2, 9.3, and 9.4 and the terms and
provisions set forth in Section 10 (other than Subsections 10.8 and 10.9).
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<PAGE> 14
7.1 Restrictions. All shares of Restricted Stock Awards granted or sold
pursuant to the Plan shall be subject to the following conditions:
(a) Transferability. The shares may not be sold, transferred,
or otherwise alienated or hypothecated until the restrictions are
removed or expire.
(b) Conditions to Removal of Restrictions. Conditions to
removal or expiration of the restrictions may include, but are not
required to be limited to, continuing employment or service as a
director, officer, consultant, or advisor or achievement of performance
objectives described in the Award Agreement.
(c) Legend. Each certificate representing Restricted Stock
Awards granted pursuant to the Plan shall bear a legend making
appropriate reference to the restrictions imposed.
(d) Possession. The Committee may require the Corporation to
retain physical custody of the certificates representing Restricted
Stock Awards during the restriction period and may require a Holder of
the Award to execute stock powers in blank for those certificates and
deliver those stock powers to the Corporation, or the Committee may
require the Holder to enter into an escrow agreement providing that the
certificates representing Restricted Stock Awards granted or sold
pursuant to the Plan shall remain in the physical custody of an escrow
holder until all restrictions are removed or expire.
(e) Other Conditions. The Committee may impose other
conditions on any shares granted or sold as Restricted Stock Awards
pursuant to the Plan as it may deem advisable, including without
limitation (i) restrictions under the Securities Act or Exchange Act,
(ii) the requirements of any securities exchange upon which the shares
or shares of the same class are then listed, and (iii) any state
securities law applicable to the shares.
7.2 Expiration of Restrictions. The restrictions imposed in Subsection
7.1 on Restricted Stock Awards shall lapse as determined by the Committee and
set forth in the applicable Award Agreement, and the Corporation shall promptly
deliver to the Holder of the Restricted Stock Award a certificate representing
the number of shares for which restrictions have lapsed, free of any restrictive
legend relating to the lapsed restrictions. Each Restricted Stock Award may have
a different restriction period as determined by the Committee in its sole
discretion. The Committee may, in its discretion, prospectively reduce the
restriction period applicable to a particular Restricted Stock Award.
7.3 Rights as Stockholder. Subject to the provisions of Subsections 7.1
and 10.9, the Committee may, in its discretion, determine what rights, if any, a
Holder shall have with respect to the Restricted Stock Awards granted or sold,
including the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.
7.4 Payment of Taxes. The Committee may, in its discretion, require a
Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder
is an employee of a Subsidiary of the Corporation) the amount that the Committee
deems necessary to satisfy the Corporation's or its Subsidiary's current or
future obligation to withhold federal, state, or local income or other taxes
that the Holder incurs by reason of the Restricted Stock Award. A Holder may (a)
direct the Corporation to withhold from the shares of Stock to be issued to the
Holder the number of shares necessary to satisfy the Corporation's obligation to
withhold taxes, that determination to be based on the shares' Fair Market Value
as of the date on which tax withholding is to be made; (b) deliver to the
Corporation sufficient shares of Stock (based upon the Fair Market Value as of
the date of such delivery) to satisfy the Corporation's tax withholding
obligation, which tax withholding obligation is based on the shares' Fair Market
Value as of the later of the date of issuance or the date as of which the shares
of Stock issued become includable in the income of the Holder; or (c) deliver
sufficient cash to the Corporation to satisfy its tax withholding obligations.
Holders who elect to have Stock withheld pursuant to (a) or (b) above must make
the election at the time and in the manner that the Committee prescribes. The
Committee may, in its sole discretion, deny any Holder's request to satisfy
withholding obligations through Stock instead of cash. In the event the
Committee subsequently determines that the aggregate Fair Market
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<PAGE> 15
Value (as determined above) of any shares of Stock withheld or delivered as
payment of any tax withholding obligation is insufficient to discharge that tax
withholding obligation, then the Holder shall pay to the Corporation,
immediately upon the Committee's request, the amount of that deficiency.
7.5 Other Agreement Provisions. The Award Agreements relating to
Restricted Stock Awards shall contain such provisions in addition to those
required by the Plan as the Committee may deem advisable.
SECTION 8. AWARDS TO NON-EMPLOYEE DIRECTORS
Except as otherwise provided in this Section 8 or the applicable Award
Agreement, Awards granted pursuant to this Section 8 shall be subject to the
conditions of Section 5 to the extent permitted under Rule 16b-3.
8.1 Ineligibility for Other Awards. Non-Employee Directors shall not be
eligible to receive any Awards under the Plan other than the Awards specified in
this Section 8 granted prior to May 14, 1997.
8.2 Awards of Nonstatutory Options.
(a) Eligibility. Each Non-Employee Director of the Corporation
elected as a member of the Board after the closing date of the Initial
Public Offering and before May 14, 1997, was eligible for Awards as
specified in Subsections 8.2(b) or 8.2(c) below; from and after May 14,
1997, no Non-Employee Director shall be eligible for Awards under this
Plan and no Awards will be granted under this Section 8.
(b) Awards to Non-Employee Directors at the Closing of Initial
Public Offering. Each Non-Employee Director as of the closing date of
the Initial Public Offering (including persons who are elected as a
Non-Employee Director in conjunction with the closing of the Initial
Public Offering) shall be awarded a Nonstatutory Option to purchase
5,000 shares of Stock at an Exercise Price per share equal to the
public offering price set forth on the cover page of the Corporation's
final prospectus pursuant to which the Initial Public Offering is
effected.
(c) Awards to Non-Employee Directors Elected or Appointed
After the Closing of the Initial Public Offering. Each Non-Employee
Director who is elected or appointed to the Board of Directors after
the closing date of the Initial Public Offering and prior to May 14,
1997, and has not served as a member of the Board of Directors before
such date of election or appointment, shall be awarded a Nonstatutory
Option to purchase 5,000 shares of Stock upon the date of such election
or appointment to the Board of Directors at an Exercise Price per share
equal to the average Fair Market Value of a share of Stock for the five
trading days immediately preceding the Date of Grant.
8.3 Available Stock. The automatic Awards specified in Subsection 8.2
shall be made in the amounts specified in Subsection 8.2 only if the number of
shares of Stock available to be issued, transferred or exercised pursuant to
Awards under this Plan (as calculated in Section 2) is sufficient to make all
automatic grants required to be made by Subsection 8.2 on the Date of Grant of
those automatic Awards. In the event that the number of shares of Stock that are
available to be issued, transferred, or exercised pursuant to Awards under the
Plan on the Date of Grant of the automatic Awards described in Subsection 8.2 is
insufficient to permit the grant of the entire number of shares specified in
Subsection 8.2, then the number of available shares shall be apportioned equally
among the automatic Awards made on that date, and the number of shares
apportioned to each automatic Award shall be the amount of shares automatically
subject to that automatic Award.
8.4 Exercisability. Each Nonstatutory Option granted pursuant to this
Section 8 shall become exercisable with respect to 1,000 shares of Stock on each
of the first five anniversaries of the Date of Grant. Each Nonstatutory Option
awarded pursuant to this Section 8 shall expire 10 years after the Date of
Grant.
NOTE: THIS SECTION 8 IS AMENDED EFFECTIVE AS OF MAY 14, 1997, TO REFLECT THE
ADOPTION OF THE COMPANY'S 1997 NON- EMPLOYEE DIRECTOR STOCK OPTION PLAN PURSUANT
TO WHICH STOCK OPTIONS WILL BE GRANTED TO NEW NON-EMPLOYEE DIRECTORS ON
SUBSTANTIALLY THE SAME BASIS AS PROVIDED IN THIS SECTION 8.
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SECTION 9. ADJUSTMENT PROVISIONS
9.1 Adjustment of Awards and Authorized Stock. The terms of an Award
and the number of shares of Stock authorized pursuant to Subsection 2.1 for
issuance under the Plan shall be subject to adjustment from time to time, in
accordance with the following provisions:
(a) If at any time, or from time to time, the Corporation
shall subdivide as a whole (by reclassification, by a Stock split, by
the issuance of a distribution on Stock payable in Stock, or otherwise)
the number of shares of Stock then outstanding into a greater number of
shares of Stock, then (i) the maximum number of shares of Stock
available for the Plan as provided in Subsection 2.1 shall be increased
proportionately, and the kind of shares or other securities available
for the Plan shall be appropriately adjusted, (ii) the number of shares
of Stock (or other kind of shares or securities) that may be acquired
under any Award shall be increased proportionately, and (iii) the price
(including Exercise Price) for each share of Stock (or other kind of
shares or securities) subject to then outstanding Awards shall be
reduced proportionately, without changing the aggregate purchase price
or value as to which outstanding Awards remain exercisable or subject
to restrictions.
(b) If at any time, or from time to time, the Corporation
shall consolidate as a whole (by reclassification, reverse Stock split,
or otherwise) the number of shares of Stock then outstanding into a
lesser number of shares of Stock, (i) the maximum number of shares of
Stock available for the Plan as provided in Subsection 2.1 shall be
decreased proportionately, and the kind of shares or other securities
available for the Plan shall be appropriately adjusted, (ii) the number
of shares of Stock (or other kind of shares or securities) that may be
acquired under any Award shall be decreased proportionately, and (iii)
the price (including Exercise Price) for each share of Stock (or other
kind of shares or securities) subject to then outstanding Awards shall
be increased proportionately, without changing the aggregate purchase
price or value as to which outstanding Awards remain exercisable or
subject to restrictions.
(c) Whenever the number of shares of Stock subject to
outstanding Awards and the price for each share of Stock subject to
outstanding Awards are required to be adjusted as provided in this
Subsection 9.1, the Committee shall promptly prepare a notice setting
forth, in reasonable detail, the event requiring adjustment, the amount
of the adjustment, the method by which such adjustment was calculated,
and the change in price and the number of shares of Stock, other
securities, cash, or property purchasable subject to each Award after
giving effect to the adjustments. The Committee shall promptly give
each Holder such a notice.
(d) Adjustments under Subsections 9.1(a) and (b) shall be made
by the Committee, and its determination as to what adjustments shall be
made and the extent thereof shall be final, binding, and conclusive. No
fractional interest shall be issued under the Plan on account of any
such adjustments.
9.2 Changes in Control. Upon the occurrence of a Change in Control,
subject to Subsection 1.7(b) (a) each Holder of an Option shall immediately be
granted corresponding Stock Appreciation Rights; (b) all outstanding Stock
Appreciation Rights and Options shall immediately become fully vested and
exercisable in full, including that portion of any Stock Appreciation Right or
Option that pursuant to the terms and provisions of the applicable Award
Agreement had not yet become exercisable (the total number of shares of Stock as
to which a Stock Appreciation Right or Option is exercisable upon the occurrence
of a Change in Control is referred to herein as the "Total Shares"); and (c) the
restriction period of any Restricted Stock Award shall immediately be
accelerated and the restrictions shall expire. If a Change in Control involves a
Restructuring or occurs in connection with a series of related transactions
involving a Restructuring and if such Restructuring is in the form of a
Non-Surviving Event and as a part of such Restructuring shares of Stock, other
securities, cash, or property shall be issuable or deliverable in exchange for
Stock, then a Holder of an Award shall be entitled to purchase or receive (in
lieu of the Total Shares that the Holder would otherwise be entitled to purchase
or receive), as appropriate for the form of Award, the number of shares of
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<PAGE> 17
Stock, other securities, cash, or property to which that number of Total Shares
would have been entitled in connection with such Restructuring (and, for
Options, at an aggregate exercise price equal to the Exercise Price that would
have been payable if that number of Total Shares had been purchased on the
exercise of the Option immediately before the consummation of the
Restructuring). Nothing in this Subsection 9.2 shall impose on a Holder the
obligation to exercise any Award immediately before or upon the Change of
Control or cause the Holder to forfeit the right to exercise the Award during
the remainder of the original term of the Award because of a Change in Control.
9.3 Restructuring Without Change in Control. In the event a
Restructuring shall occur at any time while there is any outstanding Award
hereunder and that Restructuring does not occur in connection with a Change in
Control or a series of related transactions involving a Change in Control, then:
(a) no outstanding Option or Stock Appreciation Right shall
immediately become fully vested and exercisable in full merely because
of the occurrence of the Restructuring;
(b) no Holder of an Option shall automatically be granted
corresponding Stock Appreciation Rights;
(c) the restriction period of any Restricted Stock Award shall
not immediately be accelerated and the restrictions expire merely
because of the occurrence of the Restructuring; and
(d) at the option of the Committee, the Committee may (but
shall not be required to) cause the Corporation to take any one or more
of the following actions with respect to outstanding Awards other than
Awards granted pursuant to Section 8 hereof:
(i) accelerate in whole or in part the time of the
vesting and exercisability of any one or more of the
outstanding Stock Appreciation Rights and Options so as to
provide that those Stock Appreciation Rights and Options shall
be exercisable before, upon, or after the consummation of the
Restructuring;
(ii) grant each Holder of an Option corresponding
Stock Appreciation Rights;
(iii) accelerate in whole or in part the expiration
of some or all of the restrictions on any Restricted Stock
Award;
(iv) if the Restructuring is in the form of a
Non-Surviving Event, cause the surviving entity to assume in
whole or in part any one or more of the outstanding Awards
upon such terms and provisions as the Committee deems
desirable; or
(v) redeem in whole or in part any one or more of the
outstanding Awards (whether or not then exercisable) in
consideration of a cash payment, as such payment may be
reduced for tax withholding obligations as contemplated in
Subsections 5.9, 6.6, or 7.4, as applicable, in an amount
equal to:
(A) for Options and Stock Appreciation
Rights granted in connection with Options, the excess
of (1) the Fair Market Value, determined as of the
date immediately preceding the consummation of the
Restructuring, of the aggregate number of shares of
Stock subject to the Award and as to which the Award
is being redeemed over (2) the Exercise Price for
that number of shares of Stock;
(B) for Stock Appreciation Rights not
granted in connection with an Option, the excess of
(1) the Fair Market Value, determined as of the date
immediately preceding the consummation of the
Restructuring, of the aggregate number of shares of
Stock subject to the Award and as to which the Award
is being redeemed over (2) the Fair Market Value of
the number of shares of Stock on the Date of Grant;
and
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<PAGE> 18
(C) for Restricted Stock Awards, the Fair
Market Value, determined as of the date immediately
preceding the consummation of the Restructuring, of
the aggregate number of shares of Stock subject to
the Award and as to which the Award is being
redeemed.
The Corporation shall promptly notify each Holder of any election or action
taken by the Corporation under this Subsection 9.3. In the event of any election
or action taken by the Corporation pursuant to this Subsection 9.3 that requires
the amendment or cancellation of any Award Agreement as may be specified in any
notice to the Holder thereof, that the Holder shall promptly deliver that Award
Agreement to the Corporation in order for that amendment or cancellation to be
implemented by the Corporation and the Committee. The failure of the Holder to
deliver any such Award Agreement to the Corporation as provided in the preceding
sentence shall not in any manner affect the validity or enforceability of any
action taken by the Corporation and the Committee under this Subsection 9.3,
including without limitation any redemption of an Award as of the consummation
of a Restructuring. Any cash payment to be made by the Corporation pursuant to
this Subsection 9.3 in connection with the redemption of any outstanding Awards
shall be paid to the Holder thereof currently with the delivery to the
Corporation of the Award Agreement evidencing that Award; provided, however,
that any such redemption shall be effective upon the consummation of the
Restructuring notwithstanding that the payment of the redemption price may occur
subsequent to the consummation. If all or any portion of an outstanding Award is
to be exercised or accelerated upon or after the consummation of a Restructuring
that does not occur in connection with a Change in Control and is in the form of
a Non-Surviving Event, and as a part of that Restructuring shares of stock,
other securities, cash, or property shall be issuable or deliverable in exchange
for Stock, then the Holder of the Award shall thereafter be entitled to purchase
or receive (in lieu of the number of shares of Stock that the Holder would
otherwise be entitled to purchase or receive) the number of shares of Stock,
other securities, cash, or property to which such number of shares of Stock
would have been entitled in connection with the Restructuring (and, for Options,
upon payment of the aggregate exercise price equal to the Exercise Price that
would have been payable if that number of Total Shares had been purchased on the
exercise of the Option immediately before the consummation of the Restructuring)
and such Award Agreement shall be subject to adjustments that shall be as nearly
equivalent as may be practical to the adjustments provided for in this Section
9. Notwithstanding the provisions of this Subsection 9.3, the Committee shall
not have the power or authority to take any action pursuant to this Subsection
9.3 that causes the Plan not to be in compliance with the requirements of Rule
16b-3 and any such action purported to be taken by the Committee shall be null
and void and without any force or effect.
9.4 Notice of Restructuring. The Corporation shall attempt to keep all
Holders informed with respect to any Restructuring or of any potential
Restructuring to the same extent that the Corporation's stockholders are
informed by the Corporation of any such event or potential event.
SECTION 10. ADDITIONAL PROVISIONS
10.1 Termination of Employment. Except as provided below, if a Holder
is an Eligible Individual because the Holder is an Employee and if that
employment relationship is terminated for any reason other than (a) Normal
Retirement, (b) that Holder's death, or (c) that Holder's Disability
(hereinafter defined), then any and all Awards held by such Holder in such
Holder's capacity as an Employee as of the date of the termination that are not
yet exercisable (or for which restrictions have not lapsed) shall become null
and void as of the date of such termination and the portion, if any, of such
Awards that are exercisable as of the date of termination shall be exercisable
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<PAGE> 19
for a period of the lesser of (i) the remainder of the term of the Award or (ii)
the date which is 180 days after the date of termination. If a Holder is an
Eligible Individual because such Holder is an Employee and if that employment
relationship is terminated as a result of (a) Normal Retirement, (b) that
Holder's death, or (c) that Holder's Disability, then any and all Awards held by
such Holder in such Holder's capacity as an Employee as of the date of
termination that are not yet exercisable (or for which restrictions have not
lapsed) shall become exercisable (and the restrictions thereon, if any, shall
lapse) as of the date of termination, and all such Awards held by that Holder as
of the date of termination that are exercisable (either as a result of this
sentence or otherwise) shall be exercisable for a period of the lesser of (i)
the remainder of the term of the Award or (ii) the date which is three years
after the date of termination. Any portion of any such Award not exercised upon
the expiration of the lesser of the periods specified in (i) or (ii) of the
preceding two sentences shall be null and void upon the expiration of such
period, as applicable. If a Holder is an Eligible Individual because the Holder
is an Employee and if that employment relationship is terminated by the
Corporation for "cause" (hereafter defined), then any and all Awards held by
such Holder in such Holder's capacity as an Employee as of the date of the
termination shall become null and void as of the date of such termination.
"Cause" shall have the meanings given such term in the employment agreement of
the Holder (if any) with the Corporation or a Subsidiary of the Corporation;
provided, however, that if that Holder has no employment agreement, "cause"
shall mean, as determined by the Board of Directors in the sole discretion
exercised in good faith of the Board of Directors, (a) the breach by the Holder
of any nondisclosure, noncompetition, or other agreement to which the Holder and
the Corporation are parties, (b) the commission by the Holder of a felony or of
a misdemeanor involving moral turpitude, (c) the participation by the Holder in
any fraud, (d) dishonesty by the Holder that is detrimental to the best interest
of the Corporation, (e) the willful and continued failure by the Holder to
substantially perform his duties to the Corporation (other than any such failure
resulting from the Holder's incapacity due to physical or mental illness) after
written demand for substantial performance is delivered by the Corporation
specifically identifying the manner in which the Corporation believes the Holder
has not substantially performed his duties, or (f) the willful engaging by the
Holder in misconduct which is materially injurious to the Corporation,
monetarily or otherwise.
10.2 Other Loss of Eligibility. If a Holder is an Eligible Individual
because the Holder is serving in a capacity other than as an Employee, and:
(a) if that capacity is terminated for any reason other than
the Holder's death or Disability, then that portion, if any, of any and
all Awards held by the Holder that were granted because of that
capacity which are not yet exercisable (or for which restrictions have
not lapsed) as of the date of the termination shall become null and
void as of the date of the termination and, except as provided below,
the portion, if any, of any and all Awards held by the Holder that are
then exercisable as of the date of the termination shall survive the
termination and shall be exercisable for a period of the lesser of (i)
the remainder of the term of the Award or (ii) 180 days following the
date such capacity is terminated;
(b) if that capacity is terminated by reason of the Holder's
death or Disability, then the portion, if any, of any and all Awards
held by the Holder that are not yet exercisable (or for which
restrictions have not lapsed) as of the date of that termination for
death or Disability shall become exercisable (and the restrictions
thereon, if any, shall lapse), and all such Awards held by that Holder
as of the date of termination that are exercisable (either as a result
of this sentence or otherwise) shall be exercisable for the lesser of
(i) the remainder of the term of the Award or (ii) three years after
the date such capacity is terminated;
(c) if that capacity is terminated by reason of the Holder's
resignation or retirement from the position as a member of the Board of
Directors (including as a result of declining to accept a nomination or
otherwise stand for reelection) on or after the date of the fifth
annual meeting of stockholders of the Corporation held after the date
on which such Holder was elected or appointed to the Board of Directors
(other than as a result of Disability), any and all Awards held by the
Holder that are exercisable as of the date of such resignation or
retirement shall be exercisable for the lesser of (i) the remainder of
the term of the Award or (ii) three years after the date of ceasing to
serve as a director; or
(d) if that capacity is terminated by the Corporation for
"cause" (hereafter defined), then any and all Awards held by the Holder
that were granted because of that capacity shall become null and void
as of the date of such termination. "Cause" shall have the meaning
given such term in the contractual agreement of the Holder (if any)
with the Corporation or a Subsidiary of the Corporation; provided,
however, that if that Holder has no contractual agreement, "cause"
shall mean, as determined by the Board of Directors in the sole
discretion exercised in good faith of the Board of Directors, (i) the
breach by the Holder of any other agreement to which the Holder and the
Corporation are parties, (ii) the commission by the Holder of a felony
or of a misdemeanor involving moral turpitude, (iii) the participation
by the Holder in any fraud, (iv) dishonesty by the Holder that is
detrimental to the best interest of the Corporation, (v) the willful
and
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<PAGE> 20
continued failure by the Holder to substantially perform his duties to
the Corporation (other than any such failure resulting from the
Holder's incapacity due to physical or mental illness) after written
demand for substantial performance is delivered by the Corporation
specifically identifying the manner in which the Corporation believes
the Holder has not substantially performed his duties, or (vi) the
willful engaging by the Holder in misconduct which is materially
injurious to the Corporation, monetarily or otherwise.
Any portion of an Award not exercised upon the expiration of the lesser
of the periods specified in clauses (a), (b) or (c) of this Subsection 10.2
shall be null and void upon the expiration of such period, as applicable.
10.3 Death or Disability. Upon the death or Disability of a Holder, any
and all Awards held by the Holder that are not yet exercisable (or for which
restrictions have not lapsed) as of the date of the Holder's death or Disability
may be exercised by, in the case of the Holder's Disability, the Holder, his
guardian or his legal representative or, in the case of the Holder's death, by
the Holder's legal representatives, heirs, legatees, or distributees, in each
case for the periods prescribed in Subsection 10.1 or Subsection 10.2, as
applicable. "Disability" shall have the meaning given it in the employment
agreement of the Holder; provided, however, that if that the Holder has no
employment agreement, "Disability" shall mean, as determined by the Board of
Directors in the sole discretion exercised in good faith of the Board of
Directors, a physical or mental impairment of sufficient severity that either
the Holder is unable to continue performing the duties he performed before such
impairment or the Holder's condition entitles him to disability benefits under
any insurance or employee benefit plan of the Corporation or its Subsidiaries
and that impairment or condition is cited by the Corporation as the reason for
termination of the Holder's employment or participation as a member of the Board
of Directors.
