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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
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
MONTPELIER, OHIO 43543
(Address of principal executive offices) (Zip Code)
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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 20, 2000.... $59,937,990
Number of shares of Common Stock outstanding as of March 20,
2000...................................................... 9,084,877
Number of shares of Nonvoting Common Stock outstanding as of
March 20, 2000............................................ 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 31, 2000.
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CHASE INDUSTRIES INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Matters... 11
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 44
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 44
Item 11. Executive Compensation...................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 44
Item 13. Certain Relationships and Related Transactions.............. 44
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.................................................... 44
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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 31, 2000. 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 and structural
pipe. 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.
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 87% and 10%, 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 99% and 95% of CBCC's total shipments and net sales in 1999 and
1998, respectively. 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.
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-
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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.
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 will also increase 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 was 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 installed and a new building is
completed. The new brass foundry began producing billets on a trial basis in
February, 2000, with full production expected by the end of March 2000.
In fourth quarter 1999, a follow-on expansion of CBCC's extrusion and
finishing capacity was approved by the Company's Board of Directors. Phase III
of Project 400 includes the purchase of a second extrusion press and associated
finishing equipment with a capital investment totaling $50 million. This
investment, in addition to those in the earlier initiative, as discussed above,
comprise a $92 million expansion through Project 400. When completed in first
quarter 2002, production capacity will increase by about one-third to in excess
of 400 million pounds annually. The Company anticipates that capital projects
will be paid for with cash flows provided by operating activities and its
existing bank credit facility, as necessary.
Leavitt. Leavitt has adopted a strategy to maintain and improve its capital
equipment through a program of reinvestment. 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 2000 capital investment plan
includes automating some manual 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.
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
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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
32% of copper alloy rod and 8% of structural steel tubing shipped by U.S. mills
in 1999. 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 LTV Copperweld
Tubular Products Division, Bull Moose Tube Company, Maverick Tube Corporation,
Independence Tube Corporation and Hanna Steel Corporation. 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.
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 customer would not have a material adverse effect
on CBCC or Leavitt. Also, during 1999, 1998 and 1997, 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 2000.
BACKLOG ORDERS
As of March 8, 2000, the Company had backlog orders totaling $36.7 million.
As of February 28, 1999, the Company had backlog orders totaling $27 million.
The increase from 1999 to 2000 is attributed to the strong demand for brass rod,
primarily due to the strong economic environment, especially in residential
housing and remodeling. Also, improving Asian economies and the bottoming out of
Steel Service Center inventory levels have stimulated demand for steel tubing.
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
2000, but is unable to estimate the amount of backlog that will exist as of year
end 2000.
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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
in the United States, and has registrations pending in Canada and Mexico for,
the trademarks LEAVITT and a steel tube design. 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, 1999, the Company had approximately 700 full-time
employees, of whom approximately 220 were salaried and approximately 480 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 12 of Notes to Consolidated Financial Statements included
in Item 8.
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 2000. Estimates of capital
expenditures for pollution control purposes beyond 2000 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 during
the period of 2001-2004 will aggregate approximately $2.5 million. These
estimates are exclusive of expenditures associated with on-site remediation
activities as more fully discussed below. 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 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"),
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 Asset Purchase
Agreement pursuant to
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which the Company acquired the assets and operations of CBCC from BP (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 remedial activities
related to site contamination attributable to Old Chase's operations, as
described in Note 11 of Notes to Consolidated Financial Statements included in
Item 8., BP and CBCC currently are involved in litigation regarding, among other
things, the extent of 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 (the "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 fourth quarter 1999
CBCC modified its water discharge process which will eliminate the requirement
for the Permit and require a new permit relating to discharge of storm water.
CBCC currently is in the process of negotiating limits for this new permit,
which it expects to be finalized in second quarter 2000.
Preliminary studies conducted immediately prior to the CBCC Acquisition
indicated that certain areas of the site upon which CBCC's manufacturing
facility is located have been contaminated by certain volatile organic compounds
("VOCs") as well as total petroleum hydrocarbons and certain metals associated
with historical operating practices. As stated above, under the terms of the
Remediation Agreement BP is responsible for certain remediation activities
attributable to contamination resulting from operations prior to the CBCC
Acquisition.
After the CBCC Acquisition, BP and CBCC conducted sampling to attempt to
identify and determine the extent of contamination at CBCC's site. Based on the
sampling conducted by BP, BP conducted certain remediation activities in 1993.
Based on the results of sampling conducted by BP and CBCC, CBCC completed an
interim remediation for a portion of the site in 1998 and initiated additional
interim remedial actions for other portions of the site in second quarter 1999.
The results of sampling conducted as part of these interim remedial actions
initiated in 1999 identified the presence of VOCs that were not covered by the
initial scope of these interim actions, including the presence of VOCs where BP
previously had conducted remediation activities. As a result, CBCC conducted
additional sampling of certain areas of the site to further delineate the
contamination in those areas. Based on the aggregate sampling results, CBCC
modified its 1999 remediation plan. CBCC began implementing the modified plan in
first quarter 2000, and expects to complete this remediation in third quarter
2000 at an estimated cost (in addition to $2.5 million spent in 1999 for this
project) ranging from approximately $5.8 million to $8.7 million, depending on
the use of certain of remediation methodologies and disposal options that may be
permitted. CBCC also is in the process of developing a remediation plan for two
additional areas of its site, and expects to initiate remediation activities at
those areas in 2001 at an estimated cost ranging from approximately $760,000 to
$1.6 million. Based on currently available data, the Company believes that upon
completion of the remediation activities described above CBCC will have
substantially completed the remediation activities that the Company believes are
necessary to address contamination at its site. However, until the completion of
these remedial and associated investigatory activities and receipt of approval
from the Ohio EPA of CBCC's activities to remediate this contamination, the
Company cannot be certain that further remediation activities will not be
required at its site.
The Company notified BP in third quarter 1999 that amounts payable by the
Company under the $20 million promissory note issued to BP as part of the
consideration for the CBCC Acquisition (the "BP Note") were being offset against
damages incurred by the Company, including environmental investigation and
remediation costs, as a result of BP's breaches of the CBCC Purchase Agreement
and the Remediation Agreement. To the extent CBCC incurs future cleanup costs
with respect to investigatory and remedial activities at its site, it intends to
enforce its rights under the CBCC Purchase Agreement and/or Remediation
Agreement to recover such amounts from BP to the extent such costs exceed the
amount
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recouped as a result of prior offsets against the BP Note. See Notes 4, 5 and 11
of Notes to Consolidated Financial Statements included in Item 8. for a
discussion of the receivable from BP, 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
("USTs") were removed from Leavitt's property in Hammond, Indiana. Prior to
removal, one or more of the USTs released petroleum and other chemical
constituents into the environment. Some contamination of groundwater and soil at
the Hammond property 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 fourth quarter 1999, notified Leavitt
that additional groundwater sampling would be required prior to the IDEM
considering closure. Leavitt conducted additional groundwater sampling in first
quarter 2000 and intends to submit the sampling results, when available, to the
IDEM for review and further direction.
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 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 property will have a
material adverse effect on the Company's 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 11 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 11 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 -- Environmental Matters" and Note 11 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 185,000 square feet. The plant
was originally 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 -- Capital Investment
and Continuing Productivity Improvement Programs -- CBCC."
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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 -- 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 11 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 assumed the defense of this
suit 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
9
<PAGE> 10
(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 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 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 ("PCBs") 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 PRPs 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 assumed 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, 1999.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
As of March 20, 2000, the Company had outstanding 9,084,877 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.
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 during such periods. All per share figures are adjusted to
give effect to a three-for-two stock split effective June 6, 1998.
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
HIGH LOW HIGH LOW
------ ----- ------ ------
<S> <C> <C> <C> <C>
First Quarter.......................... $11 1/16 $7 5/8 $21 7/8 $14 9/16
Second Quarter......................... $9 9/16 $7 3/8 $21 7/8 $19 11/16
Third Quarter.......................... $9 1/4 $8 1/4 $19 7/8 $11 1/2
Fourth Quarter......................... $9 1/8 $7 7/8 $13 7/8 $10 1/4
</TABLE>
As of March 20, 2000, the last reported sales price of the Company's Common
Stock, as reported by the NYSE, was $8.75 per share, and the Common Stock was
held of record by approximately 141 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) 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."
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
(Unaudited; in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $391,541 $433,436 $487,783 $366,991 $313,097
Cost of goods sold (exclusive of
depreciation and amortization shown
separately below).................. 330,029 371,234 419,412 311,345 270,022
Lower of cost-or-market inventory
writedowns......................... 900 6,794 -- -- --
-------- -------- -------- -------- --------
Gross profit....................... 60,612 55,408 68,371 55,646 43,075
Selling, general and administrative
expenses........................... 17,771 15,960 15,418 12,121 8,264
Depreciation and amortization......... 11,650 10,876 9,875 6,710 5,537
-------- -------- -------- -------- --------
Operating income................... 31,191 28,572 43,078 36,815 29,274
Interest expense...................... 1,166 3,152 4,653 2,612 1,530
-------- -------- -------- -------- --------
Income before income taxes......... 30,025 25,420 38,425 34,203 27,744
Provision for income taxes............ 11,410 9,660 14,603 13,564 11,043
-------- -------- -------- -------- --------
Net income available for common
stock............................ $ 18,615 $ 15,760 $ 23,822 $ 20,639 $ 16,701
======== ======== ======== ======== ========
BASIC PER SHARE INFORMATION:*
Average shares outstanding............ 15,234 15,216 15,141 15,095 15,092
Net income available for common
stock.............................. $ 1.22 $ 1.04 $ 1.57 $ 1.37 $ 1.11
======== ======== ======== ======== ========
DILUTED PER SHARE INFORMATION:*
Average shares outstanding............ 15,336 15,561 15,483 15,289 15,149
Net income available for common
stock.............................. $ 1.21 $ 1.01 $ 1.54 $ 1.35 $ 1.10
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT YEAR END):
Working capital....................... $ 42,184 $ 54,671 $ 59,950 $ 48,649 $ 36,798
Total assets.......................... 229,572 212,804 209,501 204,751 103,003
Total debt............................ 27,338 27,491 48,209 70,762 18,784
Stockholders' equity.................. 134,046 115,420 98,713 74,333 53,645
OTHER DATA:
Operating cash flow................... $ 35,005 $ 41,279 $ 18,930 $ 39,531 $ 21,265
Capital expenditures.................. 34,921 15,232 15,774 4,092 4,465
</TABLE>
- ---------------
* Adjusted for the three-for-two stock split effective June 6, 1998.
12
<PAGE> 13
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.
Operations
The Company has two business segments, the brass products segment operated
by CBCC and the steel products segment operated by Leavitt. The Company is a
leading manufacturer of free-machining and forging brass rod and structural and
mechanical steel tubing and structural pipe.