10.4 Leave of Absence. With respect to an Award, the Committee may, in
its sole discretion, determine that any Holder who is on leave of absence for
any reason will be considered to still be in the employ of the Corporation,
provided that rights to that Award during a leave of absence will be limited to
the extent to which those rights were earned, vested, or exercisable when the
leave of absence began.
10.5 Transferability of Awards.
(a) Permitted Transferees. The Committee may, in its
discretion, permit a Holder to transfer all or any portion of an Option
or Stock Appreciation Right, or authorize all or a portion of any
Option or Stock Appreciation Right to be granted to an Eligible
Individual to be on terms which permit transfer by such Holder, to (i)
the spouse, children or grandchildren of the Holder ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or (iii) a partnership in which such
Immediate Family Members are the only partners (collectively,
"Permitted Transferees"); provided that (x) there may be no
consideration for any such transfer and (y) subsequent transfers of
Awards transferred as provided above shall be prohibited except
subsequent transfers back to the original Holder of the Award and
transfers to other Permitted Transferees of the original Holder. Award
Agreements evidencing Options or Stock Appreciation Rights with respect
to which such transferability is authorized at the time of grant must
be approved by the Committee, and must expressly provide for
transferability in a manner consistent with this subsection 10.5(a).
(b) Qualified Domestic Relations Orders. Options and Stock
Appreciation rights may be transferred pursuant to qualified domestic
relations orders entered or approved by a court of competent
jurisdiction upon delivery to the Company of written notice of such
transfer and a certified copy of such order.
(c) Other Transfers. Except as expressly permitted by
subsections 10.5(a) and 10.5(b), Awards requiring exercise shall not be
transferable other than by will or the laws of descent and
distribution.
(d) Effect of Transfer. Following the transfer of any Award as
contemplated by Subsections 10.5(a), 10.5(b) and 10.5(c), (i) such
Award shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, provided that the term
"Holder" shall be deemed
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<PAGE> 21
to refer to the Permitted Transferee, the recipient under a qualified
domestic relations order, or the estate or heirs of a deceased Holder,
as applicable, to the extent appropriate to enable the Holder to
exercise the transferred Award in accordance with the terms of this
Plan and applicable law and (ii) the provisions of Subsections 10.1,
10.2 and 10.3 hereof shall continue to be applied with respect to the
original Holder and, following the occurrence of any such events
described therein the Awards shall be exercisable by the Permitted
Transferee, the recipient under a qualified domestic relations order,
or the estate or heirs of a deceased Holder, as applicable, only to the
extent and for the periods specified in Subsections 10.1, 10.2 and
10.3.
(e) Procedures and Restrictions. Any Holder desiring to
transfer an Award as permitted under Subsections 10.5(a) or 10.5(b)
shall make application therefor in the manner and time specified by the
Committee and shall comply with such other requirements as the
Committee may require to assure compliance with all applicable
securities laws. The Committee shall not give permission for such a
transfer if (i) it would give rise to short-swing liability under
Section 16(b) of the Exchange Act, (ii) it may not be made in
compliance with all applicable federal, state and foreign securities
laws or (iii) with respect to any Award granted prior to October 21,
1996 (the effective date of amendments to this Plan to convert this
Plan to be in accordance with Rule 16b-3 as amended effective August
15, 1996), such transfer would occur within six months after the date
of grant of such Award.
(f) Registration. To the extent the issuance to any Permitted
Transferee of any shares of Stock issuable pursuant to Awards
transferred as permitted in this Subsection 10.5 is not registered
pursuant to the effective registration statement of the Corporation
generally covering the shares to be issued pursuant to this Plan to
initial Holders of Awards, the Corporation shall not have any
obligation to register the issuance of any such shares of Stock to any
such transferee.
(g) Option Status. To the extent a permitted transfer of an
Incentive Option under this Section 10.5 would cause an Incentive
Option (or any portion thereof) to fail to constitute an incentive
stock option under Section 422 of the Code, such portion of the
Incentive Option shall be deemed to be a Nonstatutory Option under this
Plan.
10.6 Forfeiture and Restrictions on Transfer. Each Award Agreement may
contain or otherwise provide for conditions giving rise to the forfeiture of the
Stock acquired pursuant to an Award or otherwise and may also provide for those
restrictions on the transferability of shares of the Stock acquired pursuant to
an Award or otherwise that the Committee in its sole and absolute discretion may
deem proper or advisable. The conditions giving rise to forfeiture may include,
but need not be limited to, the requirement that the Holder render substantial
services to the Corporation or its Subsidiaries for a specified period of time.
The restrictions on transferability may include, but need not be limited to,
options and rights of first refusal in favor of the Corporation and stockholders
of the Corporation other than the Holder of such shares of Stock who is a party
to the particular Award Agreement or a subsequent holder of the shares of Stock
who is bound by that Award Agreement.
10.7 Delivery of Certificates of Stock. Subject to Subsection 10.8, the
Corporation shall promptly issue and deliver a certificate representing the
number of shares of Stock as to which (a) an Option has been exercised after the
Corporation receives an Exercise Notice and upon receipt by the Corporation of
the Exercise Price and any tax withholding as may be requested, (b) a Stock
Appreciation Right has been exercised (to the extent the Committee determines to
pay such Stock Appreciation Right in shares of Stock pursuant to Subsection 6.5)
and upon receipt by the Corporation of any tax withholding as may be requested,
and (c) restrictions have lapsed with respect to a Restricted Stock Award and
upon receipt by the Corporation of any tax withholding as may be requested. The
value of the shares of Stock or cash transferable because of an Award under the
Plan shall not bear any interest owing to the passage of time, except as may be
otherwise provided in an Award Agreement. If a Holder is entitled to receive
certificates representing Stock received for more than one form of Award under
the Plan, separate Stock certificates shall be issued with respect to Incentive
Options and Nonstatutory Options.
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<PAGE> 22
10.8 Conditions to Delivery of Stock. Nothing herein or in any Award
granted hereunder or any Award Agreement shall require the Corporation to issue
any shares with respect to any Award if that issuance would, in the opinion of
counsel for the Corporation, constitute a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable statute or
regulation, or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of an Option or
Stock Appreciation Right, or at the time of any grant of a Restricted Stock
Award, the Corporation may, as a condition precedent to the exercise of such
Option or Stock Appreciation Right or vesting of any Restricted Stock Award,
require from the Holder of the Award (or in the event of his death, his legal
representatives, heirs, legatees, or distributees) such written representations,
if any, concerning the Holder's intentions with regard to the retention or
disposition of the shares of Stock being acquired pursuant to the Award and such
written covenants and agreements, if any, as to the manner of disposal of such
shares as, in the opinion of counsel to the Corporation, may be necessary to
ensure that any disposition by that Holder (or in the event of the Holder's
death, his legal representatives, heirs, legatees, or distributees) will not
involve a violation of the Securities Act or any similar or superseding statute
or statutes, any other applicable state or federal statute or regulation, or any
rule of any applicable securities exchange or securities association, as then in
effect.
10.9 Certain Directors and Officers. With respect to Holders who are
directors or officers of the Corporation or any of its Subsidiaries and who are
subject to Section 16(b) of the Exchange Act, Awards granted prior to the date
the stockholders of the Corporation shall have approved the Plan shall be
subject to such stockholder approval, may not be transferred or exercised, as
applicable, until such stockholder approval is obtained, and shall become null
and void on the first anniversary of the Effective Date if such stockholder
approval is not obtained on or before the Effective Date. In addition, no such
officer or director shall have shares of Stock withheld to pay tax withholding
obligations unless permitted under Rule 16b-3 and agreed to by the Committee.
Any election by any such officer or director to have tax withholding obligations
satisfied by the withholding of shares of Stock shall be irrevocable, shall be
communicated in writing to the Committee and shall be subject to prior approval
by Board of Directors, the Committee or the shareholders of the Corporation as
provided by Rule 16b-3. Any election by such an officer or director to receive
cash in full or partial settlement of a Stock Appreciation Right, as well as any
exercise by such individual of a Stock Appreciation Right for such cash, in
either case to the extent permitted under the applicable Award Agreement or
otherwise permitted by the Committee, shall be subject to prior approval by the
Board of Directors, the Committee or the shareholders of the Corporation as
provided by Rule 16b-3.
10.10 Securities Act Legend. Certificates for shares of Stock, when
issued, may have the following legend, or statements of other applicable
restrictions, endorsed thereon and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER)
THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Stock issued pursuant to an
effective registration statement under the Securities Act.
10.11 Legend for Restrictions on Transfer. Each certificate
representing shares issued to a Holder pursuant to an Award granted under the
Plan shall, if such shares are subject to any transfer restriction, including a
right of first refusal, provided for under the Plan or an Award Agreement, bear
a legend that complies with applicable law with respect to the restrictions on
transferability contained in this Subsection 10.11, such as:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY IMPOSED BY THAT CERTAIN INSTRUMENT
ENTITLED "CHASE INDUSTRIES INC. 1994 LONG-TERM INCENTIVE PLAN" AS
ADOPTED BY CHASE INDUSTRIES INC. (THE "CORPORATION"), AND DATED
NOVEMBER 10, 1994, AND AN
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<PAGE> 23
AGREEMENT THEREUNDER BETWEEN THE CORPORATION AND THE INITIAL HOLDER
THEREOF DATED ___________, 199__, AND MAY NOT BE TRANSFERRED, SOLD, OR
OTHERWISE DISPOSED OF EXCEPT AS THEREIN PROVIDED. THE CORPORATION WILL
FURNISH A COPY OF SUCH INSTRUMENT AND AGREEMENT TO THE RECORD HOLDER OF
THIS CERTIFICATE WITHOUT CHARGE ON REQUEST TO THE CORPORATION AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
10.12 Rights as a Stockholder. A Holder shall have no right as a
stockholder with respect to any shares covered by his Award until a certificate
representing those shares is issued in his name. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is before the date that
certificate is issued, except as contemplated by Section 9 hereof. Nevertheless,
dividends, dividend equivalent rights and voting rights may be extended to and
made part of any Award (other than Options or Stock Appreciation Rights)
denominated in Stock or units of Stock, subject to such terms, conditions and
restrictions as the Committee may establish. The Committee may also establish
rules and procedures for the crediting of interest on deferred cash payments and
dividend equivalents for deferred payment denominated in Stock or units of
Stock.
10.13 Furnish Information. Each Holder shall furnish to the Corporation
all information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
10.14 Obligation to Exercise. The granting of an Award hereunder shall
impose no obligation upon a Holder to exercise the same or any part thereof.
10.15 Adjustments to Awards. Subject to the general limitations set
forth in Sections 5, 6, and 9, the Committee may make any adjustment in the
exercise price of, the number of shares subject to, or the terms of a
Nonstatutory Option or Stock Appreciation Right by canceling an outstanding
Nonstatutory Option or Stock Appreciation Right and regranting a Nonstatutory
Option or Stock Appreciation Right. Such adjustment shall be made by amending,
substituting, or regranting an outstanding Nonstatutory Option or Stock
Appreciation Right. Such amendment, substitution, or regrant may result in terms
and conditions that differ from the terms and conditions of the original
Nonstatutory Option or Stock Appreciation Right. The Committee may not, however,
impair the rights of any Holder of previously granted Nonstatutory Options or
Stock Appreciation Rights without that Holder's consent. If such action is
effected by amendment, such amendment shall be deemed effective as of the Date
of Grant of the amended Award.
10.16 Remedies. The Corporation shall be entitled to recover from a
Holder reasonable attorneys' fees incurred in connection with the enforcement of
the terms and provisions of the Plan and any Award Agreement whether by an
action to enforce specific performance or for damages for its breach or
otherwise.
10.17 Information Confidential. As partial consideration for the
granting of each Award hereunder, a Holder shall agree with the Corporation that
he will keep confidential all information and knowledge that he has relating to
the manner and amount of his participation in the Plan; provided, however, that
such information may be disclosed as required by law and may be given in
confidence to the Holder's spouse, tax or financial advisors, or to a financial
institution to the extent that such information is necessary to secure a loan.
In the event any breach of this promise comes to the attention of the Committee,
it shall take into consideration that breach in determining whether to recommend
the grant of any future Award to that Holder, as a factor mitigating against the
advisability of granting any such future Award to that Person.
10.18 Consideration. No Option or Stock Appreciation Right shall be
exercisable and no restriction on any Restricted Stock Award shall lapse with
respect to a Holder unless and until the Holder thereof shall have paid cash or
property to, or performed services for, the Corporation or any of its
Subsidiaries that the Committee believes is equal to or greater in value than
the par value of the Stock subject to such Award.
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<PAGE> 24
SECTION 11. EFFECTIVENESS, DURATION AND AMENDMENT OF PLAN
11.1 Effectiveness; Duration. Notwithstanding the provisions of the
Plan, Awards granted prior to the date the stockholders of the Corporation
approve the Plan shall be subject to such stockholder approval and may not be
transferred or exercised, as applicable, until such stockholder approval is
obtained. No Awards may be granted hereunder after the date that is ten years
after the Effective Date.
11.2 Amendment. The Committee may, insofar as permitted by law and
subject to ratification of the Board of Directors, with respect to any shares
which, at the time, are not subject to Awards, suspend or discontinue the Plan
or revise or amend it in any respect whatsoever and may amend any provision of
the Plan or any Award Agreement to make the Plan or the Award Agreement, or
both, comply with Section 16(b) of the Exchange Act and the exemptions from
those sections in the regulations thereunder. The Committee may also, subject to
ratification of the Board of Directors, amend, modify, suspend, or terminate the
Plan for the purpose of meeting or addressing any changes in other legal
requirements applicable to the Corporation or the Plan or for any other purpose
permitted by law. The Plan may not be amended without the consent of the holders
of a majority of the shares of Stock then outstanding to (a) increase materially
the aggregate number of shares of Stock that may be issued under the Plan
(except for adjustments pursuant to Section 9 hereof), (b) increase materially
the benefits accruing to Eligible Individuals under the Plan, or (c) modify
materially the requirements about eligibility for participation in the Plan;
provided, however, that such amendments may be made without the consent of
stockholders of the Corporation to the extent applicable law and other legal
requirements (including Rule 16b-3 or Section 162(m)) permit such changes
without shareholder approval. Notwithstanding the provisions of this Subsection
11.2, the Committee specifically shall have the authority, subject to
ratification by the Board of Directors, to amend the Plan (without approval of
the holders of the shares of Stock then outstanding) to the extent required to
cause the Plan, as it relates to Options and Stock Appreciation Rights granted
to Eligible Individuals subject to Section 162(m), to comply with the
requirements for classification of Awards as "performance-based compensation"
under Section 162(m)(4)(C), except for such amendments that require such
stockholder approval under Section 162(m).
SECTION 12. GENERAL
12.1 Application of Funds. The proceeds received by the Corporation
from the sale of shares pursuant to Awards may be used for any general corporate
purpose.
12.2 Right of the Corporation and Subsidiaries to Terminate Employment.
Nothing contained in the Plan, or in any Award Agreement, shall confer upon any
Holder the right to continue in the employ of the Corporation or any Subsidiary
or interfere in any way with the rights of the Corporation or any Subsidiary to
terminate the Holder's employment at any time.
12.3 No Liability for Good Faith Determinations. Neither the members of
the Board of Directors nor any member of the Committee shall be liable for any
act, omission or determination taken or made in good faith with respect to the
Plan or any Award granted under it; and members of the Board of Directors and
the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising therefrom to the full extent permitted by law and under any
directors' and officers' liability or similar insurance coverage that may from
time to time be in effect. This right to indemnification shall be in addition
to, and not a limitation on, any other indemnification rights any member of the
Board of Directors or the Committee may have.
12.4 Other Benefits. Participation in the Plan shall not preclude a
Holder from eligibility in any other stock or stock option plan of the
Corporation or any Subsidiary or any old age benefit, insurance, pension, profit
sharing, retirement, bonus, or other extra compensation plans that the
Corporation or any Subsidiary has adopted, or may, at any time, adopt for the
benefit of its Employees. Neither the adoption of the Plan by the Board of
Directors nor the submission of the Plan to the stockholders of the Corporation
for approval shall be construed as creating any
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<PAGE> 25
limitations on the power of the Board of Directors to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and the awarding of stock and cash otherwise than
under the Plan and such arrangements may be either generally applicable or
applicable only in specific cases.
12.5 Exclusion from Pension and Profit-Sharing Compensation. By
acceptance of an Award (regardless of form), as applicable, each Holder shall be
deemed to have agreed that the Award is special incentive compensation that will
not be taken into account in any manner as salary, compensation, or bonus in
determining the amount of any payment under any pension, retirement, or other
employee benefit plan of the Corporation or any Subsidiary unless any pension,
retirement, or other employee benefit plan of the Corporation or any Subsidiary
expressly provides that such Award shall be so considered for purposes of
determining the amount of any payment under any such plan. In addition, each
beneficiary of a deceased Holder shall be deemed to have agreed that the Award
will not affect the amount of any life insurance coverage, if any, provided by
the Corporation or a Subsidiary on the life of a Holder that is payable to the
beneficiary under any life insurance plan covering employees of the Corporation
or any Subsidiary.
12.6 Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock to a Holder, or to his legal
representative, heir, legatee, or distributee, in accordance with the provisions
hereof, shall, to the extent thereof, be in full satisfaction of all claims of
such persons hereunder. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt therefor in such form as it shall
determine.
12.7 Unfunded Plan. Insofar as it provides for Awards of cash and
Stock, the Plan shall be unfunded. Although bookkeeping accounts may be
established with respect to Holders who are entitled to cash, Stock, or rights
thereto under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Corporation shall not be required to segregate any assets that
may at any time be represented by cash, Stock, or rights thereto, nor shall the
Plan be construed as providing for such segregation, nor shall the Corporation
nor the Board of Directors nor the Committee be deemed to be a trustee of any
cash, Stock, or rights thereto to be granted under the Plan. Any liability of
the Corporation to any Holder with respect to a grant of cash, Stock, or rights
thereto under the Plan shall be based solely upon any contractual obligations
that may be created by the Plan and any Award Agreement; no such obligation of
the Corporation shall be deemed to be secured by any pledge or other encumbrance
on any property of the Corporation. Neither the Corporation nor the Board of
Directors nor the Committee shall be required to give any security or bond for
the performance of any obligation that may be created by the Plan.
12.8 No Guarantee of Interests. Neither the Committee nor the
Corporation guarantees the Stock of the Corporation from loss or depreciation.
12.9 Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Corporation or its Subsidiaries.
12.10 Corporation Records. Records of the Corporation or its
Subsidiaries regarding a Holder's period of employment, termination of
employment and the reason therefor, leaves of absence, re-employment, and other
matters shall be conclusive for all purposes hereunder, unless determined by the
Committee to be incorrect.
12.11 Information. The Corporation and its Subsidiaries shall, upon
request or as may be specifically required hereunder, furnish or cause to be
furnished all of the information or documentation which is necessary or required
by the Committee to perform its duties and functions under the Plan.
12.12 No Liability of Corporation. The Corporation assumes no
obligation or responsibility to a Holder or his legal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of, the
Committee.
12.13 Corporation Action. Any action required of the Corporation shall
be by resolution of its Board of Directors or by a person authorized to act by
resolution of the Board of Directors.
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<PAGE> 26
12.14 Severability. If any provision of this Plan is held to be illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included herein. If any of the terms or provisions of this Plan or
any Award Agreement conflict with the requirements of Rule 16b-3 (as those terms
or provisions are applied to Eligible Individuals who are subject to Section
16(b) of the Exchange Act) or Section 422 of the Code (with respect to Incentive
Options), then those conflicting terms or provisions shall be deemed inoperative
to the extent they so conflict with the requirements of Rule 16b-3 (unless the
Board of Directors or the Committee, as appropriate, has expressly determined
that the Plan or such Award should not comply with Rule 16b-3) or Section 422 of
the Code. With respect to Incentive Options, if this Plan does not contain any
provision required to be included herein under Section 422 of the Code, that
provision shall be deemed to be incorporated herein with the same force and
effect as if that provision had been set out at length herein; provided,
further, that, to the extent any Option that is intended to qualify as an
Incentive Option cannot so qualify, that Option (to that extent) shall be deemed
a Nonstatutory Option for all purposes of the Plan.
12.15 Notices. Whenever any notice is required or permitted hereunder,
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is actually received, addressed to the
applicable party as specified in the applicable Award Agreement. The Corporation
or a Holder may change, at any time and from time to time, by written notice to
the other, the address which it or he had previously specified for receiving
notices. Until changed in accordance herewith, the Corporation and each Holder
shall specify as its and his address for receiving notices the address set forth
in the Award Agreement pertaining to the shares to which such notice relates.
Any person entitled to notice hereunder may waive such notice.
12.16 Successors. The Plan shall be binding upon the Holder, his legal
representatives, heirs, legatees, and distributees, upon the Corporation, its
successors and assigns and upon the Committee and its successors.
12.17 Headings. The titles and headings of Sections and Subsections are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
12.18 Governing Law. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Delaware, without giving effect to any conflict of law provisions
thereof, except to the extent Delaware law is preempted by federal law.
Questions arising with respect to the provisions of an Award Agreement that are
matters of contract law shall be governed by the laws of the state specified in
the Award Agreement, except to the extent Delaware corporate law conflicts with
the contract law of such state, in which event Delaware corporate law, without
giving effect to any conflict of law provisions thereof, shall govern. The
obligation of the Corporation to sell and deliver Stock hereunder is subject to
applicable federal and state laws and to the approval of any governmental
authority required in connection with the authorization, issuance, sale, or
delivery of such Stock.
12.19 Availability of Exempt Transactions. Notwithstanding the
provisions of the Plan, nothing contained in the Plan shall prohibit any
transactions permitted by Rule 16a-2(d) promulgated under the Exchange Act to
the extent such transactions are approved by the Committee and are not in
violation of, and do not otherwise cause the Plan not to be in compliance with,
Rule 16b-3.
12.20 Word Usage. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of the Plan dictates, the
plural shall be read as the singular and the singular as the plural.
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<PAGE> 27
IN WITNESS WHEREOF, Chase Industries Inc., acting by and through its
officer hereunto duly authorized, has executed this instrument, to be effective
as of May 14, 1997.
CHASE INDUSTRIES INC.
By: /s/ MICHAEL T SEGRAVES
--------------------------------------------
Michael T. Segraves,
Vice President and Secretary
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<PAGE> 1
EXHIBIT 10.5
CHASE INDUSTRIES INC.
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AS AMENDED MAY 26, 1998
SCOPE AND PURPOSE OF PLAN
Chase Industries Inc., a Delaware corporation (the "Corporation"), has
adopted this 1997 Non-Employee Director Stock Option Plan (this "Plan") to
provide for the granting of Options (hereafter defined) to Non-Employee
Directors (hereafter defined).
The purpose of this Plan is to aid the Corporation in attracting highly
qualified individuals to serve as Non-Employee Directors (hereafter defined) of
the Corporation, and to extend to Non-Employee Directors the opportunity to
acquire additional proprietary interests in the Corporation, providing an
incentive for Non-Employee Directors of the Corporation to remain in the service
of the Corporation and apply their best efforts to maximize the success of the
Corporation.
SECTION 1. DEFINITIONS
1.1 "Acquiring Person" means any Person other than (a) the Corporation,
any Subsidiary of the Corporation, any employee benefit plan of the Corporation
or of a Subsidiary of the Corporation or of a corporation owned directly or
indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of Stock of the Corporation, or any trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation or of a Subsidiary of the Corporation or of a corporation owned
directly or indirectly by the stockholders of the Corporation in substantially
the same proportions as their ownership of Stock of the Corporation (b) Citicorp
Venture Capital, Ltd., a New York corporation ("CVC"), or (c) any Affiliate of
CVC that is directly controlled by Citicorp or Citibank, N.A., or otherwise is
in the same tier as CVC of Affiliates under the control of such entities
("Direct Affiliates"), but shall not include any entities that may be deemed an
Affiliate of CVC as a result of the investment by any Direct Affiliate in such
entity.
1.2 "Affiliate" means (a) any Person who is directly or indirectly the
beneficial owner of at least 10% of the voting power of the outstanding Voting
Securities of the Corporation or (b) any Person controlling, controlled by, or
under common control with the Corporation or any Person contemplated in clause
(a) of this Subsection 1.2.
1.3 "Annual Retainer" means the compensation to which a Non-Employee
Director is entitled as a retainer for service as a director of the Corporation
during a Plan Year, exclusive of (1) any fees paid to such director for
attending meetings of the Board of Directors or meetings of any committee of the
Board of Directors, (2) any other amounts paid to such director on a per-meeting
basis, or (3) any amounts paid by the Corporation or its Subsidiaries to such
director for services rendered to the Corporation or its Subsidiaries in a
capacity other than as a director.
1.4 "Award Agreement" means the written agreement between the
Corporation and a Holder evidencing the terms, conditions, and limitations of
the Options granted to that Holder.
1.5 "Board of Directors" means the board of directors of the
Corporation.
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<PAGE> 2
1.6 "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in the state of Ohio are authorized or
obligated by law or executive order to close.
1.7 "Change in Control" means the event that is deemed to have occurred
if:
(a) any Acquiring Person is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing fifty percent
or more of the combined voting power of the then outstanding Voting
Securities of the Corporation; or
(b) a public announcement is made of a tender or exchange
offer by any Acquiring Person for fifty percent or more of the
outstanding Voting Securities of the Corporation, and the Board of
Directors approves or fails to oppose that tender or exchange offer in
its statements in Schedule 14D-9 under the Exchange Act; provided,
however, that the events to occur under Subsection 8.1 hereof shall not
occur solely as a result of an event described in this clause (b)
unless, within one year after the occurrence of such event, an event
described in clauses (a), (c) or (d) hereof shall have occurred, in
which case such events to occur under Subsection 8.1 hereof shall occur
upon the occurrence of such event but shall be deemed to have been
effective as of the time of the occurrence of the event described in
this clause (b); or
(c) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation or
partnership (or, if no such approval is required, the consummation of
such a merger or consolidation of the Corporation), other than a merger
or consolidation that would result in the Voting Securities of the
Corporation outstanding immediately before the consummation thereof
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity or of a parent
of the surviving entity) a majority of the combined voting power of the
Voting Securities and Convertible Voting Securities (on a fully-diluted
basis assuming full conversion thereof) of the surviving entity (or its
parent) outstanding immediately after that merger or consolidation; or
(d) the stockholders 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 the
Corporation's assets (or, if no such approval is required, the
consummation of such a liquidation, sale, or disposition in one
transaction or series of related transactions) other than a
liquidation, sale or disposition of all or substantially all the
Corporation's assets in one transaction or a series of related
transactions to a Subsidiary of the Corporation or any other
corporation owned directly or indirectly by the stockholders of the
Corporation in substantially the same proportions as their ownership of
stock in the Corporation.
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
1.9 "Committee" means the committee appointed pursuant to Section 3 by
the Board of Directors to administer this Plan.
1.10 "Convertible Voting Securities" means any and all options,
warrants, or other rights to purchase, or securities convertible into or
exchangeable or exercisable for, directly or indirectly, Voting Securities of
any Person.
1.11 "Corporation" means Chase Industries Inc., a Delaware corporation.
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<PAGE> 3
1.12 "Date of Grant" has the meaning given it in Subsection 4.3.
1.13 "Disability" has the meaning given it in Subsection 10.2.
1.14 "Disinterested Person" means a Person that meets the definition of
a "Non-Employee Director" under Rule 16b-3(b)(3).
1.15 "Effective Date" means the date this Plan is approved by the
stockholders of the Corporation.
1.16 "Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.
1.17 "Exercise Notice" has the meaning given it in Subsection 7.3.
1.18 "Exercise Price" means the price per share at which one share of
Stock may be purchased pursuant to an Option, as specified in Subsection 5.1 or
6.1, as applicable.
1.19 "Fair Market Value" means, for a particular day:
(a) If shares of Stock of the same class are listed or
admitted to unlisted trading privileges on any national or regional
securities exchange at the date of determining the Fair Market Value,
then the last reported sale price, regular way, on the composite tape
of that exchange as of the date or dates on which Fair Market Value is
to be determined or, if no such sale takes place on such date or dates,
the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to unlisted
trading privileges on that securities exchange; or
(b) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subsection
1.19(a) and sales prices for shares of Stock of the same class in the
over-the-counter market are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ") National
Market System (or such other system then in use) at the date or dates
of determining the Fair Market Value, then the last reported sales
price so reported as of the date or dates on which Fair Market Value is
to be determined or, if no such sale takes place on such date or dates,
the average of the high bid and low asked prices so reported; or
(c) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subsection
1.19(a) and sales prices for shares of Stock of the same class are not
reported by the NASDAQ National Market System (or a similar system then
in use) as provided in Subsection 1.20(b), and if bid and asked prices
for shares of Stock of the same class in the over-the-counter market
are reported by NASDAQ (or, if not so reported, by the National
Quotation Bureau Incorporated) at the date or dates of determining the
Fair Market Value, then the average of the high bid and low asked
prices on the last trading day before the date in question;
provided, that if information to establish Fair Market Value of the Stock
pursuant to this Subsection 1.19 is not available on any date or dates for which
Fair Market Value is to be determined, subclause (a), (b) or (c), as applicable,
shall be applied for the next preceding date on which such information is
available.
1.20 "Holder" means a Non-Employee Director to whom an outstanding
Option has been granted under this Plan or a transferee of any Option granted
under this Plan as permitted under Subsection 12.3.
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<PAGE> 4
1.21 "Non-Employee Director" means a director of the Corporation who
while a director is not an employee or an officer of the Corporation or any
Subsidiary of the Corporation.
1.22 "Meetings Fees" means compensation to which a Non-Employee
Director is entitled for attending a meeting of the Board of Directors or a
meeting of any committee of the Board of Directors, exclusive of any amounts
paid by the Corporation or its Subsidiaries to such director for services
rendered to the Corporation or its Subsidiaries in a capacity other than as a
director.
1.23 "Non-Surviving Event" means an event of Restructuring as described
in either Subsection 1.29(b) or Subsection 1.29(c).
1.24 "Option" means an option to purchase Stock granted pursuant to
this Plan; Options granted under this Plan are not "incentive stock options"
under Section 422 of the Code.
1.25 "Participant" means a Non-Employee Director who has been granted
an Option pursuant to Section 5 or has elected in accordance with Section 4.2(b)
to receive Options in lieu of receiving all or part of such Non-Employee
Director's Annual Retainer.
1.26 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company, a
corporation, a partnership, a trust, or other entity. A Person, together with
that Person's affiliates and associates (as "affiliate" and "associate" are
defined in Rule 12b-2 under the Exchange Act for purposes of this definition
only), and any Persons acting as a partnership, limited partnership, joint
venture, association, syndicate, or other group (whether or not formally
organized), or otherwise acting jointly or in concert or in a coordinated or
consciously parallel manner (whether or not pursuant to any express agreement),
for the purpose of acquiring, holding, voting, or disposing of securities of the
Corporation with that Person, shall be deemed a single "Person."
1.27 "Plan" means the Chase Industries Inc. 1997 Non-Employee Director
Stock Option Plan, as it may be amended from time to time.
1.28 "Plan Year" means the twelve (12) consecutive month period
beginning January 1 and ending December 31.
1.29 "Restructuring" means the occurrence of any one or more of the
following:
(a) The merger or consolidation of the Corporation with any
Person, whether effected as a single transaction or a series of related
transactions, with the Corporation remaining the continuing or
surviving entity of that merger or consolidation and the Stock
remaining outstanding and not changed into or exchanged for stock or
other securities of any other Person or of the Corporation, cash, or
other property;
(b) The merger or consolidation of the Corporation with any
Person, whether effected as a single transaction or a series of related
transactions, with (i) the Corporation not being the continuing or
surviving entity of that merger or consolidation or (ii) the
Corporation remaining the continuing or surviving entity of that merger
or consolidation but all or a part of the outstanding shares of Stock
are changed into or exchanged for stock or other securities of any
other Person or the Corporation, cash, or other property; or
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<PAGE> 5
(c) The transfer, directly or indirectly, of all or
substantially all of the assets of the Corporation (whether by sale,
merger, consolidation, liquidation, or otherwise) to any Person,
whether effected as a single transaction or a series of related
transactions.
1.30 "Retirement" means, with respect to a Non-Employee Director,
resignation from the position as a member of the Board of Directors (including
as a result of declining to accept a nomination or otherwise stand for
reelection) on or after the date of the fifth annual meeting of stockholders of
the Corporation held after the date on which such Non-Employee Director was
first elected or appointed to the Board of Directors.
1.31 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange
Act, or any successor rule, as it may be amended from time to time, and
references to paragraphs or clauses of Rule 16b-3 shall refer to the
corresponding paragraphs or clauses of Rule 16b-3 as it exists at the Effective
Date or the comparable paragraph or clause of Rule 16b-3 as it may thereafter be
amended.
1.32 "Securities Act" means the Securities Act of 1933 and the rules
and regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.
1.33 "Stock" means the Corporation's authorized common stock, par value
$.01 per share, or any other securities that are substituted for the Stock as
provided in Subsection 8.1 or Section 9.
1.34 "Stock Appreciation Right" or "SAR" means the right to receive an
amount equal to the excess of the Fair Market Value of a share of Stock (as
determined on the date of exercise) over the Exercise Price.
1.35 "Subsidiary" means, with respect to any Person, any corporation,
or other entity of which a majority of the Voting Securities is owned, directly
or indirectly, by that Person.
1.36 "Total Shares" has the meaning given it in Subsection 8.1.
1.37 "Voting Securities" means (i) any securities that are entitled to
vote generally in the election of directors, in the admission of general
partners or in the selection of any other similar governing body and (ii) with
respect to the Corporation, all shares of the Corporation's nonvoting common
stock, par value $.01 per share (all of which are convertible into shares of the
Corporation's common stock, par value $.01 per share).
SECTION 2. SHARES OF STOCK SUBJECT TO THIS PLAN
2.1 Maximum Number of Shares. Subject to the provisions of Subsection
2.2 and Section 9 of this Plan, the aggregate number of shares of Stock that may
be issued, transferred or exercised pursuant to Options under this Plan shall be
ONE HUNDRED THOUSAND (100,000) shares of Stock.
2.2 Limitation of Shares. For purposes of the limitations specified in
Subsection 2.1, the following principles shall apply:
(a) the number of shares of Stock subject to outstanding
Options shall count against and decrease the number of shares of Stock
that may be issued for purposes of Subsection 2.1;
(b) the number of shares of Stock with respect to which
Options have expired, are cancelled, or otherwise terminate without
being exercised, converted, or vested, as applicable, and, in the event
SARs are granted pursuant to Subsection 8.1, shares of Stock as to
which an Option
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<PAGE> 6
has been surrendered in connection with the exercise of a related SAR
shall be added back to the number of shares of Stock that may be issued
for purposes of Subsection 2.1; and
(c) the number of shares of Stock that are transferred by a
Holder of an Option (or withheld by the Corporation) as full or partial
payment to the Corporation of the purchase price of shares of Stock
subject to an Option or the Corporation's tax withholding obligations,
if any, shall not be added back to the number of shares of Stock that
may be issued for purposes of Subsection 2.1 and shall not again be
subject to Options.
Notwithstanding the provisions of this Subsection 2.2, the Committee
may impose restrictions which are more limited than set forth herein with
respect to shares of Stock subject to Options that may be added back to the
number of shares of Stock that may be issued for purposes of Subsection 2.1.
2.3 Source of Shares. The shares to be delivered under this Plan shall
be made available from (a) authorized but unissued shares of Stock, (b) Stock
held in the treasury of the Corporation, or (c) previously issued shares of
Stock reacquired by the Corporation, including shares purchased on the open
market, in each situation as the Board of Directors or the Committee may
determine from time to time at its sole option.
2.4 Registration and Listing of Shares. From time to time, the Board of
Directors and appropriate officers of the Corporation shall and are authorized
to take whatever actions are necessary to file required documents with
governmental authorities, stock exchanges, and other appropriate Persons to make
shares of Stock available for issuance pursuant to the exercise of Options.
SECTION 3. ADMINISTRATION OF PLAN
3.1 Committee. The Board of Directors may administer this Plan or may
delegate all or part of that duty to the Committee; provided that the Committee
shall not have the power to appoint members of the Committee. Except for
references in this Subsection 3.1, and unless the context otherwise requires,
references herein to the Committee shall also refer to the Board of Directors as
administrator of this Plan. The Committee shall be constituted so that, as long
as Stock is registered under Section 12 of the Exchange Act, each member of the
Committee shall be a Disinterested Person and so that this Plan in all other
applicable respects will qualify transactions related to this Plan for the
exemptions from Section 16(b) of the Exchange Act provided by Rule 16b-3 to the
extent exemptions thereunder may be available. The number of Persons that shall
constitute the Committee shall be determined from time to time by a majority of
all the members of the Board of Directors and, unless that majority of the Board
of Directors determines otherwise, shall be no less than two Persons.
Notwithstanding the foregoing, the Board of Directors may designate the
Compensation Committee of the Board of Directors to serve as the Committee
hereunder, provided that each member of such Compensation Committee is a
Disinterested Person.
3.2 Committee's Powers. Subject to the express provisions of this Plan
and Rule 16b-3, the Committee shall have such power and authority as may be
necessary or advisable to carry out its functions and duties as described in
this Plan, including the authority, in its sole and absolute discretion, to (a)
interpret this Plan and make such determination as it deems necessary for Plan
administration and to adopt, amend, and rescind administrative and interpretive
rules and regulations relating to this Plan; (b) redeem, pursuant to Subsection
8.2(d), outstanding Options and Stock Appreciation Rights; (c) construe the
respective Award Agreements and this Plan; (d) terminate, modify, or, subject to
Subsection 11.2, amend this Plan; and (e) make all other determinations, perform
all other acts, and exercise all other powers and authority necessary or
advisable for administering this Plan, including the delegation of those
ministerial acts and responsibilities as the Committee deems appropriate.
Subject to Rule 16b-3 and the foregoing, the Committee may correct
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<PAGE> 7
any defect, supply any omission, or reconcile any inconsistency in this Plan, in
any Option, or in any Award Agreement in the manner and to the extent it deems
necessary or desirable to carry this Plan into effect, and the Committee shall
be the sole and final judge of that necessity or desirability. The
determinations of the Committee on the matters referred to in this Subsection
3.2 shall be final and conclusive.
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 Non-Employee Directors. Options may be granted pursuant to this
Plan only to Persons who are Non-Employee Directors at the time of the grant
thereof and, with respect to Options granted pursuant to Subsection 6.1, who
have properly elected in accordance with Subsection 4.2 to be a Participant in
the Plan Year in which the Options were granted.
4.2 Participation.
a. Automatic Awards. Each Non-Employee Director, upon initial
election to the Board of Directors, automatically shall become a Participant in
this Plan for purposes of Section 5.
b. Deferred Retainer Awards. A Non-Employee Director shall
become a Participant for a Plan Year for purposes of Section 6 by filing with
the secretary of the Corporation prior to the first day of such Plan Year an
irrevocable written election in a form prescribed by the Committee ("Annual
Deferral Notice") to receive Options in lieu of all or a portion, in twenty-five
percent (25%) increments, of the Non-Employee Director's Annual Retainer payable
for such upcoming Plan Year; provided that a Non-Employee Director may become a
Participant for purposes of Section 6 (i) for the 1997 Plan Year by filing such
an election by May 31, 1997, with such election to apply with respect to Annual
Retainer amounts attributable to the portion of the 1997 Plan Year from and
after the date of (or a later date specified in) such election and (ii) for the
Plan Year in which such Non-Employee Director is first elected or appointed to
the Board of Directors, by filing such an election within 30 days after election
or appointment to the Board of Directors, with such election to apply with
respect to Annual Retainer amounts attributable to the portion of the Plan Year
in which such Person is elected or appointed to the Board of Directors from and
after the date of (or a later date specified in) such election. Such written
election shall become a part of the Participant's Award Agreement, and a copy
will be attached as an exhibit thereto.
c. Deferred Meeting Fees. A Non-Employee Director who elects
to defer all or a portion of such Non-Employee Director's Annual Retainer for a
Plan Year in accordance with Section 4.2(b) also may elect, by indicating at the
space provided therefor in the Annual Deferral Notice, to receive Options in
lieu of all Meeting Fees that are earned by the Non-Employee Director in such
upcoming Plan Year; provided that a Non-Employee Director may elect to defer
Meeting Fees for the period of the 1998 Plan Year from and after May 26, 1998,
by making such election on May 26, 1998, with such election to apply with
respect to Meeting Fees earned during the 1998 Plan Year from and after the date
of (or a later date specified in) such election and (ii) for the Plan Year in
which such Non-Employee Director is first elected or appointed to the Board of
Directors, by filing such an election within 30 days after election or
appointment to the Board of Directors, with such election to apply with respect
to Meeting Fees earned during the portion of the Plan Year in which such Person
is elected or appointed to the Board of Directors from and after the date of (or
a later date specified in) such election.
4.3 Date of Grant. Notwithstanding that (i) certain terms of the Award
Agreement may not be determined at that time or (ii) the Award Agreement may not
be executed until a later time, the date on which the Options covered by an
Award Agreement is granted (the "Date of Grant"), shall be (A) the date of
election or appointment to the Board of Directors for Options granted pursuant
to Subsection 5.1 and (B) the last day of each calendar quarter of a Plan Year
with respect to Options granted pursuant to Subsection 6.1.
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<PAGE> 8
In no event shall a Holder gain any rights in addition to those specified by
this Plan, as interpreted and administered by the Committee, regardless of the
time that may pass between the grant of the Options and the actual execution of
the Award Agreement by the Corporation and the Holder.
4.4 Award Agreements. Each Option granted under this Plan shall be
evidenced by an Award Agreement in such form and containing such terms as the
Committee shall approve, and which shall not contain any provisions inconsistent
with the terms of this Plan. Options granted pursuant to Section 5.1 shall be
evidenced by one Award Agreement for each Non-Employee Director and Options
granted under Section 6.1 to a Non-Employee Director for a Plan Year shall be
evidenced by separate Award Agreements for Options granted as of the end of each
calendar quarter in such Plan Year in which Options are granted.
SECTION 5. AUTOMATIC GRANTS OF OPTIONS
5.1 Automatic Options Granted to Non-Employee Directors Elected or
Appointed After the Effective Date. Each Non-Employee Director who is elected or
appointed to the Board of Directors after the Effective Date, and has not served
as a member of the Board of Directors before such date, shall be awarded an
Option to purchase 7,500 shares of Stock upon the date of such election or
appointment to the Board of Directors.
5.2 Exercisability. Subject to Section 8, each Option granted pursuant
to this Section 5 shall become exercisable with respect to 1,500 shares of Stock
on each of the first five anniversaries of the Date of Grant.
5.3 Exercise Price. The per share Exercise Price of Options granted
pursuant to Subsection 5.1 shall be the average Fair Market Value of a share of
Stock for the five trading days immediately preceding the effective date of the
grantees' election or appointment to the Board of Directors.
SECTION 6. STOCK OPTIONS UPON DEFERRAL OF ANNUAL RETAINER AND MEETING FEES
6.1 Number of Shares. Subject to Subsections 6.4 and 6.5, a Participant
shall be granted Options as of the last day in each calendar quarter of a Plan
Year in accordance with the following formula, provided that the Participant has
filed with the Company a written election of deferral of his or her Annual
Retainer and, if applicable, Meeting Fees for such Plan Year in accordance with
Subsection 4.2:
<TABLE>
<S> <C>
25% of the Annual Retainer Amount to Number of Shares (rounded up to
be Deferred for such Plan Year +, if = the nearest whole share)
Meeting Fees are to be deferred for
such Plan Year, all Meeting Fees
earned during the calendar quarter in
which the Date of Grant occurs
- - --------------------------------------
50% of the average Fair Market Value
of a share of Stock for the last five
trading days of the calendar quarter
in which the Date of Grant occurs
</TABLE>
Subject to Subsection 6.4, that portion of the numerator of the above fraction
attributable to the Annual Retainer shall be determined according to the amount
of Annual Retainer elected to be deferred for the Plan Year by the Participant
in accordance with Subsection 4.2(b).
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<PAGE> 9
6.2 Exercisability. Each Option granted pursuant to this Section 6
shall become exercisable in full on the Date of Grant.
6.3 Exercise Price. The per share Exercise Price of Options granted
pursuant to Subsection 6.1 shall be 50% of the average Fair Market Value of a
share of Stock for the last five trading days of the calendar quarter in which
the Date of Grant of such Options occur, such that Options granted to a
Participant over a Plan Year shall have four separate exercise prices.
6.4 Participation Commencing During a Plan Year. In the event a
Participant elects to defer all or a portion of his or her Annual Retainer after
the start of a Plan Year as permitted by the proviso of Subsection 4.2(b), the
numerator in the formula set forth in Subsection 6.1 shall be adjusted with
respect to such Participant for such Plan Year to reflect the portion of the
deferred Annual Retainer attributable to each remaining calendar quarter (or
portion thereof) in the Plan Year to which any such initial election relates.
6.5 Termination of Status as Non-Employee Director. Notwithstanding the
provisions of Subsection 6.1, if a Non-Employee Director who has made an
election pursuant to Subsection 4.2(b) or (c) ceases to be a Non-Employee
Director during a Plan Year to which such election relates, no Options will be
granted to such Non-Employee Director for the calendar quarter in which such
Participant ceases to be a Non-Employee Director or for any period thereafter.
Any Annual Retainer and Meeting Fees earned for the calendar quarter in which
such Participant ceases to be a Non-Employee Director shall be paid in cash and,
upon such payment, the Corporation shall have no further obligation under this
Plan to such Participant other than with respect to Options and SARs (if any)
granted under this Plan and outstanding as of the date such Participant ceases
to be a Non-Employee Director.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS
All options granted under this Plan shall comply with, and the related
Award Agreements shall be deemed to include and be subject to, the terms and
conditions set forth in this Section 7 (to the extent each term and condition
applies to the form of Option) and also to the terms and conditions set forth in
Sections 8, 9 and 10.
7.1 Expiration of Options. Subject to the provisions in Section 10,
each Option shall expire ten (10) years after the Date of Grant of such Option.
7.2 Exercise Price. Each Award Agreement shall state that the Exercise
Price shall be the exercise price per share of Stock as calculated pursuant to
Section 5.3 or 6.3, as applicable.