CBCC. CBCC is an ISO 9002 certified manufacturer and supplier of
free-machining and forging brass rod in the United States and Canada. CBCC's net
sales represent gross sales of brass rod less sales discounts and freight
charges. The gross sales price of brass rod consists of a metal price charged to
customers and a fabrication price as separate components. Cost of goods sold
includes the cost of brass scrap, which is the principal raw material used in
the manufacturing process and the primary component of cost of goods sold, as
well as the costs of labor, energy and other materials and supplies used in
fabricating the brass scrap into finished rod. Therefore, CBCC's profit levels
depend primarily on the amount of finished rod shipped, fabrication prices and
the difference between the metal price charged to customers and CBCC's cost of
brass scrap.
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. The difference between the Metal Selling
Price and the Metal Buying Price was increased to eight cents per pound in
September 1999. 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 1999, 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 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
13
<PAGE> 14
would be charged to the customer in a sale of finished brass rod. To a lesser
degree, 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 is a leading producer of structural and mechanical
electric resistance welded steel tubing in square, rectangular and round shapes
in sizes ranging from 1/2 inch to 10 inch squares and equivalent rectangles and
3/8 inch to 12 3/4 inches in outer diameter for round sizes. Leavitt's financial
performance may be impacted by changes in the price it pays for flat-rolled
steel, the primary cost component of Leavitt's finished product, based on the
market conditions in the domestic and the 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 these industries. These industries, 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 1999, United States and Canadian apparent consumption of
copper alloy rod was approximately 1.1 billion pounds, which included industry
shipments of approximately 1 billion pounds plus net imports of approximately
105 million pounds. Industry shipments increased approximately 34 million
pounds, or 3.5%, from 966 million pounds in 1998, while imports decreased
approximately 8.7%. Since 1990, apparent consumption has fluctuated based on
demand, while over the same period CBCC's shipments have increased, with 1999
being another strong year.
The strong 1999 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.
Leavitt. The structural steel tubing industry has substantially more
capacity than demand in a highly competitive environment. Newly-constructed tube
mills have further increased excess capacity in the industry. Leavitt believes
its share of this industry is approximately 8%, about the same as the prior
year. Use of structural steel in construction is increasing, with market growth
of 5% in 1999. 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.
Without a corresponding increase in steel tube prices, as shipments of
imported steel have decreased, domestic flat-rolled steel prices have increased,
reducing steel tubing unit margins. Leavitt's shipments in
14
<PAGE> 15
fourth quarter 1999 increased 5% compared with fourth quarter 1998, primarily
due to stronger sales to the Service Centers. As a result of the increase in
shipments, Leavitt's profitability was strengthened, despite the lower unit
margins.
2000 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 2000 industry consumption will
be similar to 1999 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 affect import levels and exports of U.S. manufactured products
containing parts made from brass rod and steel tubing. The Company's 2000
shipments also will be affected by its ability to maintain manufacturing
operations at its current levels without significant interruption and
successfully implement its capacity expansion program.
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 1999,
the Company recorded a non-cash lower of cost-or-market inventory writedown of
$0.9 million due to decreasing flat-rolled steel prices. 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 $1.2 million and $1.7 million lower at
December 31, 1999 and 1998, respectively.
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,
-------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0%
Cost of goods sold........................................ 84.3 85.6 86.0
Lower of cost-or-market inventory writedowns.............. 0.2 1.6 --
----- ----- -----
Gross profit.................................... 15.5 12.8 14.0
Selling, general and administrative expenses.............. 4.5 3.7 3.2
Depreciation and amortization............................. 3.0 2.5 2.0
----- ----- -----
Operating income................................ 8.0 6.6 8.8
Interest expense, net..................................... 0.3 0.7 0.9
----- ----- -----
Income before income taxes...................... 7.7 5.9 7.9
Provision for income taxes................................ 2.9 2.2 3.0
----- ----- -----
Net income...................................... 4.8% 3.7% 4.9%
===== ===== =====
</TABLE>
1999 Compared with 1998
Net sales decreased $41.9 million, or 9.7%, to $391.5 million in 1999. Net
sales declined mainly as a result of a 10% reduction in steel tubing prices and
an 8% decline in the average Metal Selling Price for brass rod. Also, net sales
decreased due to lower steel tubing shipments. These factors were previously
discussed above under "General Economic and Industry Conditions."
15
<PAGE> 16
Gross profit, excluding lower of cost-or-market inventory writedowns,
decreased slightly from $62.2 million in 1998 to $61.5 million in 1999. However,
there was growth in profitability in the second half of 1999 due to strong
demand for brass rod and strengthening demand for steel tubing.
The Company recorded a non-cash lower of cost-or-market inventory writedown
of $0.9 million in 1999. The writedown to market was due to the decreasing
prices of flat-rolled steel and steel tubing. During 1998, the Company recorded
non-cash lower of cost-or-market inventory writedowns totaling $6.8 million due
to decreasing flat-rolled steel prices and reductions in the brass metal price.
Selling, general and administrative ("SG&A") expenses increased $1.8
million, or 11.3%, to $17.8 million. The increase was primarily due to higher
consulting and professional fees.
Depreciation and amortization increased $0.8 million, or 7.3%, to $11.7
million due to 1998 and 1999 capital additions.
As a result of the above factors, operating income, excluding lower of
cost-or-market inventory writedowns, decreased $3.3 million, or 9.3%, to $32.1
million for 1999.
Net interest expense decreased $2.0 million, or 62.5%, to $1.2 million in
1999, primarily as a result of the repayment of long-term debt and capitalizing
approximately $800,000 of interest expense on the construction of the new CBCC
brass foundry.
The increase in the provision for income taxes of $1.7 million, or 17.5%,
to $11.4 million corresponded to an increase in pre-tax income of 18.1%. The
effective tax rates for 1999 and 1998 were 38%.
As a result of the above factors, net income, excluding lower of
cost-or-market inventory writedowns, decreased $0.8 million, or 4%, to $19.2
million in 1999. Diluted earnings per share, excluding lower of cost-or-market
inventory writedowns, decreased to $1.25 per share compared with $1.28 per share
in 1998. Including the inventory writedowns, net income was $18.6 million, or
$1.22 per basic share, or $1.21 per diluted share, an increase of 17.7% from
1998.
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.
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 affected 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 January 1999 Metal Selling Price was 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.
16
<PAGE> 17
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.
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.
LIQUIDITY AND CAPITAL RESOURCES
General
At December 31, 1999, long-term debt, including current portion, totaled
$27.3 million, a slight decrease from year end 1998. Cash and cash equivalents
were $9.1 million at year end, resulting in net debt as of December 31, 1999 of
$18.2 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, 1999, working capital was $42.2 million, a $12.5 million,
or 23%, decrease from 1998. A decrease in inventory of $20.6 million was
partially offset by an increase in accounts receivable of $3.2 million and a
decrease in accounts payable of $9.8 million. The decline in inventory and in
accounts payable was the result of timing of metal purchases and management's
efforts to reduce inventory levels. The increase in accounts receivable was due
primarily to an increase in net sales in fourth quarter 1999 compared to fourth
quarter 1998.
The Company's current ratio follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1999 1998
----- -----
<S> <C> <C>
Current ratio............................................... 1.79 1.97
Current ratio excluding cash................................ 1.62 1.81
</TABLE>
Cash Flow Provided by Operating Activities
In 1999, net cash provided by operating activities was $35.0 million
compared to $41.3 million in 1998. The primary sources of cash from operating
activities in 1999 were net income of $18.6 million, depreciation and
amortization of $11.7 million and a reduction in working capital, excluding cash
and debt, of $12.4 million.
In 1998, net cash provided by operating activities was $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,
17
<PAGE> 18
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.
Cash Flow (Used in) Investing Activities
Capital expenditures were $34.9 million, $15.2 million, and $15.8 million
in 1999, 1998 and 1997, respectively. Capital expenditures included equipment
and construction costs for the new CBCC foundry in 1999, initial costs for the
new foundry and installation costs for the three new billet heaters in 1998, and
equipment and construction costs for the billet heater project in 1997.
Cash Flow (Used in) Financing Activities
Cash used in financing activities of $0.1 million during 1999 consisted
primarily of principal payments on long-term debt.
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 5 and 10 of Notes to Consolidated Financial Statements
included in Item 8.
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.
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 have increased productivity and improved
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
10 of Notes to Consolidated Financial Statements included in Item 8.
In second quarter 1998, the Company announced Phase II of Project 400,
which was 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 installed and a new building is
completed. The new brass foundry began producing billets on a trial basis in
February 2000, with full production expected by the end of March 2000.
In fourth quarter 1999, Phase III of Project 400, with an estimated cost of
$50 million, was approved by the Company's Board of Directors. A second
extrusion press and additional finishing equipment will be installed over the
next two years. When Phase III comes on line in 2002, CBCC's production capacity
will exceed 400 million pounds. The Company anticipates that capital projects
will be paid for with cash flows provided by operating activities and the Bank
Credit Facility, as necessary.
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 originally
included a $60 million term loan ("Term Loan") and a $40 million revolving
credit facility ("Old Revolving Credit Facility"). The Company prepaid $13
million on the Term Loan in 1998 and $30 million in 1997, 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 Old Revolving Credit Facility was determined monthly by a
formula based on levels of accounts receivable and inventory, up to a maximum of
$40 million. Effective September 8, 1999, the Company and PNC Bank agreed on an
amendment to the
18
<PAGE> 19
Bank Credit Facility which increased the revolving credit facility (the
"Revolving Credit Facility") by $10 million, to $50 million, and eliminated the
borrowing formula based on levels of accounts receivable and inventory. 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.
Advances under the Bank Credit Facility 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 6.5% and 5.7% at December 31, 1999 and 1998, 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, 1999, $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 $49 million as of December
31, 1999.
Average Revolving Credit Facility Borrowings
The average outstanding balance under the Revolving Credit Facility in 1999
was $0.7 million. The average outstanding balance under the Revolving Credit
Facility in 1998 was $5.6 million. As of March 24, 2000, the Company had
available $43.8 million under the Revolving Credit Facility. For a discussion of
long-term borrowings under the Bank Credit Facility, see Note 5 of Notes to
Consolidated Financial Statements.
CONTINGENCIES -- ENVIRONMENTAL MATTERS
As discussed in "Item 1. Business -- Environmental Regulation" and Note 11
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. CBCC completed an interim remediation for a portion of its
Montpelier, Ohio manufacturing facility in 1998 at a cost of approximately $1
million, and initiated additional interim remedial actions for other portions of
the site in second quarter 1999. Costs for the remedial actions initiated in
1999 originally were estimated at $3.1 million and were recorded in second
quarter 1999. Based on BP's obligations under the Remediation Agreement and the
CBCC Purchase Agreement, the Company recorded a receivable from BP of $1 million
in third quarter 1998 for costs related to 1998 remediation activities and a
$3.1 million receivable from BP in second quarter 1999 for costs related to the
1999 remediation activities.