7.3 Method of Exercise. The Option shall be exercisable only by written
notice of exercise (the "Exercise Notice") delivered to the Corporation during
the term of the Option, which notice shall (a) state the number of shares of
Stock with respect to which the Option is being exercised, (b) be signed by the
Holder of the Option or, if the Holder is dead or becomes affected by a
Disability, by the person authorized to exercise the Option pursuant to
Subsection 10.2, (c) be accompanied by payment of the Exercise Price for all
shares of Stock for which the Option is being exercised, and (d) include such
other information, instruments, and documents as may be required by the
Committee to evidence such Holder's authority to exercise the Option or as
otherwise required as provided by Subsection 10.5. The Option shall not be
deemed to have been exercised unless all of the requirements of the preceding
provisions of this Subsection 7.3 have been satisfied.
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<PAGE> 10
7.4 Medium and Time of Payment. The Exercise Price of an Option shall
be payable in full upon the exercise of the Option (a) in cash or by an
equivalent means acceptable to the Committee; (b) on the Committee's prior
consent, with shares of Stock owned by the Holder (including shares received
upon exercise of the Option) and having a Fair Market Value at least equal to
the aggregate Exercise Price payable in connection with such exercise; or (c) by
any combination of clauses (a) and (b). If the Committee elects to accept shares
of Stock in payment of all or any portion of the Exercise Price, then (for
purposes of payment of the Exercise Price) those shares of Stock shall be deemed
to have a cash value equal to their aggregate Fair Market Value determined as of
the date the certificate for such shares, duly endorsed for transfer to the
Corporation and free from any restriction on transfer, is delivered to the
Corporation.
7.5 Payment with Sale Proceeds. In addition, at the request of a Holder
and to the extent permitted by applicable law, the Committee may (but shall not
be required to) approve arrangements with a brokerage firm under which that
brokerage firm, on behalf of the Holder, shall pay to the Corporation the
Exercise Price of the Option being exercised and the Corporation shall promptly
deliver the exercised shares of Stock to the brokerage firm. To accomplish this
transaction, the Holder must deliver to the Corporation an Exercise Notice
containing irrevocable instructions from the Holder to the Corporation to
deliver the Stock certificates representing the shares of Stock directly to the
broker. Upon receiving a copy of the Exercise Notice acknowledged by the
Corporation, the broker shall sell that number of shares of Stock or loan the
Holder an amount sufficient to pay the Exercise Price. The broker then shall
deliver to the Corporation that portion of the sale or loan proceeds necessary
to cover the Exercise Price. The Committee shall not approve any transaction of
this nature if the Committee believes that the transaction would give rise to
the Holder's liability for short-swing profits under Section 16(b) of the
Exchange Act.
7.6 No Fractional Shares. The Corporation shall not in any case be
required to sell, issue, or deliver a fractional share with respect to any
Option. In lieu of the issuance of any fractional share of Stock, the
Corporation shall pay to the Holder an amount in cash equal to the same fraction
(as the fractional Stock) of the Fair Market Value of a share of Stock
determined as of the date of the applicable Exercise Notice.
7.7 Available Stock. The Options to be granted pursuant to Subsections
5.1 and 6.1 shall be made in the amounts specified therein only if, as of the
Date of Grant of any such Options, the number of shares of Stock available to be
issued pursuant to Options under this Plan (as calculated in Section 2) is
sufficient to make all grants of Options required to be made pursuant to
Subsections 5.1 and/or 6.1 on such Date of Grant. In the event that the number
of shares of Stock that are available to be issued pursuant to Options under
this Plan on the Date of Grant of such Options is insufficient to permit the
grant of the entire number of shares with respect to which Options are to be
granted on such Date of Grant, then the number of available shares shall be
apportioned pro rata among the Options to be granted on such Date of Grant, and
the number of shares subject to each Option shall be the number of shares
apportioned to that Option. Any such apportionment effective pursuant to the
immediately preceding sentence shall be as follows: (i) in the case of Options
to be granted pursuant to Section 5.1, equally and (ii) with respect to Options
to be granted pursuant to Subsection 6.1, pro rata among those Participants
entitled to receive Options on such Date of Grant, based on the number of
Options to which each Participant is entitled to receive pursuant to Subsection
6.1 as compared to the total number of Options to which all Participants are
entitled to receive on such Date of Grant pursuant to Subsection 6.1 and (iii)
if Options are to be granted on such Date of Grant pursuant to both of
Subsections 5.1 and 6.1, the allocation among Subsection 5.1 and Subsection 6.1
shall be effected on a basis consistent with the allocation of Options to be
granted pursuant to Subsection 6.1. If any such pro ration of Options is
effected with respect to any grants due under Subsection 6.1 of this Plan, or if
there shall not be any shares of Stock available on any date on which Options
are to be granted pursuant to Subsection 6.1, the portion of deferred Annual
Retainer and, if applicable, Meeting Fees for which Options are not granted will
be paid in cash as of the date such Options were to be granted.
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SECTION 8. EFFECTS OF CHANGE IN CONTROL
8.1 Change in Control. Upon the occurrence of a Change in Control,
subject to Subsection 1.8(b): (a) each Holder of an Option shall immediately be
granted one corresponding Stock Appreciation Right for each share of Stock
subject to an Option; and (b) all outstanding Options shall immediately become
fully vested and exercisable in full, including that portion of any Option that
pursuant to the terms and provisions of the applicable Award Agreement had not
yet become exercisable (the total number of shares of Stock as to which a Stock
Appreciation Right or Option is exercisable upon the occurrence of a Change in
Control is referred to herein as the "Total Shares"). If a Change in Control
involves a Restructuring or occurs in connection with a series of related
transactions involving a Restructuring and if such Restructuring is in the form
of a Non-Surviving Event and as a part of such Restructuring shares of stock,
other securities, cash, or property shall be issuable or deliverable in exchange
for Stock, then a Holder of an Option shall be entitled to purchase or receive
(in lieu of the Total Shares that the Holder would otherwise be entitled to
purchase or receive) the number of shares of stock, other securities, cash, or
property to which that number of Total Shares would have been entitled in
connection with such Restructuring at an aggregate exercise price equal to the
Exercise Price that would have been payable if that number of Total Shares had
been purchased on the exercise of the Option immediately before the consummation
of the Restructuring. Nothing in this Subsection 8.1 shall impose on a Holder
the obligation to exercise any Option immediately before or upon the Change in
Control or cause the Holder to forfeit the right to exercise the Option during
the remainder of the original term of the Option because of a Change in Control.
8.2 Restructuring Without Change in Control. In the event a
Restructuring shall occur at any time while there is any outstanding Option
hereunder and that Restructuring does not occur in connection with a Change in
Control or a series of related transactions involving a Change in Control, then:
(a) no outstanding Option shall immediately become fully
vested and exercisable in full merely because of the occurrence of the
Restructuring;
(b) no Holder of an Option shall automatically be granted
corresponding Stock Appreciation Rights;
(c) if the Restructuring is in the form of a Non-Surviving
Event and, as part of that Restructuring, shares of stock, other
securities, cash or property shall be issuable or deliverable in
exchange for Stock, the surviving entity shall assume the obligations
of the Corporation under this Plan and Options thereafter shall
represent the right to purchase or receive (in lieu of the Total Shares
that the Holder would otherwise be entitled to purchase or receive) the
number of shares of stock, other securities, cash or property to which
the number of Total Shares would have been entitled in connection with
such Restructuring at an aggregate exercise price equal to the Exercise
Price that would have been payable if that number of Total Shares had
been purchased on the exercise of the Option immediately before the
consummation of the Restructuring;
(d) the Corporation may (but shall not be required to) redeem
in whole or in part any one or more of the outstanding Options (whether
or not then exercisable) in consideration of a cash payment in an
amount equal to the excess of (i) the Fair Market Value, determined as
of the date immediately preceding the consummation of the
Restructuring, of the aggregate number of shares of Stock subject to
the Options and as to which the Options being redeemed over (ii) the
Exercise Price for that number of shares of Stock; any redemption of an
Option pursuant this Subsection 8.2(d) shall also constitute the
redemption of any corresponding Stock Appreciation Rights; provided,
further, that any cash payments be made by the Corporation pursuant to
this Subsection 8.2(d) in connection with the redemption of any
outstanding Option shall be paid to the Holder
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thereof at the time of delivery to the Corporation of the Award
Agreement evidencing that Option, provided that any such redemption
shall be effective upon the consummation of the Restructuring
notwithstanding that the payment of the Redemption Price may occur
subsequent to the consummation or the failure of any Holder to deliver
the applicable Award Agreement; and
(e) if a Non-Employee Director becomes a director of the
surviving entity and is not otherwise employed by the surviving entity
or any Subsidiary thereof, then, for purposes of Section 10.1(a)
hereof, such Non-Employee Director shall not be deemed to have ceased
to be a Non-Employee Director.
8.3 Terms of Stock Appreciation Rights. A Stock Appreciation Right
granted pursuant to Subsection 8.1(a) shall entitle a Holder, upon exercise, to
surrender such Holder's Option or any portion thereof, to the extent
unexercised, and to receive payment of an amount computed pursuant to Subsection
8.3(b). That Option shall then cease to be exercisable to the extent
surrendered. Stock Appreciation Rights granted pursuant to Subsection 8.1(a)
shall be subject to the terms of the Award Agreement governing the Option, which
shall be deemed to incorporate the following provisions in addition to those
applicable to Options:
(a) Exercise and Transfer. A Stock Appreciation Right granted
pursuant to Subsection 8.1(a) shall be exercisable only at such time or
times and only to the extent that the related Option is exercisable and
shall not be transferable except to the extent that the related Option
is transferable as provided in Subsection 10.3.
(b) Value of Right. Upon the exercise of a Stock Appreciation
Right, a Holder shall be entitled to receive payment from the
Corporation of an amount in cash determined by multiplying:
(i) The difference obtained by subtracting the
Exercise Price from the Fair Market Value of a share of Stock
on the date of exercise of the Stock Appreciation Right, by
(ii) The number of shares of Stock as to which that
Stock Appreciation Right has been exercised.
(c) Award Agreements. Stock Appreciation Rights granted
pursuant to Subsection 8.1(a) shall be evidenced by the Award
Agreements evidencing the corresponding Options to which the Stock
Appreciation Rights relate, which Award Agreements shall be deemed to
incorporate the provisions of this Subsection 8.3. No separate Award
Agreement shall be issued evidencing any Stock Appreciation Rights.
8.4 Notice of Change in Control or Restructuring. Upon the occurrence
of a Change in Control or a Restructuring without Change in Control, the
Corporation shall provide written notice to all Holders of Options of the
occurrence of such event and the effects resulting therefrom as provided in this
Section 8.
SECTION 9. ADJUSTMENT PROVISIONS
9.1 Adjustment of Options and Authorized Stock. The terms of an Option
and the number of shares of Stock authorized pursuant to Subsection 2.1 for
issuance under this Plan shall be subject to adjustment from time to time, in
accordance with the following provisions:
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<PAGE> 13
(a) If at any time, or from time to time, the Corporation
shall subdivide as a whole (by reclassification, by a stock split, by
the issuance of a distribution on Stock payable in Stock, or otherwise)
the number of shares of Stock then outstanding into a greater number of
shares of Stock, then (i) the maximum number of shares of Stock
available for this Plan as provided in Subsection 2.1 shall be
increased proportionately, and the kind of shares or other securities
available for this Plan shall be appropriately adjusted; (ii) the
number of shares of Stock (or other kind of shares or securities) that
may be acquired under any Option (and to which any corresponding Stock
Appreciation Right, if any, relates) shall be increased
proportionately; and (iii) the Exercise Price for each share of Stock
(or other kind of shares or securities) subject to then outstanding
Options (and corresponding Stock Appreciation Rights, if any) shall be
reduced proportionately, without changing the aggregate Exercise Price
or value as to which outstanding Options (and corresponding Stock
Appreciation Rights, if any) remain exercisable.
(b) If at any time, or from time to time, the Corporation
shall consolidate as a whole (by reclassification, reverse stock split,
or otherwise) the number of shares of Stock then outstanding into a
lesser number of shares of Stock, then (i) the maximum number of shares
of Stock available for this Plan as provided in Subsection 2.1 shall be
decreased proportionately, and the kind of shares or other securities
available for this Plan shall be appropriately adjusted; (ii) the
number of shares of Stock (or other kind of shares or securities) that
may be acquired under any Option (and to which any corresponding Stock
Appreciation Right, if any, relates) shall be decreased
proportionately; and (iii) the Exercise Price for each share of Stock
(or other kind of shares or securities) subject to then outstanding
Options (and corresponding Stock Appreciation Rights, if any) shall be
increased proportionately, without changing the aggregate Exercise
Price or value as to which outstanding Options (and corresponding Stock
Appreciation Rights, if any) remain exercisable.
(c) Whenever the number of shares of Stock subject to
outstanding Options (and corresponding Stock Appreciation Rights, if
any) and the price for each share of Stock subject to outstanding
Options (and corresponding Stock Appreciation Rights, if any) are
required to be adjusted as provided in this Subsection 9.1, the
Committee shall promptly prepare a notice setting forth, in reasonable
detail, the event requiring adjustment, the amount of the adjustment,
the method by which such adjustment was calculated, and the change in
price and the number of shares of Stock, other securities, cash, or
property purchasable subject to each Option (and corresponding Stock
Appreciation Rights, if any) after giving effect to the adjustments.
The Committee shall promptly provide a copy of such notice to each
Holder.
(d) Adjustments under Subsections 9.1(a) and (b) shall be made
by the Committee, and its determination as to what adjustments shall be
made and the extent thereof shall be final, binding, and conclusive. No
fractional interest shall be issued under this Plan on account of any
such adjustments.
SECTION 10. ADDITIONAL PROVISIONS
10.1 Loss of Eligibility.
(a) If a Participant ceases to be a Non-Employee Director for
any reason other than the Participant's death or Disability, then that
portion, if any, of any and all Options held by the Participant (or any
permitted transferee) which are not yet exercisable (or for which
restrictions have not lapsed) as of the date the Participant ceases to
be a Non-Employee Director ("Termination Date") shall become null and
void as of the Termination Date and, except as provided below, the
portion, if any, of any and all Options held by the Participant (or any
permitted transferee) that are
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<PAGE> 14
then exercisable as of the Termination Date shall survive the
termination and shall be exercisable for a period of the lesser of (i)
the remainder of the term of the Option or (ii) 180 days following the
Termination Date.
(b) If a Participant ceases to be a Non-Employee Director by
reason of the Participant's death or Disability, then the portion, if
any, of any and all Options held by the Participant (or any permitted
transferee) that are not yet exercisable (or for which restrictions
have not lapsed) as of the Termination Date, shall become exercisable
and all such Options shall be exercisable for the lesser of (i)
remainder of the term of the Options or (ii) three years after the
Termination Date.
(c) If a Participant ceases to be a Non-Employee Director by
reason of Retirement, then all such Options held by that Participant
(or any permitted transferee) as of the Termination Date that are
exercisable shall be exercisable for the lesser of (i) remainder of the
term of the Option or (ii) three years after the Termination Date.
(d) Notwithstanding the foregoing, if a Non-Employee Director
is removed from the Board of Directors by the Corporation for "cause"
(hereafter defined), then any and all Options held by such Non-Employee
Director (or any permitted transferee) that were granted to such
Non-Employee Director pursuant to Subsection 5.1 of this Plan shall
become null and void as of the date of such termination and any Options
held by such Non-Employee Director (or any permitted transferee) that
were granted pursuant to Section 6.1 shall be subject to Subsection
10.1(a). "Cause" shall mean, as determined by the Board of Directors in
the sole discretion exercised in good faith of the Board of Directors,
(a) the commission by the Non-Employee Director of a felony or of a
misdemeanor involving moral turpitude, (b) the participation by the
Non-Employee Director in any fraud, (c) dishonesty by the Non-Employee
Director that is detrimental to the best interest of the Corporation,
(d) the willful and continued failure by the Non-Employee Director to
substantially perform his duties to the Corporation (other than any
such failure resulting from the Non-Employee Director's incapacity due
to Disability) after written demand for substantial performance is
delivered by the Corporation specifically identifying the manner in
which the Corporation believes the Non-Employee Director has not
substantially performed his duties, or (e) the willful engaging by the
Non-Employee Director in misconduct which is materially injurious to
the Corporation, monetarily or otherwise.
Any portion of an Option not exercised upon the expiration of the
applicable periods specified above shall be null and void upon the expiration of
such period.
10.2 Death or Disability. Upon the death or Disability of a Holder, any
and all Options held by the Holder that have not been exercised as of the date
of the Holder's death or Disability may be exercised by, in the case of the
Holder's Disability, the Holder, his guardian or his legal representative or, in
the case of the Holder's death, by the Holder's legal representatives, heirs,
legatees, or distributees, in each case for the periods prescribed in Subsection
10.1. "Disability" shall mean (i) with respect to a Participant, as determined
by the Board of Directors in the sole discretion exercised in good faith of the
Board of Directors, a physical or mental impairment of sufficient severity that
(a) either the Non-Employee Director is unable to continue performing the duties
he performed before such impairment or the Non-Employee Director's condition
entitles him to disability benefits under any insurance or employee benefit plan
of the Corporation or its Subsidiaries or any other customary general disability
policy owned by or maintained for the benefit of the Non-Employee Director, and
(b) that impairment or condition is cited by the Corporation as the reason for
termination of the Non-Employee Director's participation as a member of the
Board of Directors and (iii) with respect to a Holder that is a permitted
transferee, the appointment of a legal guardian or representative of such
Holder.
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<PAGE> 15
10.3 Transferability of Options.
(a) Permitted Transferees. The Committee may, in its
discretion, permit a Holder to transfer all or any portion of an
Option, or authorize all or a portion of any Option to be granted to a
Non-Employee Director to be on terms which permit transfer by such
Holder, to (i) the spouse, children or grandchildren of the Holder
("Immediate Family Members"), (ii) a trust or trusts for the exclusive
benefit of such Immediate Family Members, or (iii) a partnership in
which such Immediate Family Members are the only partners
(collectively, "Permitted Transferees"); provided that (x) there may be
no consideration for any such transfer and (y) subsequent transfers of
Options transferred as provided above shall be prohibited except
subsequent transfers back to the original Holder of the Option and
transfers to other Permitted Transferees of the original Holder. Award
Agreements evidencing Options with respect to which such
transferability is authorized at the time of grant must be approved by
the Committee, and must expressly provide for transferability in a
manner consistent with this Subsection 10.3(a).
(b) Domestic Relations Orders. Options may be transferred
pursuant to domestic relations orders entered or approved by a court of
competent jurisdiction upon delivery to the Corporation of written
notice of such transfer and a certified copy of such order.
(c) Other Transfers. Except as expressly permitted by
Subsections 10.3(a) and 10.3(b), Options requiring exercise shall not
be transferable other than by will or the laws of descent and
distribution.
(d) Effect of Transfer. Following the transfer of any Option
as contemplated by Subsections 10.3(a), 10.3(b) and 10.3(c), (i) such
Option shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, provided that the term
"Holder" shall be deemed to refer to the Permitted Transferee, the
recipient under a domestic relations order, or the estate or heirs of a
deceased Holder, as applicable, to the extent appropriate to enable the
Holder to exercise the transferred Option in accordance with the terms
of this Plan and applicable law and (ii) the provisions of Subsection
10.1 hereof shall continue to be applied with respect to the original
Holder and, following the occurrence of any such events described
therein the Options shall be exercisable by the Permitted Transferee,
the recipient under a domestic relations order, or the estate or heirs
of a deceased Holder, as applicable, only to the extent and for the
periods specified in Subsections 10.1 and 10.2.
(e) Procedures and Restrictions. Any Holder desiring to
transfer an Option as permitted under Subsection 10.3(a) or 10.3(b)
shall make application therefor in the manner and time specified by the
Committee and shall comply with such other requirements as the
Committee may require to assure compliance with all applicable
securities laws. The Committee shall not give permission for such a
transfer if (i) it would give rise to short-swing liability under
Section 16(b) of the Exchange Act, or (ii) it may not be made in
compliance with all applicable federal, state and foreign securities
laws.
(f) Registration. To the extent the issuance to any Permitted
Transferee of any shares of Stock issuable pursuant to Options
transferred as permitted in this Subsection 10.3 is not registered
pursuant to the effective registration statement of the Corporation
generally covering the shares to be issued pursuant to this Plan to
initial Holders of Options, the Corporation shall not have any
obligation to register the issuance of any such shares of Stock to any
such transferee and may place legends on certificates evidencing such
shares restricting future transfers of such shares except in accordance
with applicable securities laws.
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<PAGE> 16
(g) Effect on Stock Appreciation Rights. If at the time any
Option is transferred as permitted under this Subsection 10.3 a
corresponding Stock Appreciation Right shall have been granted with
respect to such Option pursuant to Subsection 8.1(a) of this Plan, then
the transfer of such Option shall also constitute a transfer of the
corresponding Stock Appreciation Right, and Stock Appreciation Rights
shall not be transferable other than as part of a transfer of the
Option to which it relates as provided in this Subsection 10.3.
10.4 Delivery of Certificates of Stock. Subject to Subsection 10.5, the
Corporation shall promptly issue and deliver a certificate representing the
number of shares of Stock as to which an Option has been exercised after the
Corporation receives an Exercise Notice and upon receipt by the Corporation of
the Exercise Price, if applicable, payment of any amounts required to be
withheld. The value of the shares of Stock or cash deliverable upon the exercise
of an Option or Stock Appreciation Right under this Plan shall not bear any
interest owing to the passage of time, except as may be otherwise provided in an
Award Agreement.
10.5 Conditions to Delivery of Stock. Nothing herein or in any Option
granted hereunder or any Award Agreement shall require the Corporation to issue
any shares with respect to any Option if that issuance would, in the opinion of
counsel for the Corporation, constitute a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable statute or
regulation, or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of an Option the
Corporation may, as a condition precedent to the exercise of such Option,
require from the Holder of the Option (or in the event of his death, his legal
representatives, heirs, legatees, or distributees) such written representations,
if any, concerning the Holder's intentions with regard to the retention or
disposition of the shares of stock being acquired pursuant to the Option and
such written covenants and agreements, if any, as to the manner of disposal of
such shares as, in the opinion of counsel to the Corporation, may be necessary
to ensure that any disposition by that Holder (or in the event of the Holder's
death, his legal representatives, heirs, legatees, or distributees) will not
involve a violation of the Securities Act or any similar or superseding statute
or statutes, any other applicable state or federal statute or regulation, or any
rule of any applicable securities exchange or securities association, as then in
effect.
10.6 Stockholder Approval. Options shall not be granted under this Plan
prior to the date the stockholders of the Corporation shall have approved this
Plan. This Plan shall become null and void as of December 31, 1997, if such
stockholder approval is not obtained on or before such date.
10.7 Rights as a Stockholder. A Holder shall have no right as a
stockholder with respect to any shares of Stock covered by an Option until a
certificate representing those shares is issued in such Holder's name. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash or other property) or distributions or other rights for which the record
date is before the date that certificate is issued, except as contemplated by
Sections 8 and 9 hereof.
10.8 Furnish Information. Each Holder shall furnish to the Corporation
all information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
10.9 Obligation to Exercise. The granting of an Option hereunder shall
impose no obligation upon a Holder to exercise the same or any part thereof.
10.10 Consideration. No Option or Stock Appreciation Right shall be
exercisable unless and until the Holder thereof shall have paid cash or property
to the Corporation that the Committee believes is equal to or greater in value
than the par value of the Stock subject to such Option.
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SECTION 11. EFFECTIVENESS, DURATION AND AMENDMENT OF PLAN
11.1 Effectiveness; Duration. This Plan shall become effective upon the
Effective Date, and no Options may be granted hereunder after the date that is
ten years after the Effective Date. Notwithstanding the foregoing, Non-Employee
Directors may, subject to Subsection 4.2(b) or (c), make elections to
participate in this Plan pursuant to Subsection 6.1 of this Plan at any time
after this Plan is adopted by the Compensation Committee of the Board of
Directors, provided that such election shall (i) relate only to that portion of
the Annual Retainer for the 1997 Plan Year that relates to periods from and
after the date of such election, (ii) be subject to Subsection 10.6 and (iii)
become null and void if stockholder approval is not obtained on or before
December 31, 1997. This Plan shall terminate upon the later of (i) the complete
exercise or lapse of the last outstanding Option or (ii) the last date upon
which Options may be granted hereunder.
11.2 Amendment. The Committee may, insofar as permitted by law, with
respect to any shares which, at the time, are not subject to outstanding
Options, suspend or discontinue this Plan, provided that no suspension or
discontinuation of this Plan shall adversely affect the rights of any Holder of
any outstanding Option at the time of such suspension or discontinuation or any
Participant who has an election in effect pursuant to Subsection 4.2(b) or (c),
in each case without such Holder's or Participant's consent, as applicable.
Furthermore, the Committee may revise or amend this Plan in any respect without
approval of the outstanding Voting Securities of the Company except to the
extent any such approval shall be required under any applicable law or the rules
of any securities exchange on which the Stock is traded as in effect at the time
of such amendment; provided, however, that (i) the Committee may not amend or
otherwise revise the terms of this Plan in any manner that would adversely
affect the rights of any Holder of any Option outstanding or any Participant who
has an election pursuant to Subsection 4.2(b) or (c) in effect at the time of
any such amendment or revision without such Holder's or Participant's consent,
as applicable, and (ii) the Committee will not amend this Plan to (a) increase
materially the aggregate number of shares of Stock that may be issued under this
Plan (except for adjustments pursuant to Section 9 hereof), (b) modify the terms
of Section 5 or 6 of this Plan in any material respect, or (c) modify materially
the requirements about eligibility for participation in this Plan, in each case
without the affirmative vote of a majority of the votes cast on a proposal for
such amendment presented at a duly held meeting of stockholders of the Company
at which a quorum is, either in person or by proxy, present.
SECTION 12. GENERAL
12.1 Application of Funds. The proceeds received by the Corporation
from the sale of shares pursuant to Options may be used for any general
corporate purpose.
12.2 Right of the Corporation to Terminate Status as Director. Nothing
contained in this Plan, or in any Award Agreement, shall confer upon any Holder
the right to continue to serve as a member of the Board of Directors or
interfere in any way with the rights of the Corporation or its stockholders to
terminate the Holder's participation as a member of the Board of Directors with
or without cause.
12.3 No Liability for Good Faith Determinations. Neither the members of
the Board of Directors nor any member of the Committee shall be liable for any
act, omission or determination taken or made in good faith with respect to this
Plan or any Option granted under it; and members of the Board of Directors and
the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising therefrom to the full extent permitted by law and under any
directors' and officers' liability or similar insurance coverage that may
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from time to time be in effect. This right to indemnification shall be in
addition to, and not a limitation on, any other indemnification rights any
member of the Board of Directors or the Committee may have.
12.4 Other Benefits. Participation in this Plan shall not preclude a
Holder from eligibility in any other stock or stock option plan of the
Corporation or any Subsidiary or any benefit, insurance, pension, profit
sharing, retirement, bonus, or other extra compensation plans that the
Corporation or any Subsidiary has adopted, or may, at any time, adopt for the
benefit of its Non-Employee Directors, except as such participation therein may
be limited by the terms of any such other plan. Neither the adoption of this
Plan by the Compensation Committee nor the submission of this Plan to the
stockholders of the Corporation for approval shall be construed as creating any
limitations on the power of the Compensation Committee or the Board of Directors
to adopt such other incentive arrangements as it may deem desirable, including
without limitation the granting of stock options and the awarding of stock and
cash otherwise than under this Plan and such arrangements may be either
generally applicable or applicable only in specific cases.
12.5 Unfunded Plan. Insofar as it provides for Awards of cash and
Stock, the Plan shall be unfunded. Although bookkeeping accounts may be
established with respect to Holders who are entitled to cash, Stock, or rights
thereto under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Corporation shall not be required to segregate any assets that
may at any time be represented by cash, Stock, or rights thereto, nor shall the
Plan be construed as providing for such segregation, nor shall the Corporation
nor the Board of Directors nor the Committee be deemed to be a trustee of any
cash, Stock, or rights thereto to be granted under the Plan. Any liability of
the Corporation to any Holder with respect to a grant of cash, Stock, or rights
thereto under the Plan shall be based solely upon any contractual obligations
that may be created by the Plan and any Award Agreement; no such obligation of
the Corporation shall be deemed to be secured by any pledge or other encumbrance
on any property of the Corporation. Neither the Corporation nor the Board of
Directors nor the Committee shall be required to give any security or bond for
the performance of any obligation that may be created by the Plan.
12.6 Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock to a Holder, or to his legal
representative, heir, legatee, or distributee, in accordance with the provisions
hereof, shall, to the extent thereof, be in full satisfaction of all claims of
such persons hereunder. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt therefor in such form as it shall
determine.
12.7 No Guarantee of Interests. Neither the Committee nor the
Corporation guarantees the Stock of the Corporation from loss or depreciation
and neither shall have any liability to any Holder as a result thereof.
12.8 Payment of Expenses. All expenses incident to the administration,
termination, or protection of this Plan, including, but not limited to, legal
and accounting fees, shall be paid by the Corporation or its Subsidiaries.
12.9 Corporation Records. Records of the Corporation or its
Subsidiaries regarding a Participant's period of service as a member of the
Board of Directors, termination of service as a member of the Board of Directors
and the reason therefor, and other matters shall be conclusive for all purposes
hereunder, unless determined by the Committee to be incorrect.
12.10 Information. The Corporation shall, upon request or as may be
specifically required hereunder, furnish or cause to be furnished all of the
information or documentation which is necessary or required by the Committee to
perform its duties and functions under this Plan.
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<PAGE> 19
12.11 No Liability of Corporation. The Corporation assumes no
obligation or responsibility to a Holder or his legal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of, the
Committee.
12.12 Corporation Action. Any action required of the Corporation shall
be by resolution of the Board of Directors, the Compensation Committee, or by a
person authorized to act by resolution of the Board of Directors.
12.13 Severability. If any provision of this Plan is held to be illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable and
this Plan shall be construed and enforced as if the illegal or invalid provision
had never been included herein.
12.14 Notices. Whenever any notice is required or permitted hereunder,
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is actually received, addressed to the
applicable party as specified in the applicable Award Agreement. The Corporation
or a Holder may change, at any time and from time to time, by written notice to
the other, the address which it or he had previously specified for receiving
notices. Until changed in accordance herewith, the Corporation and each Holder
shall specify as its and his address for receiving notices the address set forth
in the Award Agreement pertaining to the shares to which such notice relates.
Any person entitled to notice hereunder may waive such notice.
12.15 Successors. This Plan shall be binding upon each Holder, his
legal representatives, heirs, legatees, and distributees, upon the Corporation,
its successors and assigns and upon the Committee and its successors.
12.16 Headings. The titles and headings of Sections and Subsections are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
12.17 Governing Law. All questions arising with respect to the
provisions of this Plan shall be determined by application of the laws of the
State of Delaware, without giving effect to any conflict of law provisions
thereof, except to the extent Delaware law is preempted by federal law.
Questions arising with respect to the provisions of an Award Agreement that are
matters of contract law shall be governed by the laws of the state specified in
the Award Agreement, except to the extent Delaware corporate law conflicts with
the contract law of such state, in which event Delaware corporate law, without
giving effect to any conflict of law provisions thereof, shall govern. The
obligation of the Corporation to sell and deliver Stock hereunder is subject to
applicable federal and state laws and to the approval of any governmental
authority required in connection with the authorization, issuance, sale, or
delivery of such Stock.
12.18 Availability of Exempt Transactions. Notwithstanding the
provisions of this Plan, nothing contained in this Plan shall prohibit any
transactions permitted by Rule 16a-2(d) promulgated under the Exchange Act to
the extent such transactions are approved by the Committee and are not in
violation of, and do not otherwise cause this Plan not to be in compliance with,
Rule 16b-3.
12.19 Taxation and Withholding Issues. Each Non-Employee Director that
participates in this Plan shall be individually responsible for any taxation
results from the grant or award of Options and/or SARs under this Plan. Because
such Participants are not employees of the Company, the Company shall not
withhold for any state, local or federal taxes resulting from the grants or
awards under this Plan except to the extent the Company may be required to do so
under any applicable law, as from time to time may be in effect.
12.20 Word Usage. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.
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<PAGE> 20
This Plan has been approved by the Compensation Committee of the
Company as of April 3, 1998, and was approved by the stockholders of the Company
as of May 26, 1998.
ATTEST: /s/ Michael T. Segraves
-------------------------------------------
Michael T. Segraves,
Secretary
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<PAGE> 1
EXHIBIT 10.6
CHASE INDUSTRIES INC.
1997 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION PLAN
SCOPE AND PURPOSE OF PLAN
Chase Industries Inc., a Delaware corporation (the "Corporation"), has
adopted this 1997 Executive Deferred Compensation Stock Option Plan (this
"Plan") to provide for the granting of Options (hereafter defined) to Eligible
Individuals (hereafter defined).
The purpose of this Plan is to enable the Corporation to provide
certain executive officers and key management employees from time to time
designated by the Committee (hereinafter defined) an opportunity to acquire
additional proprietary interests in the success of the Corporation, which will
more closely align the interest of participating employees in the Corporation
with that of the stockholders and result in an increased incentive for such
persons to remain with the Corporation and strive to maximize the success of the
Corporation.
SECTION 1. DEFINITIONS
1.1 "Acquiring Person" means any Person other than (a) the Corporation,
any Subsidiary of the Corporation, any employee benefit plan of the Corporation
or of a Subsidiary of the Corporation or of a corporation owned directly or
indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of Stock of the Corporation, or any trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation or of a Subsidiary of the Corporation or of a corporation owned
directly or indirectly by the stockholders of the Corporation in substantially
the same proportions as their ownership of Stock of the Corporation (b) Citicorp
Venture Capital, Ltd., a New York corporation ("CVC"), or (c) any Affiliate of
CVC that is directly controlled by Citicorp or Citibank, N.A., or otherwise is
in the same tier as CVC of Affiliates under the control of such entities
("Direct Affiliates"), but shall not include any entities that may be deemed an
Affiliate of CVC as a result of the investment by any Direct Affiliate in such
entity.
1.2 "Affiliate" means (a) any Person who is directly or indirectly the
beneficial owner of at least 10% of the voting power of the outstanding Voting
Securities of the Corporation or (b) any Person controlling, controlled by, or
under common control with the Corporation or any Person contemplated in clause
(a) of this Subsection 1.2.
1.3 "Annual Bonus" means the annual cash bonus compensation which a
Participant becomes entitled to receive for service as an Employee during a Plan
Year, exclusive of any amounts paid by the Corporation or its Subsidiaries to
such Participant for services rendered to the Corporation or its Subsidiaries in
a capacity other than as an Employee, as determined by the Compensation
Committee of the Board of Directors or pursuant to objective criteria approved
by the Compensation Committee.
<PAGE> 2
1.4 "Award Agreement" means the written agreement between the
Corporation and a Holder evidencing the terms, conditions, and limitations of
the Options granted to that Holder.
1.5 "Board of Directors" means the board of directors of the
Corporation.
1.6 "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in the state of Ohio are authorized or
obligated by law or executive order to close.
1.7 "Change in Control" means the event that is deemed to have occurred
if:
(a) any Acquiring Person is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing fifty percent
or more of the combined voting power of the then outstanding Voting
Securities of the Corporation; or
(b) a public announcement is made of a tender or exchange
offer by any Acquiring Person for fifty percent or more of the
outstanding Voting Securities of the Corporation, and the Board of
Directors approves or fails to oppose that tender or exchange offer in
its statements in Schedule 14D-9 under the Exchange Act; provided,
however, that the events to occur under Subsection 7.1 hereof shall not
occur solely as a result of an event described in this clause (b)
unless, within one year after the occurrence of such event, an event
described in clauses (a), (c) or (d) hereof shall have occurred, in
which case such events to occur under Subsection 7.1 hereof shall occur
upon the occurrence of such event but shall be deemed to have been
effective as of the time of the occurrence of the event described in
this clause (b); or
(c) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation or
partnership (or, if no such approval is required, the consummation of
such a merger or consolidation of the Corporation), other than a merger
or consolidation that would result in the Voting Securities of the
Corporation outstanding immediately before the consummation thereof
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity or of a parent
of the surviving entity) a majority of the combined voting power of the
Voting Securities and Convertible Voting Securities (on a fully-diluted
basis assuming full conversion thereof) of the surviving entity (or its
parent) outstanding immediately after that merger or consolidation; or
(d) the stockholders 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 the
Corporation's assets (or, if no such approval is required, the
consummation of such a liquidation, sale, or disposition in one
transaction or series of related transactions) other than a
liquidation, sale or disposition of all or substantially all the
Corporation's assets in one transaction or a series of related
transactions to a Subsidiary of
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<PAGE> 3
the Corporation or any other corporation owned directly or indirectly
by the stockholders of the Corporation in substantially the same
proportions as their ownership of stock in the Corporation.
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
1.9 "Committee" means the committee appointed pursuant to Section 3 by
the Board of Directors to administer this Plan.
1.10 "Convertible Voting Securities" means any and all options,
warrants, or other rights to purchase, or securities convertible into or
exchangeable or exercisable for, directly or indirectly, Voting Securities of
any Person.
1.11 "Corporation" means Chase Industries Inc., a Delaware corporation.
1.12 "Date of Grant" has the meaning given it in Subsection 4.3.
1.13 "Disability" has the meaning given it in Subsection 9.2.
1.14 "Disinterested Person" means a Person that meets the definition of
both a "Non-Employee Director" under Rule 16b-3(b)(3) and an "outside director"
under Section 162(m).
1.15 "Effective Date" means the date this Plan is approved by the
stockholders of the Corporation.
1.16 "Eligible Individuals" means Employees that the Committee
designates as eligible to participate in this Plan; provided that the class of
Employees that may be deemed as Eligible Individuals shall be limited to
executive officers of the Corporation and its Subsidiaries and key management
personnel of the Corporation and its Subsidiaries as determined by the
Committee.
1.17 "Employee" means any employee of the Corporation or any of the
Subsidiaries, including officers and directors of the Corporation or any
Subsidiary who also are employees of the Corporation or any of its Subsidiaries.
1.18 "Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.
1.19 "Exercise Notice" has the meaning given it in Subsection 6.3.
1.20 "Exercise Price" means the price per share at which one share of
Stock may be purchased pursuant to an Option, as specified in Subsection 5.1.
1.21 "Fair Market Value" means, for a particular day:
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<PAGE> 4
(a) If shares of Stock of the same class are listed or
admitted to unlisted trading privileges on any national or regional
securities exchange at the date of determining the Fair Market Value,
then the last reported sale price, regular way, on the composite tape
of that exchange as of the date or dates on which Fair Market Value is
to be determined or, if no such sale takes place on such date or dates,
the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to unlisted
trading privileges on that securities exchange; or
(b) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices for shares of Stock of the same class in the
over-the-counter market are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ") National
Market System (or such other system then in use) at the date or dates
of determining the Fair Market Value, then the last reported sales
price so reported as of the date or dates on which Fair Market Value is
to be determined or, if no such sale takes place on such date or dates,
the average of the high bid and low asked prices so reported; or
(c) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices for shares of Stock of the same class are not
reported by the NASDAQ National Market System (or a similar system then
in use) as provided in Subsection 1.21(b), and if bid and asked prices
for shares of Stock of the same class in the over-the-counter market
are reported by NASDAQ (or, if not so reported, by the National
Quotation Bureau Incorporated) at the date or dates of determining the
Fair Market Value, then the average of the high bid and low asked
prices on the last trading day before the date in question;
provided, that if information to establish Fair Market Value of the Stock
pursuant to this Subsection 1.21 is not available on any date or dates for which
Fair Market Value is to be determined, subclause (a), (b) or (c), as applicable,
shall be applied for the next preceding date on which such information is
available.
1.22 "Holder" means a Participant to whom an outstanding Option has
been granted under this Plan or a transferee of any Option granted under this
Plan as permitted under Subsection 9.3.
1.23 "Non-Surviving Event" means an event of Restructuring as described
in either Subsection 1.31(b) or Subsection 1.31(c).
1.24 "Normal Retirement" means the separation of an Employee from
employment with the Corporation and/or its Subsidiaries on or after the
attainment of age 59 1/2 with the right to receive an immediate benefit under a
tax qualified retirement plan under Section 401(a) of the Code approved by the
Corporation or any Subsidiary thereof.
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<PAGE> 5
1.25 "Option" means an option to purchase Stock granted pursuant to
this Plan; Options granted under this Plan are not "incentive stock options"
under Section 422 of the Code.
1.26 "Participant" means an Eligible Individual who has elected in
accordance with Section 4.2 to receive Options in lieu of receiving all or part
of such Eligible Individual's Annual Bonus.
1.27 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company, a
corporation, a partnership, a trust, or other entity. A Person, together with
that Person's affiliates and associates (as "affiliate" and "associate" are
defined in Rule 12b-2 under the Exchange Act for purposes of this definition
only), and any Persons acting as a partnership, limited partnership, joint
venture, association, syndicate, or other group (whether or not formally
organized), or otherwise acting jointly or in concert or in a coordinated or
consciously parallel manner (whether or not pursuant to any express agreement),
for the purpose of acquiring, holding, voting, or disposing of securities of the
Corporation with that Person, shall be deemed a single "Person."
1.28 "Plan" means the Chase Industries Inc. 1997 Executive Deferred
Compensation Stock Option Plan, as it may be amended from time to time.
1.29 "Plan Year" means the twelve (12) consecutive month period
beginning January 1 and ending December 31.
1.30 "Restructuring" means the occurrence of any one or more of the
following:
(a) The merger or consolidation of the Corporation with any
Person, whether effected as a single transaction or a series of related
transactions, with the Corporation remaining the continuing or
surviving entity of that merger or consolidation and the Stock
remaining outstanding and not changed into or exchanged for stock or
other securities of any other Person or of the Corporation, cash, or
other property;
(b) The merger or consolidation of the Corporation with any
Person, whether effected as a single transaction or a series of related
transactions, with (i) the Corporation not being the continuing or
surviving entity of that merger or consolidation or (ii) the
Corporation remaining the continuing or surviving entity of that merger
or consolidation but all or a part of the outstanding shares of Stock
are changed into or exchanged for stock or other securities of any
other Person or the Corporation, cash, or other property; or
(c) The transfer, directly or indirectly, of all or
substantially all of the assets of the Corporation (whether by sale,
merger, consolidation, liquidation, or otherwise) to any Person,
whether effected as a single transaction or a series of related
transactions.
1.31 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange
Act, or any successor rule, as it may be amended from time to time, and
references to paragraphs or clauses of
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<PAGE> 6
Rule 16b-3 shall refer to the corresponding paragraphs or clauses of Rule 16b-3
as it exists at the Effective Date or the comparable paragraph or clause of Rule
16b-3 as it may thereafter be amended.
1.32 "Section 162(m)" means Section 162(m) of the Code, or any
successor section under the Code as it may be amended from time to time and as
interpreted by final or proposed regulations promulgated thereunder from time to
time.
1.33 "Securities Act" means the Securities Act of 1933 and the rules
and regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.
1.34 "Stock" means the Corporation's authorized common stock, par value
$.01 per share, or any other securities that are substituted for the Stock as
provided in Subsection 7.1 or Section 8.
1.35 "Stock Appreciation Right" or "SAR" means the right to receive an
amount equal to the excess of the Fair Market Value of a share of Stock (as
determined on the date of exercise) over the Exercise Price.
1.36 "Subsidiary" means, with respect to any Person, any corporation,
or other entity of which a majority of the Voting Securities is owned, directly
or indirectly, by that Person.
1.37 "Total Shares" has the meaning given it in Subsection 7.1.
1.38 "Voting Securities" means (i) any securities that are entitled to
vote generally in the election of directors, in the admission of general
partners or in the selection of any other similar governing body and (ii) with
respect to the Corporation, all shares of the Corporation's nonvoting common
stock, par value $.01 per share (all of which are convertible into shares of the
Corporation's common stock, par value $.01 per share).
SECTION 2. SHARES OF STOCK SUBJECT TO THIS PLAN
2.1 Maximum Number of Shares. Subject to the provisions of Subsection
2.2 and Section 8 of this Plan, the aggregate number of shares of Stock that may
be issued, transferred or exercised pursuant to Options under this Plan shall be
three HUNDRED THOUSAND (300,000) shares of Stock. Options with respect to such
shares of Stock shall be allocated among Eligible Individuals pursuant to the
formula set forth in Subsection 5.1; provided that no more than 100,00 shares of
stock may be subject to options granted to any single Eligible Individual during
any one Plan Year (or otherwise with respect to any Annual Bonus amount deferred
for any Plan Year by any single Eligible Individual).
2.2 Limitation of Shares. For purposes of the limitations specified in
Subsection 2.1, the following principles shall apply:
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<PAGE> 7
(a) the number of shares of Stock subject to outstanding
Options shall count against and decrease the number of shares of Stock
that may be issued for purposes of Subsection 2.1;
(b) the number of shares of Stock with respect to which
Options have expired, are canceled, or otherwise terminate without
being exercised, converted, or vested, as applicable, and, in the event
SARs are granted pursuant to Subsection 7.1, shares of Stock as to
which an Option has been surrendered in connection with the exercise of
a related SAR shall be added back to the number of shares of Stock that
may be issued for purposes of Subsection 2.1; and
(c) the number of shares of Stock that are transferred by a
Holder of an Option (or withheld by the Corporation) as full or partial
payment to the Corporation of the purchase price of shares of Stock
subject to an Option or the Corporation's or any of its Subsidiary's
tax withholding obligations, if any, shall not be added back to the
number of shares of Stock that may be issued for purposes of Subsection
2.1 and shall not again be subject to Options.
Notwithstanding the provisions of this Subsection 2.2, the Committee
may impose restrictions which are more limited than set forth herein with
respect to shares of Stock subject to Options that may be added back to the
number of shares of Stock that may be issued for purposes of Subsection 2.1.
2.3 Source of Shares. The shares to be delivered under this Plan shall
be made available from (a) authorized but unissued shares of Stock, (b) Stock
held in the treasury of the Corporation, or (c) previously issued shares of
Stock reacquired by the Corporation, including shares purchased on the open
market, in each situation as the Board of Directors or the Committee may
determine from time to time at its sole option.
2.4 Registration and Listing of Shares. From time to time, the Board of
Directors and appropriate officers of the Corporation shall and are authorized
to take whatever actions are necessary to file required documents with
governmental authorities, stock exchanges, and other appropriate Persons to make
shares of Stock available for issuance pursuant to the exercise of Options.