The results of sampling conducted as part of the interim remedial actions
initiated in 1999 identified the presence of VOCs that were not covered by the
initial scope of these interim actions. As a result, CBCC conducted additional
sampling of certain areas of the site to further delineate the contamination in
those areas. Based on the aggregate sampling results, CBCC modified its 1999
remediation plan. CBCC began implementing the modified plan in first quarter
2000, and expects to complete the remediation in third quarter 2000 at an
estimated cost (in addition to $2.5 million spent in 1999 for this project)
ranging from approximately $5.8 million to $8.7 million, depending on the use of
certain of remediation methodologies and disposal options that may be permitted.
CBCC also is in the process of developing a remediation plan for two additional
areas of its site, and expects to initiate remediation activities at those areas
in 2001 at an estimated cost ranging from approximately $760,000 to $1.7
million.
Based on currently available data, the Company believes that, upon
completion of the remediation activities described above, CBCC will have
substantially completed the remediation activities at its site that are
necessary to address contamination of which CBCC currently is aware. However,
until completion of these remedial and associated investigatory activities and
receipt of approval from the Ohio EPA of CBCC's
19
<PAGE> 20
activities to remediate this contamination, the Company cannot be certain that
further remediation activities will not be required at CBCC's site.
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 in Note 11 of Notes to Consolidated
Financial Statements included in Item 8., BP and CBCC currently are involved in
litigation regarding, among other things, the extent of BP's obligations under
the Remediation Agreement and CBCC Purchase Agreement. BP has not yet reimbursed
CBCC for costs incurred by CBCC for the 1998 and 1999 remediation activities
conducted by CBCC. To the extent BP fails to fund current and future 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.
The Company notified BP in third quarter 1999 that amounts payable by the
Company under the BP Note were being offset against damages incurred by the
Company, including environmental investigation and remediation costs, as a
result of BP's breaches of the CBCC Purchase Agreement and the Remediation
Agreement. To the extent CBCC incurs future cleanup costs with respect to
investigatory and remedial activities at its site, it intends to enforce its
rights under the CBCC Purchase Agreement and/or Remediation Agreement to recover
such amounts from BP to the extent such costs exceed the amount recouped as a
result of the prior offsets against the BP Note. See Notes 4, 5 and 11 of Notes
to Consolidated Financial Statements included in Item 8. for a discussion of the
receivable from BP, prior offsets against amounts owing under the BP Note and
pending litigation regarding the extent of BP's obligations under the
Remediation Agreement and CBCC Purchase Agreement.
Leavitt. Pending further direction from the IDEM, the Company currently is
unable to determine what, if any, remedial activities may be required at
Leavitt's Hammond property. Although the cleanup costs associated with the
environmental conditions at the Hammond property may be material, based on the
results of sampling conducted in 1997 the Company believes that the probability
that Leavitt would be required to make material expenditures relating to site
cleanup at the Hammond property appears to be remote. Therefore, the Company has
not made any specific accrual for costs related to investigation or cleanup at
the Hammond property. To the extent the Company or Leavitt incurs a liability
with respect to site cleanup at the Hammond property, 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 property) prior to the Leavitt Acquisition, to the extent
such losses exceed $400,000 in the aggregate (approximately $150,000 have been
incurred for various matters). In addition, to the extent the contamination at
the Hammond property 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, remediation plans developed and in the
process of being developed by independent consultants of CBCC (which plans are
based on certain assumptions regarding applicable cleanup standards and
methodologies, cost estimates for completion of the remediation activities
initiated in 1999 and preliminary cost estimates for completion of remediation
at other areas of CBCC's site). 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 remediation plans for the two remaining areas of CBCC's site,
completion of currently ongoing and proposed remediation activities, acceptance
by applicable governmental agencies of cleanup standards relied upon in
developing remediation plans and cost estimates, 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
20
<PAGE> 21
at the Hammond, Indiana, property and any remediation activities as may be
required by the IDEM at such site.
CONTINGENCIES -- LEGAL PROCEEDINGS
As discussed in Note 11 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
judgment adverse to 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
This document contains forward-looking statements regarding the operations
of the Company and the industries in which it operates. These statements are
identified by the use of words such as "believe," "expects," "anticipates,"
"will," "should" and other words referring to events to occur in the future.
Management uses estimates and assumptions in forming the basis for such
forward-looking statements. Such estimates and assumptions, including forecasts
regarding demand and pricing for the Company's products, are subject to risks
and uncertainties which could cause actual results to differ materially from
historical results or those anticipated, as described in forward-looking
statements. Actual results will be affected by general economic and industry
conditions in the end-use markets for the Company's products as well as the
impact of competitive products and pricing, including without limitation the
impact of imports. 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 tube. The
Company's shipments also will be affected by its ability to maintain
manufacturing operations at its current levels without significant interruption
and successfully implement its capacity expansion program.
21
<PAGE> 22
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, 1999 and
1998................................................... 24
Consolidated Statement of Income for the Years Ended
December 31, 1999, 1998 and 1997....................... 25
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997... 26
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997....................... 27
Notes to Consolidated Financial Statements................ 28
FINANCIAL STATEMENT SCHEDULES:
Valuation and Qualifying Accounts......................... S-1
</TABLE>
22
<PAGE> 23
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
accompanying index present fairly, in all material respects, the financial
position of Chase Industries Inc. and its subsidiaries at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item 8
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
auditing standards generally accepted in the United States, 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.
PricewaterhouseCoopers LLP
Detroit, Michigan
February 10, 2000
23
<PAGE> 24
CHASE INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 9,142 $ 9,200
Receivables, net of allowance for doubtful accounts and
claims of $1,190 and $1,060 in 1999 and 1998,
respectively........................................... 33,384 30,180
Inventories............................................... 45,230 65,776
Prepaid expenses.......................................... 4,609 698
Deferred income taxes..................................... 3,341 4,982
-------- --------
Total current assets.............................. 95,706 110,836
Property, plant and equipment, net.......................... 121,058 97,152
Other assets................................................ 12,808 4,816
-------- --------
Total assets...................................... $229,572 $212,804
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 31,588 $ 41,399
Accrued compensation and benefits......................... 8,167 7,017
Accrued income taxes...................................... 2,714 2,196
Other accrued liabilities................................. 10,890 5,401
Current portion of long-term debt......................... 163 152
-------- --------
Total current liabilities......................... 53,522 56,165
Long-term debt.............................................. 27,175 27,339
Deferred income taxes....................................... 14,829 13,880
-------- --------
Total liabilities................................. 95,526 97,384
-------- --------
Commitments and contingencies............................... -- --
-------- --------
Stockholders' equity:
Common stock, $.01 par value, 36,310,000 shares
authorized; 9,084,877 and 9,083,452 shares issued and
outstanding in 1999 and 1998, respectively............. 91 91
Nonvoting common stock, $.01 par value, 12,300,000 shares
authorized; 6,150,118 shares issued and outstanding in
1999 and 1998.......................................... 61 61
Additional paid-in capital................................ 31,504 31,493
Retained earnings......................................... 102,390 83,775
-------- --------
Total stockholders' equity........................ 134,046 115,420
-------- --------
Total liabilities and stockholders' equity........ $229,572 $212,804
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE> 25
CHASE INDUSTRIES INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $391,541 $433,436 $487,783
Cost of goods sold (exclusive of depreciation and
amortization shown separately below)...................... 330,029 371,234 419,412
Lower of cost-or-market inventory writedowns................ 900 6,794 --
-------- -------- --------
Gross profit...................................... 60,612 55,408 68,371
Selling, general and administrative expenses................ 17,771 15,960 15,418
Depreciation and amortization............................... 11,650 10,876 9,875
-------- -------- --------
Operating income.................................. 31,191 28,572 43,078
Interest expense, net....................................... 1,166 3,152 4,653
-------- -------- --------
Income before income taxes........................ 30,025 25,420 38,425
Provision for income taxes.................................. 11,410 9,660 14,603
-------- -------- --------
Net income........................................ $ 18,615 $ 15,760 $ 23,822
======== ======== ========
Earnings per share:
Basic..................................................... $ 1.22 $ 1.04 $ 1.57
======== ======== ========
Diluted................................................... $ 1.21 $ 1.01 $ 1.54
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE> 26
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, 1997........................... $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
Net income........................................ -- -- 18,615 18,615
Exercised stock options........................... -- 11 -- 11
---- ------- -------- --------
Balances, December 31, 1999......................... $152 $31,504 $102,390 $134,046
==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 27
CHASE INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income............................................... $ 18,615 $ 15,760 $ 23,822
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 11,650 10,876 9,875
Deferred income tax expense (benefit)................. 2,590 (852) 4,566
Lower of cost-or-market inventory writedowns.......... 900 6,794 --
Changes in assets and liabilities:
(Increase) decrease in receivables.................. (3,204) 12,188 (7,854)
Decrease (increase) in inventories.................. 19,646 (8,882) (11,638)
(Increase) decrease in prepaid expenses............. (3,911) 224 209
(Increase) decrease in other assets................. (8,627) (522) 1,205
(Decrease) increase in accounts payable............. (9,811) 4,155 1,110
Increase (decrease) in accrued liabilities.......... 7,157 1,538 (2,365)
-------- -------- --------
Net cash provided by operating activities........ 35,005 41,279 18,930
-------- -------- --------
Investing activities:
Expenditures for property, plant and equipment........... (34,921) (15,232) (15,774)
-------- -------- --------
Net cash (used in) investing activities.......... (34,921) (15,232) (15,774)
-------- -------- --------
Financing activities:
Revolving credit facility (repayments) borrowings, net... -- (7,578) 7,578
Principal payments on bank term loan..................... -- (13,000) (30,000)
Equipment financing...................................... -- 2,000 10,000
Other, net............................................... (142) 807 427
-------- -------- --------
Net cash (used in) financing activities.......... (142) (17,771) (11,995)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents..... (58) 8,276 (8,839)
Cash and cash equivalents, beginning of year............. 9,200 924 9,763
-------- -------- --------
Cash and cash equivalents, end of year................... $ 9,142 $ 9,200 $ 924
======== ======== ========
Supplemental disclosures:
Interest paid............................................ $ 647 $ 1,582 $ 2,894
======== ======== ========
Income taxes paid........................................ $ 11,703 $ 7,955 $ 13,558
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 28
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, 1999 and 1998, and the
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years ended December 31, 1999, 1998 and 1997, include the accounts
of Chase Industries Inc. (the "Company"), a Delaware corporation, and its
wholly-owned subsidiaries, Chase Brass & Copper Company, Inc. ("CBCC"), a
Delaware corporation, Leavitt Tube Company, Inc. ("Leavitt"), a Delaware
corporation, and Holco Corporation ("Holco"), an Illinois corporation and
wholly-owned subsidiary of Leavitt. All significant intercompany transactions
have been eliminated in consolidation.