SECTION 3. ADMINISTRATION OF PLAN
3.1 Committee. The Board of Directors may administer this Plan or may
delegate all or part of that duty to the Committee; provided that the Committee
shall not have the power to appoint members of the Committee. Except for
references in this Subsection 3.1, and unless the context otherwise requires,
references herein to the Committee shall also refer to the Board of Directors as
administrator of this Plan. The Committee shall be constituted so that, as long
as Stock is registered under Section 12 of the Exchange Act, each member of the
Committee shall be a Disinterested Person and so that this Plan in all other
applicable respects will qualify transactions related to this Plan for the
exemptions from Section 16(b) of the Exchange Act provided by Rule 16b-3 and the
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<PAGE> 8
exemption from the deductibility limitation imposed by Section 162(m) provided
by the performance-based compensation exception described in Section 162(m), to
the extent exemptions thereunder may be available. The number of Persons that
shall constitute the Committee shall be determined from time to time by a
majority of all the members of the Board of Directors and, unless that majority
of the Board of Directors determines otherwise, shall be no less than two
Persons. Notwithstanding the foregoing, the Board of Directors may designate the
Compensation Committee of the Board of Directors to serve as the Committee
hereunder, provided that each member of such Compensation Committee is a
Disinterested Person.
3.2 Committee's Powers. Subject to the express provisions of this Plan
and Rule 16b-3, the Committee shall have such power and authority as may be
necessary or advisable to carry out its functions and duties as described in
this Plan, including the authority, in its sole and absolute discretion, to (a)
interpret this Plan and make such determination as it deems necessary for Plan
administration and to adopt, amend, and rescind administrative and interpretive
rules and regulations relating to this Plan; (b) redeem, pursuant to Subsection
7.2(d), outstanding Options and Stock Appreciation Rights; (c) construe the
respective Award Agreements and this Plan; (d) terminate, modify, or, subject to
Subsection 10.2, amend this Plan; and (e) make all other determinations, perform
all other acts, and exercise all other powers and authority necessary or
advisable for administering this Plan, including the delegation of those
ministerial acts and responsibilities as the Committee deems appropriate.
Subject to Rule 16b-3, Section 162(m) (to the extent an exemption pursuant
thereto is available) and the foregoing, the Committee may correct any defect,
supply any omission, or reconcile any inconsistency in this Plan, in any Option,
or in any Award Agreement in the manner and to the extent it deems necessary or
desirable to carry this Plan into effect, and the Committee shall be the sole
and final judge of that necessity or desirability. The determinations of the
Committee on the matters referred to in this Subsection 3.2 shall be final and
conclusive.
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 Eligible Individuals. Options may be granted pursuant to this Plan
with respect to Annual Bonus amounts attributable to a Plan Year only to Persons
who are Eligible Individuals for all or part of the applicable Plan Year and who
have properly elected in accordance with Subsection 4.2 to be a Participant for
such Plan Year.
4.2 Participation. An Eligible Individual shall become a Participant
for a Plan Year for purposes of Section 5 by filing with the secretary of the
Corporation prior to September 30 of such Plan Year an irrevocable written
election in a form prescribed by the Committee to receive Options in lieu of all
or a portion, in twenty-five percent (25%) increments, of the Eligible
Individual's Annual Bonus payable for performance in such current Plan Year;
provided that, in the discretion of the Committee, an Eligible Individual who
becomes an Employee after September 30 of any Plan Year may become a Participant
for purposes of Section 5 for such Plan Year by filing such an election within
the period of time after the commencement of such Employee's employment by the
Corporation or any Subsidiary of the Corporation as prescribed by the Committee.
Such written election shall become a part of the Participant's Award Agreement,
and a copy will be attached as an exhibit thereto.
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<PAGE> 9
4.3 Date of Grant. Notwithstanding that the Award Agreement may not be
executed until a later time, the date on which the Options covered by an Award
Agreement is granted (the "Date of Grant"), shall be (a) the date the
Compensation Committee of the Board of Directors establishes the amount of the
Annual Bonus on account of which such Options are being granted or (b) if the
Annual Bonus of a Participant is being determined by objective criteria, the
date the Compensation Committee confirms the attainment of such criteria and the
Annual Bonus amount resulting therefrom on account of which such Options are
being granted. In no event shall a Holder gain any rights in addition to those
specified by this Plan, as interpreted and administered by the Committee,
regardless of the time that may pass between the grant of the Options and the
actual execution of the Award Agreement by the Corporation and the Holder.
4.4 Award Agreements. Each Option granted under this Plan shall be
evidenced by an Award Agreement in such form and containing such terms as the
Committee shall approve, and which shall not contain any provisions inconsistent
with the terms of this Plan. Options granted for a Plan Year shall be evidenced
by separate Award Agreements for each series of Options granted as provided by
Subsection 5.1.
SECTION 5. GRANT OF STOCK OPTIONS
5.1 Number of Shares. Subject to Subsections 5.4 and 5.5, and provided
that the Participant has filed with the Company a written election of deferral
of his or her Annual Bonus for the applicable Plan Year in accordance with
Subsection 4.2, a Participant shall be granted, as of the Date of Grant, Options
on account of each Annual Bonus (or portion thereof) deferred for a Plan Year in
four series, with the number of shares of Stock of each series determined in
accordance with the following formula:
<TABLE>
<S> <C>
25% of the Annual Bonus Amount Number of Shares (rounded up
to be Deferred for such Plan Year = to the nearest whole share)
- - -------------------------------------
50% of the average Fair Market
Value of a share of Stock for the
last five trading days of the
applicable calendar quarter
</TABLE>
Subject to Subsection 5.4, the numerator of the above fraction shall be
determined according to the amount of Annual Bonus elected to be deferred for
the Plan Year by the Participant in accordance with Subsection 4.2. The
denominator of the above formula shall be determined for each series of Options
as of the end of each calendar quarter for the Plan Year to which the Annual
Bonus relates, with one series of Options being granted for each calendar
quarter in such Plan Year.
5.2 Vesting. Each Option granted pursuant to this Section 5 shall
become exercisable in full on the Date of Grant.
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<PAGE> 10
5.3 Exercise Price. The per share Exercise Price of Options granted
pursuant to Subsection 5.1 shall be 50% of the average Fair Market Value of a
share of Stock for the last five trading days of the applicable calendar quarter
as provided in the last sentence of Subsection 5.1, such that each series of
Options granted to a Eligible Individual for a Plan Year shall have a separate
Exercise Price.
5.4 Participation Commencing During a Plan Year. In the event a
Participant becomes an Employee after March 31 of a Plan Year and elects to
participate in the Plan for such Plan year by election to defer all or a portion
of his or her Annual Bonus for such Plan Year (including as permitted by the
proviso of Subsection 4.2), the numerator in the formula set forth in Subsection
5.1 shall be adjusted with respect to such Participant for such Plan Year to
reflect the portion of the deferred Annual Bonus attributable to each calendar
quarter (or portion thereof) remaining in the Plan Year to which any such
initial election relates from after the date such Eligible Individual first
becomes an Employee.
5.5 Termination of Employment. Notwithstanding the provisions of
Subsection 6.1, if an Eligible Individual who has made an election pursuant to
Subsection 4.2 ceases to be an Employee prior to the Date of Grant of the
Options to which any such election relates, no Options will be granted to such
Person pursuant to Subsection 5.1. Any Bonus, if any, earned for the Plan Year
to which such election relates shall be paid in cash and, upon such payment, the
Corporation shall have no further obligation under this Plan to such Person
other than with respect to Options and SARs (if any) granted under this Plan and
outstanding as of the date such Person ceases to be an Employee.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS
All options granted under this Plan shall comply with, and the related
Award Agreements shall be deemed to include and be subject to, the terms and
conditions set forth in this Section 6 (to the extent each term and condition
applies to the form of Option) and also to the terms and conditions set forth in
Sections 7, 8 and 9.
6.1 Expiration of Options. Subject to the provisions in Section 9, each
Option shall expire ten (10) years after the Date of Grant of such Option.
6.2 Exercise Price. Each Award Agreement shall state that the Exercise
Price shall be the exercise price per share of Stock as calculated pursuant to
Section 5.3.
6.3 Method of Exercise. The Option shall be exercisable only by written
notice of exercise (the "Exercise Notice") delivered to the Corporation during
the term of the Option, which notice shall (a) state the number of shares of
Stock with respect to which the Option is being exercised; (b) be signed by the
Holder of the Option or, if the Holder is dead or becomes affected by a
Disability, by the person authorized to exercise the Option pursuant to
Subsection 9.2; (c) be accompanied by payment of the Exercise Price for all
shares of Stock for which the Option is being
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exercised; (d) be accompanied by payment of or provide instructions for the
satisfaction of any amounts required to be withheld as provided in Subsection
6.8; and (e) include such other information, instruments, and documents as may
be required by payment of the Committee to evidence such Holder's authority to
exercise the Option or as otherwise required as provided by Subsection 9.5. The
Option shall not be deemed to have been exercised unless all of the requirements
of the preceding provisions of this Subsection 6.3 have been satisfied.
6.4 Medium and Time of Payment. The Exercise Price of an Option shall
be payable in full upon the exercise of the Option (a) in cash or by an
equivalent means acceptable to the Committee; (b) with the Committee's prior
consent, with shares of Stock owned by the Holder (including shares received
upon exercise of the Option) and having a Fair Market Value at least equal to
the aggregate Exercise Price payable in connection with such exercise; or (c) by
any combination of clauses (a) and (b). If the Committee elects to accept shares
of Stock in payment of all or any portion of the Exercise Price, then (for
purposes of payment of the Exercise Price) those shares of Stock shall be deemed
to have a cash value equal to their aggregate Fair Market Value determined as of
the date the certificate for such shares, duly endorsed for transfer to the
Corporation and free from any restriction on transfer, is delivered to the
Corporation.
6.5 Payment with Sale Proceeds. In addition, at the request of a Holder
and to the extent permitted by applicable law, the Committee may (but shall not
be required to) approve arrangements with a brokerage firm under which that
brokerage firm, on behalf of the Holder, shall pay to the Corporation the
Exercise Price of the Option being exercised and an amount to cover any
withholding obligations as provided in Subsection 6.8, and the Corporation shall
promptly deliver the exercised shares of Stock to the brokerage firm. To
accomplish this transaction, the Holder must deliver to the Corporation an
Exercise Notice containing irrevocable instructions from the Holder to the
Corporation to deliver the Stock certificates representing the shares of Stock
directly to the broker. Upon receiving a copy of the Exercise Notice
acknowledged by the Corporation, the broker shall sell that number of shares of
Stock or loan the Holder an amount sufficient to pay the Exercise Price and any
withholding obligations due. The broker then shall deliver to the Corporation
that portion of the sale or loan proceeds necessary to cover the Exercise Price
and any withholding obligations due. The Committee shall not approve any
transaction of this nature if the Committee believes that the transaction would
give rise to the Holder's liability for short-swing profits under Section 16(b)
of the Exchange Act.
6.6 No Fractional Shares. The Corporation shall not in any case be
required to sell, issue, or deliver a fractional share with respect to any
Option. In lieu of the issuance of any fractional share of Stock, the
Corporation shall pay to the Holder an amount in cash equal to the same fraction
(as the fractional Stock) of the Fair Market Value of a share of Stock
determined as of the date of the applicable Exercise Notice.
6.7 Available Stock. The Options to be granted, pursuant to Subsection
5.1 shall be made in the amounts specified therein only if, as of the Date of
Grant of any such Options, the number of shares of Stock available to be issued
pursuant to Options under this Plan (as calculated in Section 2) is sufficient
to make all grants of Options required to be made pursuant to Subsection 5.1 on
such
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<PAGE> 12
Date of Grant. In the event that the number of shares of Stock that are
available to be issued pursuant to Options under this Plan on the Date of Grant
of such Options is insufficient to permit the grant of the entire number of
shares with respect to which Options are to be granted on such Date of Grant,
then the number of available shares shall be apportioned pro rata among the
Options to be granted on such Date of Grant, and the number of shares subject to
each Option shall be the number of shares apportioned to that Option. Any such
apportionment effective pursuant to the immediately preceding sentence shall be
pro rata among those Participants entitled to receive Options on such Date of
Grant, based on the number of Options to which each Participant is entitled to
receive pursuant to Subsection 5.1 as compared to the total number of Options to
which all Participants are entitled to receive on such Date of Grant pursuant to
Subsection 5.1. If any such pro ration of Options is effected, or if there shall
not be any shares of Stock available on any date on which Options are to be
granted, or if the Options granted to a single Eligible Individual would exceed
the 100,000 limitation of Subsection 2.1, the portion of deferred Annual Bonus
for which Options are not granted will be paid in cash as of the date such
Options were to be granted.
6.8 Payment of Taxes. The Committee may, in its discretion, require a
Participant to pay to the Corporation (or the Corporation's Subsidiary if the
Participant is an employee of a Subsidiary of the Corporation), at the time of
the exercise of an Option or thereafter, the amount that the Committee deems
necessary to satisfy the Corporation's or its Subsidiary's current or future
obligation to withhold federal, state, or local income or other taxes that the
Participant incurs upon the exercise of an Option. In connection with the
exercise of an Option requiring tax withholding, a Participant may (a) direct
the Corporation to withhold from the shares of Stock to be issued upon such
exercise the number of shares necessary to satisfy the Corporation's or its
Subsidiary's obligation to withhold taxes, that determination to be based on the
shares' Fair Market Value as of the date of exercise; (b) deliver to the
Corporation sufficient shares of Stock (based upon the Fair Market Value as of
the date of such delivery) to satisfy the Corporation's or its Subsidiary's tax
withholding obligation; or (c) deliver sufficient cash to the Corporation to
satisfy the Corporation's or its Subsidiary's tax withholding obligations.
Participants who elect to use such a Stock withholding feature must make the
election at the time and in the manner that the Committee prescribes. The
Committee may, at its sole option, deny any Participant's request to satisfy
withholding obligations through Stock instead of cash. In the event the
Committee subsequently determines that the aggregate Fair Market Value (as
determined above) of any shares of Stock withheld or delivered as payment of any
tax withholding obligation is insufficient to discharge that tax withholding
obligation, then the Participant shall pay to the Corporation, immediately upon
the Committee's request, the amount of that deficiency in the form of payment
requested by the Committee.
SECTION 7. EFFECTS OF CHANGE IN CONTROL
7.1 Change in Control. Upon the occurrence of a Change in Control,
subject to Subsection 1.7(b), each Holder of an Option immediately shall be
granted one corresponding Stock Appreciation Right for each share of Stock
subject to an Option (the total number of shares of Stock as to which an Option
is exercisable upon the occurrence of a Change in Control is referred to herein
as the "Total Shares"). If a Change in Control involves a Restructuring or
occurs in connection with
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<PAGE> 13
a series of related transactions involving a Restructuring and if such
Restructuring is in the form of a Non-Surviving Event and as a part of such
Restructuring shares of stock, other securities, cash, or property shall be
issuable or deliverable in exchange for Stock, then a Holder of an Option shall
be entitled to purchase or receive (in lieu of the Total Shares that the Holder
would otherwise be entitled to purchase or receive) the number of shares of
stock, other securities, cash, or property to which that number of Total Shares
would have been entitled in connection with such Restructuring at an aggregate
exercise price equal to the Exercise Price that would have been payable if that
number of Total Shares had been purchased on the exercise of the Option
immediately before the consummation of the Restructuring. Nothing in this
Subsection 7.1 shall impose on a Holder the obligation to exercise any Option
immediately before or upon the Change in Control or cause the Holder to forfeit
the right to exercise the Option during the remainder of the original term of
the Option because of a Change in Control.
7.2 Restructuring Without Change in Control. In the event a
Restructuring shall occur at any time while there is any outstanding Option
hereunder and that Restructuring does not occur in connection with a Change in
Control or a series of related transactions involving a Change in Control, then:
(a) no Holder of an Option shall automatically be granted
corresponding Stock Appreciation Rights;
(b) if the Restructuring is in the form of a Non-Surviving
Event and, as part of that Restructuring, shares of stock, other
securities, cash or property shall be issuable or deliverable in
exchange for Stock, the surviving entity shall assume the obligations
of the Corporation under this Plan and Options thereafter shall
represent the right to purchase or receive (in lieu of the Total Shares
that the Holder would otherwise be entitled to purchase or receive) the
number of shares of stock, other securities, cash or property to which
the number of Total Shares would have been entitled in connection with
such Restructuring at an aggregate exercise price equal to the Exercise
Price that would have been payable if that number of Total Shares had
been purchased on the exercise of the Option immediately before the
consummation of the Restructuring;
(c) the Corporation may (but shall not be required to) redeem
in whole or in part any one or more of the outstanding Options in
consideration of a cash payment, as such payment may be reduced for tax
withholding obligations as contemplated in Subsection 6.8 in an amount
equal to the excess of (i) the Fair Market Value, determined as of the
date immediately preceding the consummation of the Restructuring, of
the aggregate number of shares of Stock subject to the Options and as
to which the Options being redeemed over (ii) the Exercise Price for
that number of shares of Stock; any redemption of an Option pursuant
this Subsection 7.2(c) shall also constitute the redemption of any
corresponding Stock Appreciation Rights; provided, further, that any
cash payments be made by the Corporation pursuant to this Subsection
7.2(d) in connection with the redemption of any outstanding Option
shall be paid to the Holder thereof at the time of delivery to the
Corporation of the Award Agreement evidencing that Option, provided
that any such redemption shall be
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<PAGE> 14
effective upon the consummation of the Restructuring notwithstanding
that the payment of the Redemption Price may occur subsequent to the
consummation or the failure of any Holder to deliver the applicable
Award Agreement; and
(d) if a Participant becomes an employee of the surviving
entity or any Subsidiary thereof, then, for purposes of Section 9.1(a)
hereof, such Participant shall not be deemed to have ceased to be an
Employee.
7.3 Terms of Stock Appreciation Rights. A Stock Appreciation Right
granted pursuant to Subsection 7.1 shall entitle a Holder, upon exercise, to
surrender such Holder's Option or any portion thereof, to the extent
unexercised, and to receive payment of an amount computed pursuant to Subsection
7.3(b). That Option shall then cease to be exercisable to the extent
surrendered. Stock Appreciation Rights granted pursuant to Subsection 7.1(a)
shall be subject to the terms of the Award Agreement governing the Option, which
shall be deemed to incorporate the following provisions in addition to those
applicable to Options:
(a) Exercise and Transfer. A Stock Appreciation Right granted
pursuant to Subsection 7.1(a) shall be exercisable only at such time or
times and only to the extent that the related Option is exercisable and
shall not be transferable except to the extent that the related Option
is transferable as provided in Subsection 9.3.
(b) Value of Right. Upon the exercise of a Stock Appreciation
Right, a Holder shall be entitled to receive payment from the
Corporation of an amount in cash determined by multiplying:
(i) The difference obtained by subtracting the
Exercise Price from the Fair Market Value of a share of Stock
on the date of exercise of the Stock Appreciation Right, by
(ii) The number of shares of Stock as to which that
Stock Appreciation Right has been exercised.
(c) Award Agreements. Stock Appreciation Rights granted
pursuant to Subsection 7.1(a) shall be evidenced by the Award
Agreements evidencing the corresponding Options to which the Stock
Appreciation Rights relate, which Award Agreements shall be deemed to
incorporate the provisions of this Subsection 7.3. No separate Award
Agreement shall be issued evidencing any Stock Appreciation Rights.
7.4 Payment of Taxes. The Committee shall withhold from amounts payable
upon the exercise of an SAR the amount that the Committee deems necessary to
satisfy the Corporation's or its Subsidiary's current or future obligation to
withhold federal, state, or local income or other taxes that the Participant
incurs by exercising a Stock Appreciation Right.
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7.5 Notice of Change in Control or Restructuring. Upon the occurrence
of a Change in Control or a Restructuring without Change in Control, the
Corporation shall provide written notice to all Holders of Options of the
occurrence of such event and the effects resulting therefrom as provided in this
Section 7.
SECTION 8. ADJUSTMENT PROVISIONS
8.1 Adjustment of Options and Authorized Stock. The terms of an Option
and the number of shares of Stock authorized pursuant to Subsection 2.1 for
issuance under this Plan shall be subject to adjustment from time to time, in
accordance with the following provisions:
(a) If at any time, or from time to time, the Corporation
shall subdivide as a whole (by reclassification, by a stock split, by
the issuance of a distribution on Stock payable in Stock, or otherwise)
the number of shares of Stock then outstanding into a greater number of
shares of Stock, then (i) the maximum number of shares of Stock
available for this Plan as provided in Subsection 2.1 shall be
increased proportionately, and the kind of shares or other securities
available for this Plan shall be appropriately adjusted, (ii) the
number of shares of Stock (or other kind of shares or securities) that
may be acquired under any Option (and to which any corresponding Stock
Appreciation Right, if any, relates) shall be increased
proportionately, and (iii) the Exercise Price for each share of Stock
(or other kind of shares or securities) subject to then outstanding
Options (and corresponding Stock Appreciation Rights, if any) shall be
reduced proportionately, without changing the aggregate Exercise Price
or value as to which outstanding Options (and corresponding Stock
Appreciation Rights, if any) remain exercisable.
(b) If at any time, or from time to time, the Corporation
shall consolidate as a whole (by reclassification, reverse stock split,
or otherwise) the number of shares of Stock then outstanding into a
lesser number of shares of Stock, then (i) the maximum number of shares
of Stock available for this Plan as provided in Subsection 2.1 shall be
decreased proportionately, and the kind of shares or other securities
available for this Plan shall be appropriately adjusted; (ii) the
number of shares of Stock (or other kind of shares or securities) that
may be acquired under any Option (and to which any corresponding Stock
Appreciation Right, if any, relates) shall be decreased
proportionately; and (iii) the Exercise Price for each share of Stock
(or other kind of shares or securities) subject to then outstanding
Options (and corresponding Stock Appreciation Rights, if any) shall be
increased proportionately, without changing the aggregate Exercise
Price or value as to which outstanding Options (and corresponding Stock
Appreciation Rights, if any) remain exercisable.
(c) Whenever the number of shares of Stock subject to
outstanding Options (and corresponding Stock Appreciation Rights, if
any) and the price for each share of Stock subject to outstanding
Options (and corresponding Stock Appreciation Rights, if any) are
required to be adjusted as provided in this Subsection 8.1, the
Committee shall promptly prepare a notice setting forth, in reasonable
detail, the event requiring adjustment, the amount
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of the adjustment, the method by which such adjustment was calculated,
and the change in price and the number of shares of Stock, other
securities, cash, or property purchasable subject to each Option (and
corresponding Stock Appreciation Rights, if any) after giving effect to
the adjustments. The Committee shall promptly provide a copy of such
notice to each Holder.
(d) Adjustments under Subsections 8.1(a) and (b) shall be made
by the Committee, and its determination as to what adjustments shall be
made and the extent thereof shall be final, binding, and conclusive. No
fractional interest shall be issued under this Plan on account of any
such adjustments.
SECTION 9. ADDITIONAL PROVISIONS
9.1 Loss of Eligibility.
(a) If a Participant ceases to be an Employee for any reason
other than the Participant's death, Disability or Normal Retirement,
then any and all Options held by the Participant (or any permitted
transferee) as of the date the Participant ceases to be an Employee
("Termination Date") shall survive the termination and shall be
exercisable for a period of the lesser of (i) the remainder of the term
of the Option or (ii) 180 days following the Termination Date.