On August 24, 1990, the Company acquired, through CBCC, the assets and
operations of a Delaware corporation formerly named Chase Brass & Copper
Company, Incorporated ("Old Chase"), pursuant to the Asset Purchase Agreement
("CBCC Purchase Agreement") dated May 10, 1990, by and between the Company,
CBCC, Old Chase, BP Exploration (Alaska) Inc. ("BPE") and The Standard Oil
Company (the "CBCC Acquisition"). BPE and The Standard Oil Company (collectively
referred to as "BP") own all the stock of Old Chase. The CBCC Acquisition was
accounted for as a purchase.
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 and structural pipe. The Leavitt
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 and structural pipe.
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 1999, the Company recorded a non-cash inventory
writedown of $0.9 million due to decreasing flat-rolled steel prices. 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 $1.2 million and $1.7 million
lower at December 31, 1999 and 1998, respectively.
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
28
<PAGE> 29
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 (the "FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"), which was originally
effective for years beginning after June 15, 1999. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137 delaying the effective date
of SFAS 133 by one year. The new standard requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Management of the Company believes SFAS 133 will not have a material
effect on its financial position or results of operations.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Raw materials............................................... $12,091 $33,657
Work in progress............................................ 11,462 10,174
Finished goods.............................................. 22,552 22,383
------- -------
46,105 66,214
Tolling metal due customers................................. (875) (438)
------- -------
$45,230 $65,776
======= =======
</TABLE>
29
<PAGE> 30
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and the related depreciable lives consisted
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Land and land improvements (15-20 years).................... $ 3,592 $ 3,545
Buildings and improvements (10-39 years).................... 33,926 24,484
Machinery and equipment (3-20 years)........................ 119,291 97,761
Construction in progress.................................... 12,472 9,383
-------- --------
169,281 135,173
Accumulated depreciation.................................... (48,223) (38,021)
-------- --------
$121,058 $ 97,152
======== ========
</TABLE>
4. 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,
------------------
1999 1998
------- -------
<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.................................... (2,115) (1,480)
------- -------
$ 3,271 $ 3,906
======= =======
</TABLE>
Receivable from BP. The receivable from BP represents some of the amounts
arising from claims by the Company against BP under the CBCC Purchase Agreement
and a Remediation Agreement (as hereinafter defined). The receivable from BP
consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Certain environmental remediation costs..................... $11,975 $ 2,417
Post-closing adjustments per CBCC Purchase Agreement........ 1,292 1,292
Environmental-related capital expenditures.................. 1,394 1,394
Other costs and claims...................................... 1,360 435
------- -------
16,021 5,538
Interest offset:
Contingent interest....................................... (254) (254)
Interest on BP Note....................................... (5,568) (3,712)
Accrued interest on BP Note................................. (662) (662)
------- -------
(6,484) (4,628)
------- -------
Receivable from BP................................ $ 9,537 $ 910
======= =======
</TABLE>
30
<PAGE> 31
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, the receivable from BP reflected a reduction of $6.5
million, which reduction resulted from the Company offsetting interest of
$254,000 payable August 24, 1996, and $1,856,000 payable on each of August 24,
1997, 1998 and 1999, under the $20 million promissory note issued to BP in
connection with the CBCC Acquisition (the "BP Note"). The Company notified BP in
third quarter 1999 that amounts payable by the Company under the BP Note, which
matured August 24, 1999, were also being offset against the receivable from BP
and other amounts claimed by the Company to be owed by BP to the Company as a
result of BP's breaches of the CBCC Purchase Agreement and the Remediation
Agreement. To the extent the Company is obligated to pay to BP any additional
interest under the BP Note, as described in Note 5, Financing Arrangements
below, the Company intends to offset additional interest payable under the BP
Note against amounts owed by BP to the extent it is legally entitled to do so.
See Note 5, Financing Arrangements, for further discussion of the BP Note.
Although BP has acknowledged its contractual obligation to fund certain
investigatory and cleanup activities related to site contamination attributable
to Old Chase's operations, BP and CBCC currently are involved in litigation
regarding, among other matters, the extent of CBCC's offsets against the BP
Note. As a result of the litigation with BP, the Company has maintained the BP
Note on its books and, therefore, also has maintained the BP receivable net of
interest previously offset as described above. See Note 5, Financing
Arrangements and Note 11, Commitments and Contingencies.
5. FINANCING ARRANGEMENTS
Debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
BP Note..................................................... $20,000 $20,000
Term Loan................................................... 7,000 7,000
Other....................................................... 338 491
------- -------
27,338 27,491
Current portion of long-term debt........................... 163 152
------- -------
Long-term debt.................................... $27,175 $27,339
======= =======
</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. As of the August 24,
1999, due date of the BP Note, the Company also offset the $1,856,000 in accrued
and unpaid interest due August 24, 1999, and the full principal balance of the
BP Note against the receivable from BP and other amounts claimed by the Company
to be owed by BP to the Company as a result of BP's breach of the CBCC Purchase
Agreement and the Remediation Agreement. However, for financial statement
reporting purposes, pursuant to Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS 125"), the Company continues to record the
full principal balance of the BP Note as a liability. SFAS 125 requires that in
order to extinguish a liability, the debtor must be legally released from the
obligation by either the creditor or judicially. As the BP Note is subject to
determination in litigation, the Company has maintained the debt on its books
and continues to accrue interest at 9.28%. The Company continues to classify the
BP Note as long-term because, if necessary, it has the ability to repay the
amount on
31
<PAGE> 32
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a long-term basis with borrowings obtained under the Bank Credit Facility. See
Note 4 , Other Assets, and Note 11, 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 agented by PNC
Bank, National Association ("PNC Bank"). The Bank Credit Facility originally
included a $60 million term loan ("Term Loan") and a $40 million revolving
credit facility ("Old 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 Old Revolving Credit Facility was determined
monthly by a formula based on levels of accounts receivable and inventory, up to
a maximum of $40 million. Effective September 8, 1999, the Company and PNC Bank
agreed on an amendment to the Bank Credit Facility which increased the revolving
credit facility (the "Revolving Credit Facility") by $10 million, to $50
million, and eliminated the borrowing formula based on levels of accounts
receivable and inventory. 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.
Advances under the Bank Credit Facility 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 6.5% and 5.7% at December 31, 1999 and 1998, 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.
Aggregate maturities of long-term debt are as follows: $163,000 in 2000,
$26.2 million in 2001, and $1.0 million in 2002.
6. 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, 1999, 1998 and
1997, were $967,000, $899,000 and $832,000, 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> 33
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables provide a reconciliation, for the years ended December
31, 1999 and 1998, of the changes in the defined benefit retirement plans'
benefit obligations and fair value of assets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- --------
<S> <C> <C>
Change in plan assets:
Fair value at beginning of year........................... $ 9,752 $ 8,937
Actual return on plan assets.............................. 1,468 536
Employer contributions.................................... 210 434
Benefit payments.......................................... (233) (135)
Other..................................................... (32) (20)
------- --------
Fair value at end of year................................. $11,165 $ 9,752
======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Change in benefit obligation:
Obligation at beginning of year........................... $11,652 $ 8,834
Service cost.............................................. 370 317
Interest cost............................................. 778 671
Plan amendments........................................... -- 678
Assumption changes........................................ (951) 745
Actuarial (gain) loss..................................... (722) 554
Benefit payments.......................................... (233) (135)
Other..................................................... (31) (12)
------- -------
Obligation at end of year................................. $10,863 $11,652
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1999 1998
----- -------
<S> <C> <C>
Funded Status:
Balance at end of year.................................... $ 302 $(1,900)
Unrecognized net actuarial (gain) loss.................... (769) 441
Unrecognized prior service cost........................... 828 895
----- -------
Pension prepaid expense (accrual)......................... $ 361 $ (564)
===== =======
</TABLE>
For the year ended December 31, 1999, the discount rate used in determining
the projected benefit obligation was 7.75% and the expected long-term rate of
return on assets ranged from 7.0% to 8.5%. 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%.
33
<PAGE> 34
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The defined benefit retirement plans' net periodic pension expense was as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Service cost.............................................. $ 370 $ 317 $ 284
Interest cost............................................. 778 671 610
Expected return on plan assets............................ (864) (962) (786)
Net amortization and deferral............................. 160 235 144
----- ----- -----
Net periodic pension expense.............................. $ 444 $ 261 $ 252
===== ===== =====
</TABLE>
7. INCOME TAXES:
The consolidated provision for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Current taxes:
Federal.............................................. $ 7,545 $9,216 $ 8,598
State................................................ 1,275 1,296 1,439
------- ------ -------
Total current taxes.................................... 8,820 10,512 10,037
Deferred taxes expense (benefit)....................... 2,590 (852) 4,566
------- ------ -------
Provision for income taxes............................. $11,410 $9,660 $14,603
======= ====== =======
</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,
------------------
1999 1998
------- -------
<S> <C> <C>
Net current deferred tax asset:
Inventory reserves........................................ $ 1,499 $ 2,893
Accrued employee benefits................................. 971 1,219
Allowance for doubtful accounts and claims................ 272 41
Other, net................................................ 599 829
------- -------
$ 3,341 $ 4,982
======= =======
Net long-term deferred tax liability:
Depreciation and basis differences........................ $14,728 $13,564
Other, net................................................ 101 316
------- -------
$14,829 $13,880
======= =======
</TABLE>
34
<PAGE> 35
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
----------------------------
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Tax provision at statutory rate of 35%................. $10,509 $8,897 $13,449
State taxes............................................ 746 842 1,185
Other, net............................................. 155 (79) (31)
------- ------ -------
Provision for income taxes............................. $11,410 $9,660 $14,603
======= ====== =======
Effective tax rate..................................... 38.0% 38.0% 38.0%
</TABLE>
8. STOCK OPTIONS
In November 1994, the Company implemented its 1994 Long-Term Incentive Plan
(the "1994 Plan"). Under the 1994 Plan, as amended, 2,106,187 shares of Common
Stock are reserved for option grants. Stock options granted on or before
December 31, 1999, become exercisable over five years from the grant date
(subject to acceleration under certain circumstances), expire after ten years
and have an exercise price equal to the closing market price 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
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
upon election to the Board become exercisable in 20% increments on each of the
first five anniversaries of the date of grant, have an exercise price equal to
the average closing market price of common stock for the five trading days
preceding the date of election to the Board, and expire after ten years. 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,
have an exercise price equal to one-half of the average closing market price of
Common Stock for the last five trading days of the quarter to which the grant
relates, and expire after ten years.
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 equal to one-half of the average closing market price of Common
Stock for the last five trading days of the calendar quarter to which such
series relates.
35
<PAGE> 36
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary includes stock options granted under the Plans as of
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
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
year......................... 1,586,793 $ 11.42 1,189,621 $ 9.00 1,195,575 $ 6.77
Granted........................ 111,583 8.15 486,392 16.66 129,984 14.98
Exercised...................... (1,425) 6.67 (80,400) 7.28 (54,638) 7.26
Canceled/Forfeited............. (30,435) 11.75 (8,820) 13.11 (81,300) 13.84
--------- --------- ---------
Outstanding at end of year..... 1,666,516 11.19 1,586,793 11.42 1,189,621 9.00
Exercisable at end of year..... 1,044,896 9.05 736,818 8.13 531,406 7.55
</TABLE>
The following table summarizes information about employee stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER EXERCISE REMAINING NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
---------------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 4.00 to $ 8.67 667,803 $ 6.68 5.1 664,803 $ 6.67
8.68 to 15.17 582,988 11.50 6.6 291,608 11.76
17.34 to 21.67 415,725 18.01 7.0 88,485 18.01
---------- ---------
4.00 to 21.67 1,666,516 11.19 6.1 1,044,896 9.05
</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 $853,000, $904,000 and $494,000, and
$.06, $.06 and $.03 in 1999, 1998 and 1997, respectively.
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,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Estimated fair value per share of options granted during the
year...................................................... $4.26 $6.72 $6.88
Assumptions:
Annualized dividend yield................................. -- -- --
Common stock price volatility............................. 32.6% 29.2% 35.7%
Risk-free rate of return.................................. 6.0% 5.6% 6.4%
Expected option term (in years)........................... 6 6 6
</TABLE>
36
<PAGE> 37
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. 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,
---------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
SHARES EPS SHARES EPS SHARES EPS
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic.................. 15,234,413 $ 1.22 15,215,658 $ 1.04 15,141,203 $ 1.57
Stock options.......... 101,883 (0.01) 345,211 (0.03) 341,544 (0.03)
---------- ------ ---------- ------ ---------- ------
Diluted................ 15,336,296 $ 1.21 15,560,869 $ 1.01 15,482,747 $ 1.54
========== ====== ========== ====== ========== ======
</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, 1999 and 1998, 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.
10. OPERATING LEASE OBLIGATIONS
Rental expense under operating leases was $1,786,000, $1,744,000 and
$541,000 for the years ended December 31, 1999, 1998 and 1997, respectively. As
of December 31, 1999, the minimum rental commitments under long-term operating
leases were as follows: $1,547,000 in 2000, $1,322,000 in 2001, $1,109,000 in
2002, $1,050,000 in 2003 and $49,000 in 2004.
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.
11. COMMITMENTS AND CONTINGENCIES
Both CBCC and Leavitt are subject to certain contingent environmental
liabilities. These contingent liabilities are described separately below.
37
<PAGE> 38
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 certain areas of the site upon which CBCC's manufacturing
facility is located have been contaminated with certain volatile organic
compounds (VOCs) as well as total petroleum hydrocarbons and certain metals from
historical operating practices. After the CBCC Acquisition, BP and CBCC
conducted sampling to attempt to identify and determine the extent of
contamination at CBCC's site. Based on the sampling conducted by BP, BP
conducted certain remediation activities in 1993.
Based on the results of sampling conducted by BP and CBCC, CBCC completed
an interim remediation for a portion of the site in 1998 at a cost to CBCC of
approximately $1 million, which was recorded in third quarter 1998. Based on
BP's obligations under the Remediation Agreement, the Company recorded a
corresponding $1 million receivable from BP.
CBCC also initiated additional interim remedial actions for other portions
of the site in second quarter 1999, with completion anticipated during first
quarter 2000. Costs for this project originally were estimated at $3.1 million
and were recorded in second quarter 1999. Based on BP's obligations under the
Remediation Agreement and the CBCC Purchase Agreement, the Company also recorded
a corresponding $3.1 million receivable from BP in second quarter 1999. However,
the results of sampling conducted as part of these interim remedial actions
initiated in 1999 identified the presence of VOCs that were not covered by the
initial scope of these interim actions, including the presence of VOCs where BP
previously had conducted remediation activities. As a result, CBCC conducted
additional sampling at certain areas of the site to further delineate the
contamination in those areas. Based on the aggregate sampling results, CBCC
modified its 1999 remediation plan, and began implementing the modified plan in
first quarter 2000. The cost estimates for these remediation activities, which
CBCC expects to complete in the third or fourth quarter 2000, range from
approximately $5.8 million to $8.7 million (in addition to the $2.5 million
spent in 1999 for this project), depending on the use of certain of remediation
methodologies and disposal options that may be permitted.
CBCC also is in the process of developing a remediation plan for two
additional areas of its site, and expects to initiate remediation activities at
those areas in 2001. Based on preliminary cost estimates provided by CBCC's
independent environmental consultant, and subject to the development by the
consultant of a remediation plan for these areas of the site and the receipt of
bids for the remediation activities required under such plan, the Company
estimates the cost for this project will range from approximately $760,000 to
$1.6 million.
Based on currently available data and the current status of remediation
activities, the Company is unable to determine the most likely estimated cost
(within the ranges provided) for these projects. As a result, the Company
increased its previously established reserve of $3.1 million (which has been
partially offset by the $2.5 million spent in 1999) by $6 million as of December
31, 1999, for costs associated with these remediation activities. The resulting
$6.6 million reserve amount approximates the low end of these ranges in
accordance with Financial Accounting Standards Board Interpretation No. 14,
"Reasonable Estimation of the Amount of Loss."
Based on currently available data, the Company believes that upon
completion of the remediation activities described above CBCC will have
substantially completed the remediation activities that the
38
<PAGE> 39
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company believes are necessary to address contamination at its site. However,
until the completion of these remedial and associated investigatory activities
and receipt of approval from the Ohio Environmental Protection Agency (the "Ohio
EPA") of CBCC's activities to remediate this contamination, the Company cannot
be certain that further remediation activities will not be required at its site.
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, the extent of BP's
obligations under the Remediation Agreement and the CBCC Purchase Agreement. BP
has not yet reimbursed CBCC for costs incurred by CBCC for the 1998 and 1999
remediation activities conducted by CBCC, and CBCC has funded these activities
with cash flows provided by operating activities and the Bank Credit Facility,
as necessary. To the extent BP fails to fund current and future 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 current and future remediation activities 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 effect on the Company's financial condition, results of operations or
liquidity.
Based on the status of remediation activities, other than 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.
The Company notified BP in third quarter 1999 that amounts payable by the
Company under the BP Note, which matured August 24, 1999, were being offset
against damages incurred by the Company, including environmental investigation
and remediation costs incurred by CBCC, as a result of, among other things, the
environmental condition of CBCC's site. To the extent CBCC incurs future cleanup
costs with respect to the investigatory and remedial activities at its site, the
Company intends to enforce its rights under the CBCC Purchase Agreement and/or
the Remediation Agreement to recover such amounts from BP to the extent such
costs exceed the amount recouped as a result of prior offsets against the 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. In this complaint (as amended, the "Complaint"),
plaintiffs seek declaratory judgment 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
39
<PAGE> 40
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 approximately $5.8 million.
In addition, under the BP Note interest was payable on August 24 of each
year from and after August 24, 1996, until the BP Note matured 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.
As of the August 24, 1999, due date of the BP Note, the Company also offset
accrued and unpaid interest of $1,856,000 due August 24, 1999, and the full
principal balance of the BP Note against the receivable from BP and other
amounts claimed by the Company to be owed by BP to the Company as a result of
BP's breach of the CBCC Purchase Agreement and the Remediation Agreement. In the
Complaint, Plaintiffs also seek recovery of the $20 million principal amount of
the BP Note plus interest allegedly owing on the BP Note.
On April 6, 1998, the Company filed an Answer and Counterclaim (as amended
in July 1999, 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 judgment confirming the Company's entitlement to offset
and/or recoup amounts owed by BP and Old Chase against amounts 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 plaintiffs' Reply to Counterclaim, as amended, 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.
In December 1999, plaintiffs filed a motion to compel arbitration of the
Company's claims raised in the Answer and Counterclaim and to stay the
litigation with respect to the Company's counterclaims pending arbitration. The
plaintiffs base their motion to compel arbitration on provisions of the
Remediation Agreement that require an independent expert to resolve differences
between BP and CBCC regarding the scope of certain remediation activities to be
performed under the Remediation Agreement. In February 2000, the Company filed a
response to plaintiffs' motion to compel arbitration requesting the court to
deny plaintiffs' motion or, if the Court determines that any issues are subject
to arbitration, to limit the issues to be arbitrated to those specifically
contemplated by the Remediation Agreement. The Company's response also requests
the court to deny plaintiffs' request to stay the litigation as to any
counterclaim not submitted to arbitration. In March 2000, plaintiffs filed a
reply to the Company's response, and this motion currently is pending before the
court.
In December 1999, plaintiffs also filed a motion for partial summary
judgment against the Company seeking payment by the Company of an amount equal
to the difference between (i) the amount that became due on August 24, 1999,
under the BP Note (i.e., the $20,000,000 principal amount plus $1,856,000 in
accrued interest) and (ii) the amount of Chase's claims that are based on
amounts actually spent or incurred by the Company, which plaintiffs allege was
approximately $12.5 million as of the August 24, 1999, maturity date of the BP
Note. In March 2000, the Company filed a response to plaintiffs' motion
requesting the court to deny plaintiffs' motion, asserting that the Company is
entitled to offset and recoup the full amount of its damages against amounts
that became payable under the BP Note, and presenting evidence that the Company
has incurred quantifiable damages (giving effect to the estimated costs of
future remediation described above)
40
<PAGE> 41
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ranging from at least $29.2 million to $33.1 million. In March 2000, plaintiffs
filed a reply to the Company's response, and this motion is pending before the
court.
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.
This case currently is scheduled for trial in September 2000.
Leavitt. Prior to the Leavitt Acquisition, five underground storage tanks
("USTs") were removed from Leavitt's property in Hammond, Indiana. Prior to
removal, one or more of the USTs released petroleum and other chemical
constituents into the environment. Some contamination of groundwater and soil at
the Hammond property 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 fourth quarter 1999 notified Leavitt
that additional groundwater sampling will be required prior to the IDEM
considering closure. Leavitt conducted additional groundwater sampling in first
quarter 2000 and intends to submit the results of the sampling, when available,
to the IDEM for review and further direction.
Until these actions are carried out, the Company will be unable to
determine what, if any, remedial activities may be required at the Hammond
property. Although the cleanup costs associated with the environmental
conditions at the Hammond property may be material, based on the results of
sampling conducted in 1997 the Company believes that the probability that
Leavitt would be required to make material expenditures relating to site cleanup
at the Hammond property appears to be remote. Therefore, the Company has not
made any specific accrual for costs related to investigation or cleanup at the
Hammond property. To the extent the Company or Leavitt incurs a liability with
respect to site cleanup at the Hammond property, 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 property) 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 property 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.