(b) If a Participant ceases to be an Employee by reason of the
Participant's death, Disability or Normal Retirement, then any and all
Options held by the Participant (or any permitted transferee) as of the
Termination Date shall survive the termination and shall be exercisable
for the lesser of (i) remainder of the term of the Options or (ii)
three years after the Termination Date.
(c) Notwithstanding the foregoing, the Committee may, in its
sole discretion, determine that any Participant who is on leave of
absence for any reason will be considered to still be an Employee for
purposes of this Section 9.1.
Any portion of an Option not exercised upon the expiration of the
applicable periods specified above shall be null and void upon the expiration of
such period.
9.2 Death or Disability. Upon the death or Disability of a Holder, any
and all Options held by the Holder that have not been exercised as of the date
of the Holder's death or Disability may be exercised by, in the case of the
Holder's Disability, the Holder, his guardian or his legal representative or, in
the case of the Holder's death, by the Holder's legal representatives, heirs,
legatees, or distributees, in each case for the periods prescribed in Subsection
9.1. "Disability" shall mean (i) with respect to a Participant, as determined by
the Board of Directors in the sole discretion exercised in good faith of the
Board of Directors, a physical or mental impairment of sufficient severity that
(a) either the Participant is unable to continue performing the duties he
performed before such impairment or the Participant's condition entitles him or
her to disability benefits under
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any insurance or employee benefit plan of the Corporation or its
Subsidiaries or any other customary general disability policy owned by
or maintained for the benefit of the Participant, and (b) that
impairment or condition is cited by the Corporation as the reason for
termination of the Non-Employee Director's participation as a member of
the Board of Directors and (ii) with respect to a Holder that is a
permitted transferee under Subsection 9.3, the appointment of a legal
guardian or representative of such Holder.
9.3 Transferability of Options.
(a) Permitted Transferees. The Committee may, in its
discretion, permit a Holder to transfer all or any portion of an
Option, or authorize all or a portion of any Option to be granted to a
Participant to be on terms which permit transfer by such Holder, to (i)
the spouse, children or grandchildren of the Holder ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or (iii) a partnership in which such
Immediate Family Members are the only partners (collectively,
"Permitted Transferees"); provided that (x) there may be no
consideration for any such transfer and (y) subsequent transfers of
Options transferred as provided above shall be prohibited except
subsequent transfers back to the original Holder of the Option and
transfers to other Permitted Transferees of the original Holder. Award
Agreements evidencing Options with respect to which such
transferability is authorized at the time of grant must be approved by
the Committee, and must expressly provide for transferability in a
manner consistent with this Subsection 9.3(a).
(b) Domestic Relations Orders. Options may be transferred
pursuant to domestic relations orders entered or approved by a court of
competent jurisdiction upon delivery to the Corporation of written
notice of such transfer and a certified copy of such order.
(c) Other Transfers. Except as expressly permitted by
subsections 9.3(a) and 9.3(b), Options requiring exercise shall not be
transferable other than by will or the laws of descent and
distribution.
(d) Effect of Transfer. Following the transfer of any Option
as contemplated by Subsections 9.3(a), 9.3(b) and 9.3(c), (i) such
Option shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, provided that the term
"Holder" shall be deemed to refer to the Permitted Transferee, the
recipient under a domestic relations order, or the estate or heirs of a
deceased Holder, as applicable, to the extent appropriate to enable the
Holder to exercise the transferred Option in accordance with the terms
of this Plan and applicable law and (ii) the provisions of Subsection
9.1 hereof shall continue to be applied with respect to the original
Holder and, following the occurrence of any such events described
therein the Options shall be exercisable by the Permitted Transferee,
the recipient under a domestic relations order, or the estate or heirs
of a deceased Holder, as applicable, only to the extent and for the
periods specified in Subsections 9.1 and 9.2.
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(e) Procedures and Restrictions. Any Holder desiring to
transfer an Option as permitted under Subsections 9.3(a) or 9.3(b)
shall make application therefor in the manner and time specified by the
Committee and shall comply with such other requirements as the
Committee may require to assure compliance with all applicable
securities laws. The Committee shall not give permission for such a
transfer if (i) it would give rise to short-swing liability under
Section 16(b) of the Exchange Act, or (ii) it may not be made in
compliance with all applicable federal, state and foreign securities
laws.
(f) Registration. To the extent the issuance to any Permitted
Transferee of any shares of Stock issuable pursuant to Options
transferred as permitted in this Subsection 9.3 is not registered
pursuant to the effective registration statement of the Corporation
generally covering the shares to be issued pursuant to this Plan to
initial Holders of Options, the Corporation shall not have any
obligation to register the issuance of any such shares of stock to any
such transferee.
(g) Effect on Stock Appreciation Rights. If at the time any
Option is transferred as permitted under this Subsection 9.3 a
corresponding Stock Appreciation Right shall have been granted with
respect to such Option pursuant to Subsection 7.1(a) of this Plan, then
the transfer of such Option shall also constitute a transfer of the
corresponding Stock Appreciation Right, and Stock Appreciation Rights
shall not be transferable other than as part of a transfer of the
Option to which it relates as provided in this Subsection 9.3.
9.4 Delivery of Certificates of Stock. Subject to Subsection 9.5, the
Corporation shall promptly issue and deliver a certificate representing the
number of shares of stock as to which an Option has been exercised after the
Corporation receives an Exercise Notice and upon receipt by the Corporation of
the Exercise Price and any tax withholding as may be required. The value of the
shares of stock or cash deliverable upon the exercise of an Option or Stock
Appreciation Right under this Plan shall not bear any interest owing to the
passage of time, except as may be otherwise provided in an Award Agreement.
9.5 Conditions to Delivery of Stock. Nothing herein or in any Option
granted hereunder or any Award Agreement shall require the Corporation to issue
any shares with respect to any Option if that issuance would, in the opinion of
counsel for the Corporation, constitute a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable statute or
regulation, or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of an Option the
Corporation may, as a condition precedent to the exercise of such Option,
require from the Holder of the Option (or in the event of his death, his legal
representatives, heirs, legatees, or distributees) such written representations,
if any, concerning the Holder's intentions with regard to the retention or
disposition of the shares of Stock being acquired pursuant to the Option and
such written covenants and agreements, if any, as to the manner of disposal of
such shares as, in the opinion of counsel to the Corporation, may be necessary
to ensure that any disposition by that Holder (or in the event of the Holder's
death, his legal representatives, heirs, legatees, or distributees) will not
involve a violation of the Securities Act or any similar or superseding statute
or statutes, any other applicable state or federal statute or regulation, or any
rule of any applicable securities exchange or securities association, as then in
effect.
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9.6 Stockholder Approval. Options shall not be granted under this Plan
prior to the date the stockholders of the Corporation shall have approved this
Plan. This Plan shall become null and void as of December 31, 1997, if such
stockholder approval is not obtained on or before such date.
9.7 Rights as a Stockholder. A Holder shall have no right as a
stockholder with respect to any shares of Stock covered by an Option until a
certificate representing those shares is issued in such Holder's name. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash or other property) or distributions or other rights for which the record
date is before the date that certificate is issued, except as contemplated by
Sections 7 and 8 hereof.
9.8 Furnish Information. Each Holder shall furnish to the Corporation
all information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
9.9 Obligation to Exercise. The granting of an Option hereunder shall
impose no obligation upon a Holder to exercise the same or any part thereof.
9.10 Consideration. No Option or Stock Appreciation Right shall be
exercisable unless and until the Holder thereof shall have paid cash or property
to the Corporation that the Committee believes is equal to or greater in value
than the par value of the Stock subject to such Option.
9.11 Securities Act Legend. Certificates for shares of Stock, when
issued, may have the following legend, or statements of other applicable
restrictions, endorsed thereon and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER)
THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Stock issued pursuant to an
effective registration statement under the Securities Act.
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SECTION 10. EFFECTIVENESS, DURATION AND AMENDMENT OF PLAN
10.1 Effectiveness; Duration. This Plan shall become effective upon the
Effective Date, and no Options may be granted hereunder after the date that is
ten years after the Effective Date. This Plan shall terminate upon the later of
(i) the complete exercise or lapse of the last outstanding Option or (ii) the
last date upon which Options may be granted hereunder.
10.2 Amendment. The Committee may, insofar as permitted by law, with
respect to any shares which, at the time, are not subject to outstanding
Options, suspend or discontinue this Plan, provided that no suspension or
discontinuation of this Plan shall adversely affect the rights of any Holder of
any outstanding Option at the time of such suspension or discontinuation or any
Participant who has an election in effect pursuant to Subsection 4.2, in each
case without such Holder's or Participant's consent, as applicable. Furthermore,
the Committee may revise or amend this Plan in any respect without approval of
the outstanding Voting Securities of the Company except to the extent any such
approval shall be required under any applicable law or the rules of any
securities exchange on which the Stock is traded as in effect at the time of
such amendment; provided, however, that (i) the Committee may not amend or
otherwise revise the terms of this Plan in any manner that would adversely
affect the rights of any Holder of any Option outstanding or any Participant who
has an election pursuant to Subsection 4.2 in effect at the time of any such
amendment or revision without such Holder's or Participant's consent, as
applicable, and (ii) the Committee will not amend this Plan to increase
materially the aggregate number of shares of stock that may be issued under this
Plan (except for adjustments pursuant to Section 9 hereof) without the
affirmative vote of a majority of the votes cast on a proposal for such
amendment presented at a duly held meeting of stockholders of the Company at
which a quorum is, either in person or by proxy, present.
SECTION 11. GENERAL
11.1 Application of Funds. The proceeds received by the Corporation
from the sale of shares pursuant to Options may be used for any general
corporate purpose.
11.2 Right of the Corporation to Terminate Status as Employee. Nothing
contained in this Plan, or in any Award Agreement, shall confer upon any Holder
the right to continue to serve as an Employee or interfere in any way with the
rights of the Corporation or the Board of Directors to terminate the Holder's
participation as an Employee with or without cause.
11.3 No Liability for Good Faith Determinations. Neither the members of
the Board of Directors nor any member of the Committee shall be liable for any
act, omission or determination taken or made in good faith with respect to this
Plan or any Option granted under it; and members of the Board of Directors and
the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising therefrom to the full extent permitted by law and under any
directors'
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and officers' liability or similar insurance coverage that may from time to time
be in effect. This right to indemnification shall be in addition to, and not a
limitation on, any other indemnification rights any member of the Board of
Directors or the Committee may have.
11.4 Other Benefits. Participation in this Plan shall not preclude a
Holder from eligibility in any other stock or stock option plan of the
Corporation or any Subsidiary or any benefit, insurance, pension, profit
sharing, retirement, bonus, or other extra compensation plans that the
Corporation or any Subsidiary has adopted, or may, at any time, adopt for the
benefit of its Employees, except as such participation therein may be limited by
the terms of any such other plan. Neither the adoption of this Plan by the
Compensation Committee nor the submission of this Plan to the stockholders of
the Corporation for approval shall be construed as creating any limitations on
the power of the Compensation Committee or the Board of Directors to adopt such
other incentive arrangements as it may deem desirable, including without
limitation the granting of stock options and the awarding of stock and cash
otherwise than under this Plan and such arrangements may be either generally
applicable or applicable only in specific cases.
11.5 Exclusion from Pension and Profit-Sharing Compensation. By
electing to participate in this Plan as provided in Subsection 4.2, each
Participant shall be deemed to have agreed that any compensation paid or deemed
paid by the Corporation or any of its Subsidiaries to such Participant on
account of the Options (and any corresponding SARs) granted hereunder in amounts
in excess of the amount of Annual Bonus deferred hereunder is special incentive
compensation that will not be taken into account in any manner as salary,
compensation, or bonus in determining the amount of any payment under any
pension, retirement, or other employee benefit plan of the Corporation or any
Subsidiary unless any pension, retirement, or other employee benefit plan of the
Corporation or any Subsidiary expressly provides that such amount shall be so
considered for purposes of determining the amount of any payment under any such
plan. In addition, each beneficiary of a deceased Participant shall be deemed to
have agreed that such excess compensation will not affect the amount of any life
insurance coverage, if any, provided by the Corporation or any of its
Subsidiaries on the life of a Participant that is payable to the beneficiary
under any life insurance plan covering employees of the Corporation or any of
its Subsidiaries.
11.6 Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of stock to a Holder, or to his legal
representative, heir, legatee, or distributee, in accordance with the provisions
hereof, shall, to the extent thereof, be in full satisfaction of all claims of
such persons hereunder. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt therefor in such form as it shall
determine.
11.7 Unfunded Plan. Insofar as it provides for awards of cash and
Stock, the Plan shall be unfunded. Although bookkeeping accounts may be
established with respect to Holders who are entitled to cash, Stock, or rights
thereto under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Corporation shall not be required to segregate any assets that
may at any time be represented by cash, Stock, or rights thereto, nor shall the
Plan be construed as providing for such segregation, nor shall the Corporation
nor the Board of Directors nor the
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<PAGE> 22
Committee be deemed to be a trustee of any cash, Stock, or rights thereto to be
granted under the Plan. Any liability of the Corporation to any Holder with
respect to a grant of cash, Stock, or rights thereto under the Plan shall be
based solely upon any contractual obligations that may be created by the Plan
and any Award Agreement; no such obligation of the Corporation shall be deemed
to be secured by any pledge or other encumbrance on any property of the
Corporation. Neither the Corporation nor the Board of Directors nor the
Committee shall be required to give any security or bond for the performance of
any obligation that may be created by the Plan.
11.8 No Guarantee of Interests. Neither the Committee nor the
Corporation guarantees the Stock of the Corporation from loss or depreciation
and neither shall have any liability to any Holder as a result thereof.
11.9 Payment of Expenses. All expenses incident to the administration,
termination, or protection of this Plan, including, but not limited to, legal
and accounting fees, shall be paid by the Corporation or its Subsidiaries.
11.10 Corporation Records. Records of the Corporation or its
Subsidiaries regarding a Participant's period of service as an Employee,
termination of service as an Employee and the reason therefor, and other matters
shall be conclusive for all purposes hereunder, unless determined by the
Committee to be incorrect.
11.11 Information. The Corporation shall, upon request or as may be
specifically required hereunder, furnish or cause to be furnished all of the
information or documentation which is necessary or required by the Committee to
perform its duties and functions under this Plan.
11.12 No Liability of Corporation. The Corporation assumes no
obligation or responsibility to a Holder or his legal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of, the
Committee.
11.13 Corporation Action. Any action required of the Corporation shall
be by resolution of the Board of Directors, the Compensation Committee, or by a
person authorized to act by resolution of the Board of Directors.
11.14 Severability. If any provision of this Plan is held to be illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable and
this Plan shall be construed and enforced as if the illegal or invalid provision
had never been included herein.
11.15 Notices. Whenever any notice is required or permitted hereunder,
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is actually received, addressed to the
applicable party as specified in the applicable Award Agreement. The Corporation
or a Holder may change, at any time and from time to time, by written notice to
the other, the address which it or he had previously specified for receiving
notices. Until changed in accordance herewith,
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<PAGE> 23
the Corporation and each Holder shall specify as its and his address for
receiving notices the address set forth in the Award Agreement pertaining to the
shares to which such notice relates. Any person entitled to notice hereunder may
waive such notice.
11.16 Successors. This Plan shall be binding upon each Holder, his
legal representatives, heirs, legatees, and distributees, upon the Corporation,
its successors and assigns and upon the Committee and its successors.
11.17 Headings. The titles and headings of Sections and Subsections are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
11.18 Governing Law. All questions arising with respect to the
provisions of this Plan shall be determined by application of the laws of the
State of Delaware, without giving effect to any conflict of law provisions
thereof, except to the extent Delaware law is preempted by federal law.
Questions arising with respect to the provisions of an Award Agreement that are
matters of contract law shall be governed by the laws of the state specified in
the Award Agreement, except to the extent Delaware corporate law conflicts with
the contract law of such state, in which event Delaware corporate law, without
giving effect to any conflict of law provisions thereof, shall govern. The
obligation of the Corporation to sell and deliver Stock hereunder is subject to
applicable federal and state laws and to the approval of any governmental
authority required in connection with the authorization, issuance, sale, or
delivery of such Stock.
11.19 Availability of Exempt Transactions. Notwithstanding the
provisions of this Plan, nothing contained in this Plan shall prohibit any
transactions permitted by Rule 16a-2(d) promulgated under the Exchange Act to
the extent such transactions are approved by the Committee and are not in
violation of, and do not otherwise cause this Plan not to be in compliance with,
Rule 16b-3.
11.20 Word Usage. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.
This Plan has been approved by the Compensation Committee of the
Company as of March 31, 1997, and was approved by the stockholders of the
Company as of May 14, 1997.
ATTEST: /s/ Michael T. Segraves
-----------------------------------
Michael T. Segraves,
Secretary
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<PAGE> 1
EXHIBIT 10.8
SCHEDULE OF SUBSTANTIALLY IDENTICAL DOCUMENTS
The following twenty persons have entered into substantially identical
agreements with the Company.
Raymond E. Cartledge
Charles E. Corpening
Donald J. Donahue
Duane R. Grossett
Parry D. Katsafanas
John R. Kennedy
David J. Klima
David A. Lichtfuss
Thomas F. McWilliams
Robert J. Moore
Michael T. Segraves
William A. Spanos
William R. Toller
<PAGE> 1
EXHIBIT 10.26
CHANGE OF CONTROL AGREEMENT
This CHANGE OF CONTROL AGREEMENT ("Agreement") is entered into as of
March 31, 1997, by and between Chase Industries Inc., a Delaware corporation
("CBI"), and Michael T. Segraves ("Executive").
Recitals
A. Executive currently is employed as Vice
President-Manufacturing of Chase Brass & Copper Company, Inc.,
a Delaware corporation and a wholly-owned subsidiary of CBI
("CBCC").
B. Executive and CBI agree that it is desirable that CBI provide
greater employment security to Executive, and, to that end,
the parties hereby enter into this Agreement.
In consideration of the mutual agreements herein set forth and for good
and valuable consideration, receipt of which hereby is acknowledged the parties
agree as follows:
1. Term of Agreement. The term of this Agreement (the "Term")
shall be for the period which commences on the date hereof and which terminates
on December 31, 1999; provided, however, that (A) subject to Section 4.b.
hereof, if, prior to a Change of Control, Executive ceases for any reason to be
an employee of CBCC, thereupon the Term shall be deemed to have expired and this
Agreement shall immediately terminate and be of no further effect and (B)
commencing on December 31, 1999, and each December 31 thereafter, the Term of
this Agreement shall automatically be extended for an additional year unless at
least 30 days prior to any such date CBI or the Executive shall have given
written notice that CBI or the Executive, as the case may be, does not wish to
have the Term of this Agreement extended. Notwithstanding the expiration of the
Term or other termination of this Agreement, (i) if Executive's employment is
terminated prior to the first anniversary of the expiration of the Term or other
termination of this Agreement, the provisions of Section 6 of this Agreement
shall survive and continue to apply to Executive in accordance with the terms of
Section 6, but only until the first anniversary of such expiration of the Term
or other termination of this Agreement, (ii) Sections 7, 10 and 11 of this
Agreement shall survive any expiration or termination of this Agreement, and
(iii) if a Change of Control shall occur prior to the expiration of the Term or
other termination of this
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<PAGE> 2
Agreement, the terms of this Agreement shall survive to the extent necessary to
enable Executive to enforce his rights under Section 4 of this Agreement.
2. Change of Employment to Affiliate. If, prior to a Change of
Control, Executive shall resign from his employment with CBCC but, upon such
resignation, shall become or remain an employee of CBI or any Subsidiary (other
than CBCC) or CBCC is party to a transaction that does not constitute a Change
of Control but in which CBCC is not a surviving corporation and Executive
becomes employed by the surviving entity then (i) such resignation or change in
employer shall not constitute a termination of Executive's employment for
purposes of this Agreement and (ii) thereafter, all references to CBCC contained
in this Agreement shall be deemed to refer to the entity by which Executive is
then employed.
3. Definitions. For purposes of this Agreement, the following
definitions apply:
a. Acquiring Person: shall mean any Person other than (a)
Executive or any Affiliate of Executive, (b) CBI or any Subsidiary, any employee
benefit plan of CBI or any Subsidiary or of a corporation owned directly or
indirectly by the stockholders of CBI in substantially the same proportions as
their ownership of stock of CBI, or any trustee or other fiduciary holding
securities under an employee benefit plan of CBI or any Subsidiary or of a
corporation owned directly or indirectly by the stockholders of CBI in
substantially the same proportions as their ownership of stock of CBI, or (c)
Citicorp Venture Capital, Ltd., a New York corporation ("CVC"), or any Affiliate
of CVC that is directly controlled by Citicorp or Citibank, N.A., or otherwise
is in the same tier as CVC of Affiliates under the control of such entities
("Direct Affiliates"), but shall not include any entities that may be deemed an
Affiliate of CVC as a result of the investment by any Direct Affiliate in such
entity.
b. Affiliate: shall mean, with respect to any Person, any
other Person that directly or indirectly controls, is controlled by, or is under
common control with the Person in question. As used in this definition of
"Affiliate," the term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through ownership of Voting Securities, by contract, or
otherwise.
c. Cause: shall mean
(i) the continued failure by Executive to
substantially perform his duties as an employee of CBCC or any other
Subsidiary (other than any such failure resulting from Executive's
incapacity due to physical or mental illness) after written demand for
substantial performance is delivered by CBI
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<PAGE> 3
specifically identifying the manner in which CBI believes Executive has
not substantially performed his duties;
(ii) dishonesty by Executive of a material nature
that relates to the performance of Executive's duties as an employee of
CBCC or any other Subsidiary or the commission by Executive of an act
of fraud upon, or willful misconduct toward, CBI or any Subsidiary, as
reasonably determined by the Board of Directors of CBI after a hearing
following ten days' notice to Executive of such hearing;
(iii) criminal conduct by Executive (other than minor
infractions and traffic violations) or the conviction of Executive, by
a court of competent jurisdiction, of any felony (or plea of nolo
contendere thereto);
(iv) a material violation by Executive of his duty of
loyalty to CBI or any Subsidiary which results or may reasonably be
expected to result in material injury to CBI or any Subsidiary;
(v) the failure of Executive to cease any conduct
determined by the Chief Executive Officer of CBI to be detrimental to
the well-being or morale, or otherwise not in the best interest, of CBI
or any Subsidiary after written demand directing Executive to cease
such conduct is delivered by CBI specifically identifying such conduct
and demanding cessation thereof;
(vi) the use by Executive of alcohol which renders
Executive unable to perform the essential functions of his position as
an employee of CBCC or the use by Executive of illegal or controlled
drugs or other substances; or
(vii) a violation by Executive of Executive's
covenants and obligations under Section 6 or Section 7 of this
Agreement which is willful on Executive's part and which is not
remedied to the reasonable satisfaction of CBI in a reasonable period
of time after receipt of written notice from CBI.