12. 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 the "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
41
<PAGE> 42
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
400 people. Structural steel tubing is used in non-residential construction,
farm equipment 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 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. Summarized
segment information is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------------
BRASS STEEL
PRODUCTS PRODUCTS CORPORATE TOTAL
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales............................... $268,323 $123,218 -- $391,541
======== ======== ========
Operating income........................ 32,092 839 (1,740) 31,191
Interest expense, net................... -- -- 1,166 1,166
-------- -------- ------- --------
Income before income taxes.............. 32,092 839 (2,906) 30,025
Selected non-cash charges included in
operating income:
Lower of cost-or-market inventory
writedown.......................... -- 900 -- 900
Depreciation and amortization......... 6,219 5,431 -- 11,650
Total assets............................ 116,016 99,117 14,439 229,572
Capital expenditures.................... 31,077 3,844 -- 34,921
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------
<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>
<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>
42
<PAGE> 43
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY FINANCIAL INFORMATION (unaudited; in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1999*
--------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales..................................... $103,868 $97,577 $94,461 $95,635
Gross profit.................................. $ 14,708 $15,794 $14,698 $15,412
Net income.................................... $ 4,412 $ 5,057 $ 4,292 $ 4,854
Average shares outstanding:
Basic....................................... 15,234 15,234 15,234 15,235
Diluted..................................... 15,357 15,326 15,324 15,335
Earnings per share:
Basic....................................... $ 0.29 $ 0.33 $ 0.28 $ 0.32
Diluted..................................... $ 0.29 $ 0.33 $ 0.28 $ 0.32
</TABLE>
<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..................................... $ 0.46 $ 0.31 $ 0.18 $ 0.09
Diluted................................... $ 0.45 $ 0.30 $ 0.18 $ 0.08
</TABLE>
<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.................................... $ 0.43 $ 0.42 $ 0.35 $ 0.37
Diluted.................................. $ 0.43 $ 0.41 $ 0.34 $ 0.36
</TABLE>
- ---------------
* The first quarter of 1999 included lower of cost-or-market inventory expense
of $1,800,000 and the fourth quarter included a lower of cost-or-market
inventory reversal of $900,000.
** The second, third and fourth quarters of 1998 included lower of
cost-or-market inventory writedowns of $2,424,000, $1,000,000 and
$3,370,000, respectively.
43
<PAGE> 44
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 2000 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 2000 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 2000 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 2000 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>
44
<PAGE> 45
<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 -- 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
(incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
+10.3 -- Second Amendment to Credit Agreement by and among the
Company, the banks referred to therein and PNC Bank,
National Association, as Agent dated September 8, 1999.
10.4* -- 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).
+10.5* -- Employment Agreement dated October 12, 1999, between
Chase Brass & Copper Company, Inc., a wholly owned
subsidiary of the Company, and John H. Steadman.
10.6* -- Chase Industries Inc. 1994 Long-Term Incentive Plan, as
amended as of May 14, 1997 (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10K
for the year ended December 31, 1998).
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+10.7* -- First Amendment to Chase Industries Inc. 1994 Long-Term
Incentive Plan, as amended May 14, 1997, effective as of
November 19, 1999.
10.8* -- Chase Industries Inc. 1997 Non-Employee Director Stock
Option Plan, as amended May 26, 1998 (incorporated by
reference to Exhibit 10.6 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998).
+10.9* -- First Amendment to Chase Industries Inc. 1997
Non-Employee Director Stock Option Plan as amended May
26, 1998, effective as of November 19, 1999.
10.10* -- Chase Industries Inc. 1997 Executive Deferred
Compensation Stock Option Plan (incorporated by reference
to Exhibit 10.7 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
+10.11* -- First Amendment to Chase Industries Inc. 1997 Executive
Deferred Compensation Stock Option Plan, effective as of
November 19, 1999.
10.12 -- 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).
+10.13 -- Schedule identifying additional documents substantially
identical to the Indemnification Agreement included as
Exhibit 10.12 and setting forth the material details in
which those documents differ from that document.
10.14 -- 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).
10.15 -- 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).
10.16 -- Subordinated Promissory Note dated August 24, 1990,
between the Company and CBCC (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).
10.17 -- 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).
10.18 -- 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).
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.19 -- 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).
10.20 -- 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).
10.21 -- 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).
10.22* -- 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).
10.23* -- 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).
10.24 -- 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).
10.25 -- 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).
10.26 -- 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 10.25 (incorporated by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.27 -- 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 10.25 (incorporated by reference to Exhibit 10.21
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.28 -- Appendix 1 (Definitions) to Participation Agreement filed
herewith as Exhibit 10.24 and Master Lease filed herewith
as Exhibit 10.25 (incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.29 -- 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 10.24 and Master
Lease filed herewith as Exhibit 10.25 (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
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 1999.
48
<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 29, 2000 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 29, 2000
- ----------------------------------------------------- President, Chief Executive
Martin V. Alonzo Officer and Director
(Principal Executive Officer)
/s/ MICHAEL T. SEGRAVES Chief Financial Officer March 29, 2000
- ----------------------------------------------------- (Principal Financial Officer
Michael T. Segraves and Principal Accounting
Officer)
/s/ RAYMOND E. CARTLEDGE Director March 30, 2000
- -----------------------------------------------------
Raymond E. Cartledge
/s/ CHARLES E. CORPENING Director March 30, 2000
- -----------------------------------------------------
Charles E. Corpening
/s/ ROBERT D. KENNEDY Director March 29, 2000
- -----------------------------------------------------
Robert D. Kennedy
/s/ THOMAS F. MCWILLIAMS Director March 29, 2000
- -----------------------------------------------------
Thomas F. McWilliams
/s/ WILLIAM R. TOLLER Director March 29, 2000
- -----------------------------------------------------
William R. Toller
</TABLE>
49
<PAGE> 50
CHASE INDUSTRIES INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Allowance for doubtful accounts and
claims.................................. $1,060 $177 $-- $ 47 $1,190
====== ==== === ==== ======
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
====== ==== === ==== ======
</TABLE>
S-1
<PAGE> 51
EXHIBIT INDEX
<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 -- 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
(incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
+10.3 -- Second Amendment to Credit Agreement by and among the
Company, the banks referred to therein and PNC Bank,
National Association, as Agent dated September 8, 1999.
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.4* -- 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).
+10.5* -- Employment Agreement dated October 12, 1999, between
Chase Brass & Copper Company, Inc., a wholly owned
subsidiary of the Company, and John H. Steadman.
10.6* -- Chase Industries Inc. 1994 Long-Term Incentive Plan, as
amended as of May 14, 1997 (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10K
for the year ended December 31, 1998).
+10.7* -- First Amendment to Chase Industries Inc. 1994 Long-Term
Incentive Plan, as amended May 14, 1997, effective as of
November 19, 1999.
10.8* -- Chase Industries Inc. 1997 Non-Employee Director Stock
Option Plan, as amended May 26, 1998 (incorporated by
reference to Exhibit 10.6 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998).
+10.9* -- First Amendment to Chase Industries Inc. 1997
Non-Employee Director Stock Option Plan as amended May
26, 1998, effective as of November 19, 1999.
10.10* -- Chase Industries Inc. 1997 Executive Deferred
Compensation Stock Option Plan (incorporated by reference
to Exhibit 10.7 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
+10.11* -- First Amendment to Chase Industries Inc. 1997 Executive
Deferred Compensation Stock Option Plan, effective as of
November 19, 1999.
10.12 -- 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).
+10.13 -- Schedule identifying additional documents substantially
identical to the Indemnification Agreement included as
Exhibit 10.12 and setting forth the material details in
which those documents differ from that document.
10.14 -- 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).
10.15 -- 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).
10.16 -- Subordinated Promissory Note dated August 24, 1990,
between the Company and CBCC (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).
10.17 -- 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>
10.18 -- 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).
10.19 -- 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).
10.20 -- 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).
10.21 -- 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).
10.22* -- 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).
10.23* -- 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).
10.24 -- 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).
10.25 -- 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).
10.26 -- 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 10.25 (incorporated by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.27 -- 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 10.25 (incorporated by reference to Exhibit 10.21
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.28 -- Appendix 1 (Definitions) to Participation Agreement filed
herewith as Exhibit 10.24 and Master Lease filed herewith
as Exhibit 10.25 (incorporated by reference to Exhibit
10.22 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>
10.29 -- 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 10.24 and Master
Lease filed herewith as Exhibit 10.25 (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
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
EXHIBIT 10.3
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT dated as of September 8, 1999
(the "Second 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 amended (as
hereafter amended, the "Credit Agreement");
WHEREAS, the parties to the Credit Agreement desire to amend the provisions
thereof as set forth herein;
WHEREAS, capitalized terms used herein and not otherwise defined herein and
defined in the Credit Agreement 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 Deleting the Borrowing Base Requirement.
The Borrowing Base requirements in the Credit Agreement are hereby deleted
therefrom. The parties make the following amendments to remove such
requirements:
A. Defined Terms (Section 1.1).
The following defined terms are hereby deleted from Section 1.1 of the
Credit Agreement
Account Debtor
Borrowing Base
Borrowing Base Certificate
Inventory
Qualified Accounts
Qualified CBCC Inventory
Qualified Inventory
Qualified Leavitt Inventory
<PAGE> 2
B. Revolving Credit Commitments and Swing Loans (Section 2.1).
Section 2.1 is hereby amended and restated to read as follows:
"2.1 Revolving Credit Loans and Swing Loans.
(a) Revolving Credit Commitments.
Subject to the terms and conditions hereof and relying
upon the representations and warranties herein set forth, each Bank
severally agrees to make Revolving Credit Loans to the Borrower at
any time or from time to time on or after the date hereof to, but
not including, the Expiration Date in an aggregate principal amount
not to exceed at any one time outstanding to the Borrower such
Bank's Revolving Credit Commitment less such Bank's Revolving
Credit Ratable Share of the Letter of Credit Outstandings and
provided that the Revolving Facility Usage may never exceed the
Revolving Credit Commitments.
(b) Swing Loans.
Subject to the terms and conditions hereof and relying
upon the representations and warranties herein set forth, and in
order to facilitate Revolving Credit Loans and repayments between
Settlement Dates in aggregate amounts of $5,000,000 or less, PNC
shall make Swing Loans (the "Swing Loans") to the Borrower at any
time or from time to time after the date hereof to, but not
including, the Expiration Date in an aggregate principal amount up
to but not in excess of the Swing Loan Maximum, subject to Section
7 and to the following provisions. As of each Settlement Date so
long as the Borrower has the right to borrow under this Section
2.1(b), a portion of PNC's Revolving Credit Loans to the Borrower
equal to the lesser of $5,000,000 or the aggregate amount of PNC's
Revolving Credit Loans shall be designated by PNC as Swing Loans.
PNC shall make Swing Loans between Settlement Dates, provided that
the aggregate amount of all Swing Loans shall not exceed the Swing
Loan Maximum (which permits the aggregate principal amount of PNC's
Swing Loans and PNC's Revolving Credit Loans to exceed PNC's
Revolving Credit Ratable Share of the Revolving Credit Loans
(including any Revolving Credit Loans designated by PNC as Swing
Loans) by up to $5,000,000)Within such limits of time and amount
and subject to the provisions of this Agreement, the Borrower may
borrow, repay and reborrow pursuant to this Section 2.1(b).
C. Issuance of Letters of Credit (Section 2.10).
Clause (c) of the first sentence of Section 2.10 (Issuance of Letters
of Credit) is hereby amended and restated to read as follows:
-2-
<PAGE> 3
"(c) the amount of the Revolving Facility Usage does not
exceed the Revolving Credit Commitments at such time."
D. Mandatory Prepayments (Sections 5.7(a) and (b)).
Sections 5.7(a) (Mandatory Prepayments--Borrowing Base Exceeded) and
5.7(b) (Mandatory Prepayments--Excess Cash Flow) are hereby deleted.
E. Reporting Requirements - Monthly Borrowing Base Certificate.
Clause (i) of Section 8.3(d)(Monthly Reporting--Borrowing Base
Certificate) is hereby deleted.
F. Schedules of Qualified Accounts and Qualified Inventory.
The following schedules to the Credit Agreement are hereby deleted:
<TABLE>
<S> <C>
Schedule 1.1(Q)(1) - Qualified Accounts
Schedule 1.1(Q)(2) - Qualified Inventory
</TABLE>
2. Amendments to Credit Agreement and other provisions to increase the
Commitments.
A. Amendment to Schedule 1.1(B) - Commitments of the Banks.
Schedule 1.1(B) is hereby amended and restated to read as set forth on
Schedule 1.1(B) hereto. The Borrower, the Agent and the Banks hereby (i) approve
of the increase in the Revolving Credit Commitments as set forth on such
Schedule 1.1(B) (i.e. from $40,000,000 to $50,000,000), and (ii) consent to and
approve of the addition of Fifth Third Bank, Northwestern Ohio, N.A. ("Fifth
Third") as a Bank under the Credit Agreement with a Revolving Credit Commitment
of $10,000,000 and a Term Loan Commitment of $0 as set forth on such Schedule
1.1(B).
B. Joinder of Fifth Third.
Fifth Third, by signing this Second Amendment agrees that it joins the
Credit Agreement and each of the other Loan Documents as a Bank thereunder with
a Revolving Credit Commitment as set forth on Schedule 1.1(B) attached hereto
and with no Term Loan Commitment. Fifth Third assumes all of the rights and
obligations of a Bank under the Loan Documents and agrees to perform, comply
with and be bound by each of the provisions of the Credit Agreement which are
stated to apply to a Bank and shall be entitled to the benefits, rights and
remedies set forth therein. Fifth Third hereby acknowledges that it has
heretofore received a true and correct copy of the Credit Agreement and the
other Loan Documents and the executed original of its Revolving Credit Note
issued by Borrower under the Agreement in the face amount of its Revolving
Credit Commitment. The address for notices to Fifth Third is set forth on
Schedule 1.1(B).
-3-
<PAGE> 4
C. Participation in Letters of Credit; Repayment of Loans and Reborrowing.
(a) Participation in Letters of Credit.
On the Effective Date (as hereafter defined) of this Second
Amendment, Fifth Third hereby participates in each outstanding Letter of Credit
in accordance with its Revolving Credit Ratable Share as more fully described in
Section 2.10 of the Credit Agreement.
(b) Repayment and Reborrowing of Revolving Credit Loans.
On the Effective Date (as hereafter defined) of this Second
Amendment, the Borrower shall repay all outstanding Revolving Credit Loans and
may reborrow Revolving Credit Loans on the same date. The Banks will not require
the Borrower to indemnify the Banks for repaying any Revolving Credit Loans
under the Euro-Rate Option before the expiration of the applicable Interest
Period (commonly referred to as "breakage") pursuant to Section 5.5(b)
(Indemnity) of the Credit Agreement. Fifth Third and each of the other Banks
shall make Loans requested by the Borrower on the Effective Date (as hereafter
defined) in accordance with their Revolving Credit Ratable Share after giving
effect to the joinder by Fifth Third pursuant to this Second Amendment.
D. Technical Fixes to the Credit Agreement to Reflect that the Ratable
Shares of the Banks in the Revolving Credit Loans Will Not Equal the Ratable
Shares of the Banks in the Term Loans After Fifth Third Joins the Credit
Agreement.
(a) Defined Terms (Section 1.1).
(i) Amended Terms.
The following defined terms are hereby amended and restated to
read as set forth below:
"Aggregate Ratable Share shall mean the proportion that a
Bank's Commitment bears to the Commitments of all the Banks.
Required Banks shall mean Banks whose Commitments aggregate at
least 66 2/3% of the Commitments of all of the Banks.
Swing Loan Maximum shall mean the commitment of PNC to make
Swing Loans to the Borrower at Borrower's request pursuant to Section
2.1(b) hereof in an aggregate principal amount of up to but not in
excess of $5,000,000 at any one time outstanding, provided that in no
event shall the sum of all Swing Loans and Revolving Credit Loans made
by PNC exceed PNC's Revolving Credit Ratable Share of the Revolving
Credit Loans (including any Revolving Credit Loans designated by PNC as
Swing Loans) by more than $5,000,000
-4-
<PAGE> 5
Term Loan Commitment shall mean, as to any Bank at any time,
the amount of Term Loans outstanding, and Term Loan Commitments shall
mean the aggregate Term Loans of all of the Banks."
(ii) New Terms.
The following defined new terms are hereby added in
alphabetical order to Section 1.1 of the Credit Agreement:
"Revolving Credit Ratable Share shall mean the proportion that
a Bank's Revolving Credit Commitment bears to the Revolving Credit
Commitments of all the Banks.
Term Loan Ratable Share shall mean the proportion that a
Bank's Term Loan Commitment bears to the Term Loan Commitments of all
the Banks."
(b) References to Ratable Share.
The term "Revolving Credit Ratable Share" shall be inserted in
lieu of the term "Ratable Share" in each of the following instances in which the
term "Ratable Share" appears in the Credit Agreement:
<TABLE>
<CAPTION>
Section Title of Section Place Where Term is Used
------- ---------------- ------------------------
<S> <C> <C> <C>
2.1(a) Revolving Credit Commitments First Sentence
2.1(b) Swing Loans Second Sentence
2.2 Nature of Banks' Obligations with First and Second Sentences
Respect to Revolving Credit Loans
2.9 Borrowings to Repay Swing Loans. Second Sentence
2.11 Participation Interest in Letters of Credit First Sentence
5.6 Settlement Date Procedures Everywhere where used--
numerous sentences
</TABLE>
The term "Aggregate Ratable Share" shall be inserted in lieu of
the term "Ratable Share" in each of the following instances in which the term
"Ratable Share" appears in the Credit Agreement:
-5-
<PAGE> 6
<TABLE>
<CAPTION>
Section Title of Section Place Where Term is Used
------- ---------------- ------------------------
<S> <C> <C>
10.7 Reimbursement and Indemnification First and Second Sentences
of Agent by Banks.
</TABLE>
(c) Letter of Credit Fees (Section 2.15).
The first sentence of Section 2.15 (Fees with Respect to Letters
of Credit) is hereby amended and restated to read as follows:
"The Borrower agrees to pay to the Agent for the accounts of the
Banks, allocated according to their Revolving Credit Ratable Shares, a
fee for Letters of Credit from time to time outstanding, computed on
the average daily amount of Letters of Credit Outstandings at the rate
per annum equal to the Revolving Credit Euro-Rate Spread (computed on
the basis of a year of 365 or 366 days, as the case may be, and actual
days lapsed)."
(d) Term Loans (Section 3).
Sections 3.1 and 3.2 of the Credit Agreement are hereby amended
and restated to read as follows:
"3.1 Term Loan Commitments.
The Banks made term loans (the "Term Loans")to the Borrower
on the Closing Date.
3.2 Nature of Banks' Obligations with Respect to Term Loans.
The Banks have no obligation to make and the Borrower shall
have no right to borrow any additional Term Loans. "
The first sentence of Section 3.3 (Term Loan Notes)is hereby
amended and restated to read as follows:
"The Obligation of the Borrower to repay the unpaid principal
amount of the Term Loans made to it by each Bank, together
with interest thereon, shall be evidenced by a Term Note dated
the Closing Date payable to the order of each Bank in a face
amount equal to initial principal amount of the Term Loan of
such Bank."
(e) Payments (Section 5).
Sections 5.1 and 5.2 are hereby amended and restated to read as
follows:
-6-
<PAGE> 7
"5.1 Payments.
All payments and prepayments to be made in respect of
principal, interest, Commitment Fees, Agent's Fees, fees and
commissions with respect to Letters of Credit or other amounts due
from the Borrower hereunder shall be payable prior to 12:00 noon
Pittsburgh time on the date when due without presentment, demand,
protest or notice of any kind, all of which are hereby expressly
waived by the Borrower, and without setoff, counterclaim or other
deduction of any nature, and an action therefor shall immediately
accrue. Such payments shall be made to the Agent at the Principal
Office for the account of PNC with respect to the Swing Loans and for
the accounts of the Banks with respect to the Revolving Credit Loans
and the Term Loans allocated according to the amount of such Loans
held by the Banks in U.S. Dollars and in immediately available funds,
and the Agent shall promptly distribute such amounts to the Banks in
immediately available funds, provided that in the event payments are
received by 12:00 noon Pittsburgh time by the Agent with respect to
the Loans and such payments are not distributed to the Banks on the
same day received by the Agent, the Agent shall pay the Banks the
Federal Funds Effective Rate during the first five (5) calendar days
and the Federal Funds Effective Rate plus two percent (2%) thereafter
with respect to the amount of such payments for each day held by the
Agent and not distributed to the Banks. The Agent's and each Bank's
statement of account, ledger or other relevant record shall, in the
absence of manifest error, be conclusive as the statement of the
amount of principal of and interest on the Loans and other amounts
owing under this Agreement and shall be deemed an "account stated."
5.2 Pro Rata Treatment of Banks.
Each borrowing, and each selection of, conversion to or
renewal of any Interest Rate Option, and each payment or prepayment by
the Borrower with respect to principal and interest on the Revolving
Credit Loans and the Commitment Fees and the fees and commissions with
respect to Letters of Credit or other amounts due from the Borrower
hereunder to the Banks with respect to Revolving Credit Loans shall
(except as provided in Section 4.4(b), 5.4(b) or 5.5(a) hereof) be
made in proportion to the amount of such Revolving Credit Loans
outstanding from each Bank and, if no such Revolving Credit Loans are
then outstanding, in proportion to the Revolving Credit Ratable Share
of each Bank. Each borrowing, and each selection of, conversion to or
renewal of any Interest Rate Option, and each payment or prepayment by
the Borrower with respect to principal and interest on the Term Loans
or other amounts due from the Borrower hereunder to the Banks with
respect to Term Loans shall (except as provided in Section 4.4(b),
5.4(b) or 5.5(a) hereof) be made in proportion to the amount of such
Term
-7-
<PAGE> 8
Loans outstanding from each Bank and, if no such Term Loans are then
outstanding, in proportion to the Term Loan Ratable Share of each
Bank.