Any termination of Executive's employment by CBCC for Cause shall be
communicated to Executive in a written notice of termination which shall set
forth in reasonable detail the facts and circumstances, if any, claimed to
provide a basis for such termination.
d. Change in Control: shall be deemed to have occurred if:
(i) any Acquiring Person is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), directly or
indirectly, of securities of CBI
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<PAGE> 4
representing fifty percent or more of the combined voting power of the
then outstanding Voting Securities of CBI; or
(ii) a public announcement is made of a tender or
exchange offer by any Acquiring Person for fifty percent or more of the
outstanding Voting Securities of CBI, and the Board of Directors of CBI
approves or fails to oppose that tender or exchange offer in its
statements in Schedule 14D-9 under the Exchange Act, provided, that,
within one year after the occurrence of such event, an event described
in clauses (i), (iii) or (iv) hereof shall have occurred (in which case
a Change of Control shall be deemed to have occurred on the date of the
occurrence of the event described above in this clause (ii));
(iii) the stockholders of CBI approve a merger or
consolidation of CBI with any other Person (or, if no such approval is
required, the consummation of such a merger or consolidation of CBI),
other than a merger or consolidation that would result in the Voting
Securities of CBI outstanding immediately prior to the consummation
thereof continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving entity or of a
parent of the surviving entity) a majority of the combined voting power
of the Voting Securities and Convertible Voting Securities (on a
fully-diluted basis assuming full conversion thereof) of the surviving
entity (or its parent) outstanding immediately after that merger or
consolidation;
(iv) the stockholders of CBI or CBCC approve a plan
of complete liquidation of CBI or CBCC, respectively, or an agreement
for the sale or disposition by CBI or CBCC of all or substantially all
of CBI's or CBCC's assets, respectively, (or, if no such approval is
required, the consummation of such a liquidation, sale, or disposition
in one transaction or series of related transactions) other than a
liquidation, sale or disposition of all or substantially all of CBI's
or CBCC's assets in one transaction or a series of related transactions
to a Subsidiary or any other Person owned directly or indirectly by the
stockholders of CBI in substantially the same proportions as their
ownership of stock of CBI; or
(v) CBI ceases to be the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of CBCC representing at least a majority of the combined
voting power of the then outstanding Voting Securities of CBCC other
than pursuant to a transaction in which, immediately after the
consummation of such transaction, all of the outstanding Voting
Securities of CBCC or any Person into which CBCC is merged or otherwise
consolidated which are not owned by CBI or any Subsidiary of CBI are
owned, directly or indirectly, by the stockholders of CBI in
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<PAGE> 5
substantially the same proportions as their ownership of stock of CBI
immediately prior to such transaction.
e. Convertible Voting Securities: shall mean any and all
options, warrants or other rights to purchase, or securities convertible into or
exchangeable or exercisable for, directly or indirectly, Voting Securities of
any Person.
f. Good Reason: a resignation for Good Reason shall mean the
resignation by Executive from employment by CBCC after (i) a material reduction
or material adverse alteration in the nature of Executive's position,
responsibilities or authorities which Executive held immediately prior to the
Change of Control, (ii) any material reduction of Executive's compensation or
benefits to which Executive was entitled immediately prior to the Change of
Control, (iii) the relocation of Executive's principal place of employment to a
location which is 60 miles or more from Executive's principal residence
immediately prior to the Change of Control (provided such relocation shall not
constitute Good Reason unless such relocation also results in Executive's
principal place of employment being at least five miles further away from
Executive's principal residence immediately prior to the Change of Control) (iv)
any other material adverse change to the terms and conditions of Executive's
employment or benefits as in effect immediately prior to the Change of Control,
or (v) the liquidation, dissolution, merger, consolidation or reorganization of
CBI or transfer of all or substantially all of its assets in a transaction that
constitutes a Change of Control, unless the successor (by liquidation, merger,
consolidation, reorganization or otherwise) to which all or a substantially all
of its assets have been transferred (directly or by operation of law) shall have
assumed all duties and obligations of CBI under this Agreement pursuant to
Section 8.b. hereof; provided, that, (A) if Executive shall consent in writing
to any event described in clauses (i) through (iv) of this paragraph,
Executive's subsequent resignation shall not be treated as a resignation for
Good Reason unless a subsequent event described in such clauses to which
Executive did not consent occurs and (B) any changes in Executive's
discretionary bonus as from time to time determined by the Board of Directors of
CBI shall not constitute Good Reason for resignation. Notwithstanding the
foregoing, Executive shall be entitled to resign for Good Reason only if any
occurrence referred to in clauses (i), (ii), (iii), (iv) or (v) of this Section
3.f. is not remedied within 10 calendar days after receipt by CBI of written
notice from Executive setting forth in reasonable detail the facts and
circumstances giving rise to such Good Reason.
g. Person: shall mean any individual, group, partnership,
corporation, association, trust, or other entity or organization.
h. Retirement: shall mean a termination of Executive's
employment other than for Cause on or after Executive's attainment of age 65 (or
such other age as mutually agreed upon by Executive and CBI).
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<PAGE> 6
i. Subsidiary: shall mean any corporation or other entity of
which a majority of the combined voting power of the outstanding Voting
Securities is owned, directly or indirectly, by CBI.
j. Permanent Disability: shall mean any physical or mental
disability which shall have rendered Executive unable to perform his duties as
an employee of CBCC with or without reasonable accommodation for 120 consecutive
days, or which, in the opinion of a licensed physician reasonably satisfactory
to CBI, is likely to render Executive unable to perform his duties as an
employee of CBCC for such period with or without reasonable accommodation;
provided, however, that during any period of Executive's disability CBI or any
Subsidiary may assign Executive's duties to any other employee of CBI or such
Subsidiary or may engage or hire a third party to perform such duties and any
such action shall not be deemed "Good Reason" for Executive to terminate his
employment.
k. Voting Securities: shall mean (i) any securities or
interests that vote generally in the election of directors, in the admission of
general partners, or in the selection of any other similar governing body and
(ii) with respect to CBI, all shares of CBI's nonvoting common stock, par value
$.01 per share (all of which are convertible into shares of common stock, par
value $.01 per share, of CBI).
4. Severance Benefit.
a. Benefits. If a Change of Control occurs prior to the
expiration of the Term or other termination of this Agreement and, within twelve
months after the date of the occurrence of such Change of Control, either (a)
Executive's employment with CBCC is terminated by CBCC other than (1) for Cause
or (2) on account of Executive's death, Permanent Disability or Retirement, or
(b) Executive resigns from CBCC for Good Reason (based on events occurring after
the Change of Control), then CBI shall:
(i) pay to Executive, in a single lump sum which shall be paid
within 30 days after the termination of employment or resignation, a
severance payment in an amount equal to the sum of (A) the greater of
(1) Executive's annual salary in effect immediately prior to the Change
of Control and (2) Executives annual salary in effect at the time of
termination or, if Executive resigns (or an event, which is not waived
or consented to by Executive, occurs giving Executive the right to
resign) his employment for Good Reason, immediately prior to the
occurrence of the event giving rise to Good Reason, plus (B) the bonus,
if any, paid or awarded to Executive for the most recent calendar year
ended prior to the date of the Change of Control or, if bonuses for
such calendar year have not been determined for such calendar year as
of the date of the Change of Control, the prior calendar year;
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<PAGE> 7
(ii) maintain in full force and effect, for the continued
benefit of Executive (and, if applicable, Executive's spouse and
dependent children) for a one-year period beginning upon the date of
termination or resignation, all medical and dental insurance coverages
as in effect and in which such Persons were participating immediately
prior to the date of termination or resignation, provided that the
continued participation of such Persons is possible under the general
terms and provisions of such plans and arrangements; if the
participation of any of such Persons in any such plan or arrangement is
barred, CBI shall arrange to provide such Persons with insurance
coverage substantially similar to those which such Persons would
otherwise have been entitled to receive under such plans and
arrangements from which such Persons' continued participation is
barred; provided, however, that in either case, to the extent
applicable, Executive pays to CBI an amount equal to the premiums, or
portion thereof, that Executive was required to pay to maintain such
insurance coverage for such Persons prior to the date of termination or
resignation; and provided, further, that any insurance coverage
provided pursuant hereto shall be limited and reduced to the extent
such coverage otherwise is provided by (or available from or under), at
no direct out-of-pocket cost to the recipient, any other employer of
Executive or Executive's spouse or minor children, or Social Security,
medicare, medicaid or any similar or substitute plans available to such
Persons.
b. Termination in Anticipation of Change of Control. For purposes of
this Section 4, if Executive's employment is terminated prior to a Change of
Control and Executive reasonably demonstrates that such termination (i) was at
the request of a Person who has indicated an intention or taken steps reasonably
calculated to effect a Change of Control and who effectuates a Change of Control
or (ii) otherwise occurred in connection with, or in anticipation of, a Change
of Control which actually occurs, then for all purposes hereof, a Change of
Control shall be deemed to have occurred and the date of a Change of Control
with respect to the employment shall mean the date immediately prior to the
termination date.
c. Employment by Buyer. Notwithstanding the foregoing provisions of
this Section 4, if (i) there shall be a sale or disposition of all or
substantially all the assets of CBCC or a merger, consolidation or
reorganization to which CBCC is a party and is not a surviving corporation, (ii)
such transaction constitutes a Change of Control and (iii) Executive is offered
employment (at substantially the same level of Executive's authority,
responsibility, compensation and benefits with CBCC before such sale) with the
purchaser or corporation into which CBCC is merged or consolidated, as
applicable, or any of its Affiliates ("Buyer") upon consummation of such sale or
disposition, then Executive shall not be entitled to the severance compensation
as provided in Section 4.a. as a result of such transaction. In any such event,
however, Executive shall be entitled to such severance compensation as provided
in Section 4.a. if, within twelve
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<PAGE> 8
months after the date of such transaction, either (1) Executive's employment
with the Buyer shall be terminated by the Buyer other than (A) for Cause or (B)
on account of Executive's death, Permanent Disability or Retirement, or (2)
Executive shall resign from the Buyer for Good Reason. For purposes of this
paragraph, the time of a termination of employment or resignation, the
definitions of "Permanent Disability," "Retirement," resignation for "Good
Reason" and termination for "Cause," and the provisions of Sections 6 and 7
shall be construed with reference to the Buyer instead of with reference to CBCC
and/or CBI, as applicable.
5. No Reductions or Mitigation. The severance compensation to be
provided pursuant to Section 4 of this Agreement shall be paid and provided
without reduction, other than as expressly provided for therein, regardless of
any amounts of salary, compensation or other amounts which may be paid or
payable to Executive from any source or which Executive could have obtained upon
seeking other employment; provided that CBI shall be permitted to make all such
payments net of any legally required tax withholdings.
6. Non-Competition.
a. Covenant. Executive agrees that he will not, during or for a period
of one year following the termination of his employment with CBCC, (i) employ
any Person who was a salaried employee of or a consultant to CBI or any
Subsidiary during the six month period preceding such termination or induce,
request, advise, attempt to influence, or solicit, directly or indirectly, any
Person who was a salaried employee of or consultant to CBI or any Subsidiary
during the six month period preceding such termination to terminate his or her
employment or consulting arrangement with CBI or any Subsidiary, (ii) be
employed by, associated with or have any interest in, directly or indirectly
(whether as principal, director, officer, employee, consultant, partner,
stockholder, trustee, manager or otherwise), any company that engages in the
manufacture, distribution, licensing, sale, or marketing of copper alloy rod or
any other products manufactured, distributed, licensed, sold, or marketed by
CBCC during the Term (collectively, "Products"), or any company which otherwise
is directly competitive with CBCC or any subsidiary of CBCC, in any geographical
area in which CBCC or such subsidiary of CBCC engages in business at the time of
such termination or in which CBCC or any subsidiary of CBCC, prior to
termination of Executive's employment, evidenced in writing, at any time during
the six month period prior to such termination, its intention to engage in such
business (any such company, a "Competing Business"), (iii) induce, request,
advise, attempt to influence, or solicit, directly or indirectly, any Person to
purchase Products from any Person other than CBCC if CBCC provides, or
negotiated to provide, Products to that Person during the Term (any such Person
or Business Enterprise, a "Customer"), or (iv) induce, request, advise, attempt
to influence, or solicit, directly or indirectly, any Customer with whom
Executive had personal contact in connection with performing his duties as an
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<PAGE> 9
employee of CBCC to purchase Products from any Person other than CBCC; provided,
however, that the provisions of this Section 6 shall not apply in the event (i)
Executive's employment is terminated by CBCC other than (A) for "Cause" or (B)
on account of Executive's Permanent Disability or Retirement or (ii) Executive
terminates his employment for Good Reason. Notwithstanding the foregoing,
Executive shall not be prohibited from owning one percent or less of the
outstanding equity securities of any Competing Business whose equity securities
are listed on a national or regional securities exchange or publicly traded in
any over-the-counter market.
b. Tolling of Non-Competition Term. If, during any calendar month after
the termination of Executive's employment by CBCC in which the provisions of
Section 6.a. are applicable, Executive is not in compliance with the terms of
Section 6.a., CBI shall be entitled to, among other remedies, compliance by
Executive with the terms of Section 6.a. for an additional number of calendar
months that equals the number of calendar months during which such noncompliance
occurred.
c. Reasonableness of Restrictions. Executive acknowledges that the
geographic boundaries, scope of prohibited activities, and time duration of the
provisions of Section 6.a. are reasonable and are no broader than are necessary
to maintain and to protect the legitimate business interests of CBI and its
Subsidiaries.
d. Separate Covenants. The parties hereto intend that the covenants
contained in each of subsections 6.a.(i), (ii), (iii) and (iv) of this Agreement
be construed as a series of separate covenants, one for each county or other
defined province or governmental subdivision in each geographic area in which
CBCC or any subsidiary of CBCC conducts its business or otherwise manufactures,
distributes, licenses, sells, or markets Products. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
applicable covenant contained in subsections 6.a.(i), (ii), (iii) and (iv)
hereof. Furthermore, each of the covenants in subsections 6.a.(i), (ii), (iii)
and (iv) hereof shall be deemed a separate and independent covenant, each being
enforceable irrespective of the enforceability (with or without reformation) of
the other covenants contained in subsections 6.a.(i), (ii), (iii) and (iv)
hereof.
7. Non-Disclosure. Executive shall not, directly or indirectly,
at any time during or for a two year period following termination of his
employment with CBCC, reveal, divulge or make known to any Person or entity, or
use for Executive's personal benefit (including without limitation for the
purpose of soliciting business, whether or not competitive with any business of
CBI or any Subsidiary), any information acquired by Executive during the course
of employment by CBCC with regard to the financial, business or other affairs of
CBI or any Subsidiary (including without limitation any list or record of
Persons or entities with which CBI or any Subsidiary has any dealings), other
than (i) information already in the public domain, (ii) information of a type
not considered confidential by Persons engaged in the same business or a
business similar
- 9 -
<PAGE> 10
to that conducted by CBI or any Subsidiary, (iii) information that Executive is
required to disclose under the following circumstances: (A) at the express
direction of any authorized governmental authority; (B) pursuant to a subpoena
or other court process; (C) as otherwise required by law or the rules,
regulations, or orders of any applicable regulatory body; or (D) as otherwise
necessary, in the opinion of counsel for Executive, to be disclosed by Executive
in connection with any legal action or proceeding involving Executive and CBI or
any Subsidiary in his capacity as an employee, officer, director, or stockholder
of CBI or any Subsidiary, or (iv) during the period of his employment by CBCC,
Executive may disclose such confidential information to another employee of CBI
or any Subsidiary or to representatives or agents of CBI or any Subsidiary (such
as independent accountants and legal counsel) when such disclosure is reasonably
necessary or appropriate in connection with the performance by Executive of his
duties on behalf of CBI or any Subsidiary. Executive shall, at any time
requested by CBI (either during or within two years after the termination of
Executive's employment with CBCC), promptly deliver to CBI all memoranda, notes,
reports, lists and other documents (and all copies thereof) relating to the
business of CBI or any Subsidiary which Executive may then possess or have under
his control.
8. Binding Effect; Assignment.
a. General. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and Executive's heirs and legal representatives
and CBI's successors and assigns. This Agreement is assignable by CBI to any
Person which acquires, directly or indirectly, by merger, consolidation,
purchase or otherwise, all or substantially all of the assets of CBI or CBCC or
a majority of the outstanding Voting Securities of CBCC. Upon any such
assignment, and the assumption by the assignee of all obligations hereunder, CBI
shall be released from all liability hereunder. This Agreement shall not be
assignable by Executive.
b. Assumption by Successor. CBI shall require any successor (whether
direct or indirect, by purchase, merger, consolidation, reorganization or
otherwise) to all or substantially all of the business and/or assets of CBI to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent CBI or CBCC, as applicable, would be required to perform if no
such succession had taken place.
9. Nonalienation of Benefits. Benefits payable under this
Agreement shall not be subject in any manner to alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind (collectively "Alienate"), either voluntary or involuntary, prior to
actually being received by Executive, other than by a transfer by the
Executive's will or by the laws of descent and distribution; and any attempt to
alienate, sell, transfer, assign, pledge, encumber, charge, garnish, execute on,
levy or otherwise dispose of any right to benefits payable hereunder contrary to
this Section 9 shall be void ab initio and of no force or effect and
- 10 -
<PAGE> 11
CBI shall have no obligation or liability to pay any amounts so attempted to be
Alienated.
10. Severability. In the event that any provision of this
Agreement (including without limitation any provisions relating to the
activities or areas covered by, or time period of, the covenants provided for in
subsections 6.a.(i), (ii), (iii) and (iv) hereof) or the application thereof to
any Person or circumstance, is held by a court of competent jurisdiction to be
invalid, illegal, or unenforceable in any respect under present or future laws
effective during the effective term of any such provision, such invalid, illegal
or unenforceable provision shall be fully severable; and this Agreement shall
then be construed and enforced as if such invalid, illegal, or unenforceable
provision had not been contained in this Agreement; and the remaining provisions
of this Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
from this Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision, there shall be added automatically as part of this
Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable
and, subject to the following sentence, the parties hereby request the court or
any arbitrator to whom disputes relating to this Agreement are submitted to
reform any otherwise unenforceable covenants contained in Sections 6 and/or 7
hereof in accordance with the preceding provision. Notwithstanding the above, in
the event any such invalidity, illegality or unenforceability of any portion of
Section 6 hereof (including without limitation any provisions relating to the
activities or areas covered by, or time period of, the covenants provided for in
subsections 6.a.(i), (ii), (iii) and (iv) hereof), is caused by such provision
being held to be excessively broad as to time, duration, geographical scope,
activity or subject, then such provision shall, at the option of CBI, remain a
part of this Agreement and shall be construed by limiting and reducing it so as
to be enforceable to the extent compatible with the then applicable law and
shall be enforced so as to permit CBI or any Subsidiary to recover damages for
any prior violation of such provision as so limited and reduced, to the extent
permitted under applicable law.
11. Specific Enforcement. Executive acknowledges that the
covenants of Executive contained in Sections 6 and 7 of this Agreement are
special and unique, that a breach by Executive of any term or provision of
either of Sections 6 or 7 hereof may cause irreparable injury to CBI and/or a
Subsidiary, and that remedies at law for the breach of any terms or provisions
of Sections 6 or 7 hereof may be inadequate. Accordingly, in addition to any
other remedies it may have in the event of breach, CBI shall be entitled to
enforce specific performance of the terms and provisions of Sections 6 or 7
hereof, to obtain temporary and permanent injunctive relief to prevent the
continued breach of such terms and provisions without the necessity of posting
bond or of proving actual damage, and to obtain attorneys fees in respect of the
foregoing if CBI prevails in such action or proceeding. For purposes of this
Section 11 and Sections
- 11 -
<PAGE> 12
6 and 7 hereof, CBI, CBCC and each subsidiary of CBCC shall be deemed a third
party beneficiary entitled to the benefits of such Sections and shall be
entitled to enforce Sections 6 and 7 of this Agreement in accordance with this
Section 11 notwithstanding any assignment by CBI of its rights and obligations
under this Agreement.
12. Entire Agreement; Amendment; Waiver. This Agreement represents the
entire agreement between the parties hereto with respect to the subject matter
hereof, and supersedes all prior or contemporaneous oral or written
negotiations, understandings and agreements between the parties hereto. This
Agreement shall not be altered, amended or modified except by written instrument
executed by CBI and Executive. A waiver of any term, covenant, agreement or
condition contained in this Agreement shall not be deemed a waiver of any other
term, covenant, agreement or condition, and any waiver of any default in any
such term, covenant, agreement or condition shall not be deemed a waiver of any
later default thereof or of any other term, covenant, agreement or condition.
13. Legal Fees and Expenses. The prevailing party in any dispute or
controversy under or in connection with this Agreement shall be entitled to
reimbursement from the non-prevailing party for all costs and reasonable legal
fees incurred by such prevailing party.
14. Applicable Law. The provisions of this Agreement shall be
interpreted and construed in accordance with the laws of the State of Ohio,
without regard to its choice of law principles.
15. Notices. All notices, demands, requests or other communications
that may be or are required to be given, served or sent by either party to the
other party pursuant to this Agreement will be in writing and will be mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery or overnight courier, telegram or
facsimile transmission addressed as follows:
(a) If to CBI: c/o Chase Brass & Copper Company, Inc.
14212 County Road M-50
Montpelier, Ohio 43543
Telecopy No.: 419/485-8150
Attention: Corporate Secretary
- 12 -
<PAGE> 13
with a copy (which will
not constitute notice) to: Vinson & Elkins L.L.P.
2001 Ross Avenue, Suite 3700
Dallas, Texas 75201
Telecopy No.: (214) 999-7781
Attention: Rodney L. Moore
(b) If to Executive: 14212 County Road M-50
Montpelier, Ohio 43543
Telecopy No.: (419) 485-8150
Attn: Michael T. Segraves
Either party may designate by written notice a new address to which any notice,
demand, request or communication may thereafter be given, served or sent. Each
notice, demand, request or communication that is mailed, delivered or
transmitted in the manner described above will be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee with the return receipt, the delivery receipt, the affidavit of
messenger or (with respect to a facsimile transmission) the answer back being
deemed conclusive evidence of such delivery or at such time as delivery is
refused by the addressee upon presentation.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
CHASE INDUSTRIES INC.
By: /s/ Martin V. Alonzo
---------------------------------------
Martin V. Alonzo, President
EXECUTIVE: /s/ Michael T. Segraves
-------------------------------
Michael T. Segraves
- 13 -
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Chase Industries Inc. on Form S-8 (File Nos. 33-87278, 333-28443, 333-28445 and
333-28447) of our report dated February 12, 1999, on our audits of the
consolidated financial statements and financial statement schedule of Chase
Industries Inc. as of December 31, 1998 and 1997 and for the years ended
December 31, 1998, 1997 and 1996, which report is included in this Annual Report
of Form 10-K.
/s/ PricewaterhouseCoopers LLP
Detroit Michigan
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED INCOME
STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1998 FOR CHASE INDUSTRIES INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,200
<SECURITIES> 0
<RECEIVABLES> 31,240
<ALLOWANCES> 1,060
<INVENTORY> 65,776
<CURRENT-ASSETS> 110,836
<PP&E> 135,173
<DEPRECIATION> 38,021
<TOTAL-ASSETS> 212,804
<CURRENT-LIABILITIES> 56,165
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> 115,268
<TOTAL-LIABILITY-AND-EQUITY> 212,804
<SALES> 433,436
<TOTAL-REVENUES> 433,436
<CGS> 371,234
<TOTAL-COSTS> 378,028
<OTHER-EXPENSES> 26,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,152
<INCOME-PRETAX> 25,420
<INCOME-TAX> 9,660
<INCOME-CONTINUING> 15,760
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,760
<EPS-PRIMARY> 1.04<F1>
<EPS-DILUTED> 1.01<F1>
<FN>
<F1>PRIMARY AND FULLY DILUTED EARNINGS PER SHARE HAVE BEEN ADJUSTED FOR THE
THREE-FOR-TWO STOCK SPLIT EFFECTIVE JUNE 6, 1998.
</FN>
</TABLE>