3. Amendments to Credit Agreement Updating Representations and Warranties.
A. Capitalization and Ownership (Section 6.1(b)).
Section 6.1(b) is hereby amended and restated to read as set forth
below:
(b) Capitalization and Ownership.
The authorized capital stock of Borrower consists of
36,310,000 shares of Voting Common Stock, which are issued, outstanding
and owned as indicated on Schedule 6.1(b) hereto, 12,300,000 shares of
Nonvoting Common Stock, 6,150,118 of which are issued and outstanding
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 of CVC and MVA. The Borrower has delivered a true and correct
copy of the Voting Agreement to the Agent.
B. Schedules To Credit Agreement.
The following schedules to the Credit Agreement are hereby amended and
restated in the forms attached hereto:
<TABLE>
<S> <C> <C>
Schedule 1.1(B) - Commitments Of The Banks
Schedule 6.1(b) - Holders Of Common Stock Of Borrower
Schedule 6.1(h) - Litigation
Schedule 11.6 - Notices
</TABLE>
4. Conditions of Effectiveness of Amendment.
This Second Amendment shall be effective on the date (the "Effective Date")
on which each of the Borrower, the Guarantors, the Banks and the Agent have
executed this Second Amendment and all of the following conditions have been
satisfied:
A. Revolving Credit Note.
The Borrower shall have executed and delivered to Fifth Third a
Revolving Credit Note in principal amount equal to Fifth Third's Revolving
Credit Commitment.
-8-
<PAGE> 9
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 Second 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 Second
Amendment and; and
(ii) the names of the officer or officers authorized to sign this
Second 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 Second Amendment and in form and substance satisfactory
to the Agents and their counsel as to the matters set forth in Exhibit 4(C)
hereto.
D. Fees and Expenses.
The Borrower shall have paid to the Agent and the Banks any fees,
including legal fees, or expenses payable under the Loan Documents.
5. References to Credit Agreement; Inconsistency.
On and after the effective date of this Second 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.
6. 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 such documents are expressly modified by this Second
Amendment and confirms that all such documents have remained in full force and
effect since the date of their execution.
7. Governing Law.
This Second 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.
-9-
<PAGE> 10
8. Counterparts.
This Second 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]
-10-
<PAGE> 11
[SIGNATURE PAGE 1 OF 3 TO SECOND AMENDMENT]
BORROWER:
CHASE INDUSTRIES INC.
By: /s/ M. T. SEGRAVES
--------------------------------
Name: M. T. Segraves
--------------------------------
Title: CFO
--------------------------------
GUARANTORS:
CHASE BRASS & COPPER COMPANY, INC.
By: /s/ M. T. SEGRAVES
--------------------------------
Name: M. T. Segraves
--------------------------------
Title: CFO
--------------------------------
LEAVITT TUBE COMPANY, INC.
By: /s/ M. T. SEGRAVES
--------------------------------
Name: M. T. Segraves
--------------------------------
Title: CFO
--------------------------------
HOLCO CORPORATION
By: /s/ M. T. SEGRAVES
--------------------------------
Name: M. T. Segraves
--------------------------------
Title: CFO
--------------------------------
<PAGE> 12
[SIGNATURE PAGE 2 OF 3 TO SECOND AMENDMENT]
AGENT AND BANKS:
PNC BANK, NATIONAL ASSOCIATION,
individually and as the Agent
By: /s/ MARK W. RUTHERFORD
--------------------------------
Name: Mark W. Rutherford
--------------------------------
Title: Senior Vice President
--------------------------------
ABN AMRO BANK N.V.
By: /s/ CHRISTOPHER S. HELMECI
--------------------------------
Name: Christopher S. Helmeci
--------------------------------
Title: Vice President
--------------------------------
By: /s/ PATRICK M. PASTORE
--------------------------------
Name: Patrick M. Pastore
--------------------------------
Title: Vice President
--------------------------------
COMERICA BANK
By: /s/ ANTHONY L. DAVIS
--------------------------------
Name: Anthony L. Davis
--------------------------------
Title: Account Officer
--------------------------------
FIFTH THIRD BANK, NORTHWESTERN OHIO, N.A.
By: /s/ WILLIAM J. BEHE
--------------------------------
Name: William J. Behe
--------------------------------
Title: Senior Vice President
--------------------------------
<PAGE> 13
[SIGNATURE PAGE 3 OF 3 TO SECOND AMENDMENT]
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/ PATRICIA G. MCCORMACK
-------------------------------
Name: Patricia G. McCormack
-------------------------------
Title: Director
-------------------------------
BANK ONE, MICHIGAN
(f/k/a NBD Bank)
By: /s/ PATRICK F. DUNPHY
-------------------------------
Name: Patrick F. Dunphy
-------------------------------
Title: Vice President
-------------------------------
FIRSTAR BANK, N.A.
f/k/a Star Bank
By: /s/ DAVID J. DANNEMILLER
-------------------------------
Name: David J. Dannemiller
-------------------------------
Title: Vice President
-------------------------------
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE INC.
By: /s/ MARTIN E. RAHE
-------------------------------
Name: Martin E. Rahe
-------------------------------
Title: SVP
-------------------------------
By: /s/ DAVID W. HANNI
-------------------------------
Name: David W. Hanni
-------------------------------
Title: VP
-------------------------------
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
BY AND BETWEEN
CHASE BRASS & COPPER COMPANY, INC.
AND
JOHN H. STEADMAN
DATED EFFECTIVE AS OF
OCTOBER 12, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C> <C> <C>
1. Employment.................................................................. 1
2. Duties...................................................................... 1
(a) Duties as Employee of the Company...................................... 1
(b) Other Duties........................................................... 1
3. Non-Compete................................................................. 1
(a) Covenant............................................................... 1
(b) Tolling of Non-Competition Term........................................ 2
(c) Reasonableness of Restrictions......................................... 2
(d) Separate Covenants..................................................... 2
4. Confidentiality............................................................. 3
5. Compensation and Related Matters............................................ 3
(a) Base Salary............................................................ 3
(b) Bonus Payments......................................................... 3
(c) Expenses and Other Benefits............................................ 4
(d) Vacations.............................................................. 4
(e) Perquisites............................................................ 4
(f) Proration.............................................................. 4
(g) Relocation Expenses.................................................... 4
(h) Temporary Living Expenses.............................................. 5
(i) Stock Options.......................................................... 5
6. Termination................................................................. 5
(a) Death Disability....................................................... 5
(b) Cause.................................................................. 6
(c) Termination by Executive............................................... 7
7. Compensation Upon Termination Prior to a Change in Control of the Company... 7
(a) Death.................................................................. 7
(b) Disability............................................................. 8
(c) Cause or Without Good Reason........................................... 8
(d) Breach by the Company or for Good Reason............................... 8
8. Compensation Upon Termination After a Change in Control of the Company...... 9
9. Other Provisions Relating to Termination; Definitions....................... 10
(a) Notice of Termination.................................................. 10
(b) Date of Termination.................................................... 10
(c) Good Reason............................................................ 10
(i)
</TABLE>
<PAGE> 3
<TABLE>
Page
----
<S> <C> <C> <C>
(d) Cause................................................................ 10
(e) Certain Definitions.................................................. 10
(f) Affiliate............................................................ 12
10. Successors and Assignments................................................ 12
11. Notice.................................................................... 13
12. Disputes.................................................................. 13
(a) Arbitration.......................................................... 13
(b) Specific Enforcement................................................. 15
13. Severability.............................................................. 15
14. Miscellaneous............................................................. 15
15. Reimbursement by Executive................................................ 16
(a) Reimbursement......................................................... 16
(b) Special Provisions for Reimbursement................................. 16
16. Attorney Fees............................................................. 16
17. Counterparts.............................................................. 16
</TABLE>
(ii)
<PAGE> 4
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is effective as of the 12th
day of October 1999, by and between Chase Brass & Copper Company, Inc., a
Delaware Corporation (the "Company"), and John H. Steadman (the "Executive").
1. Employment. The Company hereby employs Executive for the period
commencing on the date hereof and expiring on October 12, 2000 (the "Term")
during which Term the Executive will serve as the Company's Executive Vice
President for the period commencing on the date hereof and expiring on January
4, 2000, at which time the Executive will assume the position of President and
Chief Operating Officer for the period commencing on January 4, 2000, and
expiring on October 12, 2000 (unless sooner terminated as hereinafter set
forth), and Executive hereby accepts such employment, on the terms and
conditions set forth herein; provided, however, that commencing on the first
anniversary of the date hereof, and each anniversary of the date hereof
thereafter, the Term of this Agreement shall be extended for one additional year
unless at least sixty days prior to any such date the Company or Executive shall
have given written notice that it or he, as applicable, does not wish to extend
this Agreement.
2. Duties.
(a) Duties as Employee of the Company. Executive shall, subject to
the authority and supervision of the Chairman of the Board of Directors of the
Company (the "Board"), have general powers of supervision and management of the
business, affairs and property of the Company in the ordinary course of its
business usually vested in (i) from October 12, 1999, until January 4, 2000, an
Executive Vice President and (ii) from and after January 4, 2000, for the
remainder of the Term, a President and Chief Operating Officer, in each case
with all such powers with respect to such general management as may be
reasonably incident to such responsibilities, and shall have such additional or
substitute duties as from time to time designated by the Chairman of the
Board. Executive will devote his full time, attention, and energies to the
business of the Company and shall not, without the consent of the Chairman of
the Board, either directly or indirectly, engage in any other business or
activity which would necessitate Executive giving an appreciable portion of his
time to such activity.
(b) Other Duties. Executive agrees to serve as a director of the
Company, and of any Subsidiary of the Company or Chase Industries Inc. ("CSI"),
and in one or more executive offices of any such Subsidiary, in each case if
elected or appointed to any such positions; provided, however, that Executive is
indemnified for serving in any and all such capacities in a manner acceptable to
the Company and Executive. Executive agrees that he shall not be entitled to
receive any compensation for serving as a director of the Company, or in any
capacity with respect to any Subsidiary of CSI, other than the compensation to
be paid to Executive pursuant to this Agreement or any other written agreement
between the Company or any of its Subsidiaries and Executive.
3. Non-Compete.
(a) Covenant. Executive agrees that he will not, for a period of one
year following the termination of his employment with the Company, (i) employ,
associate in any business relationship with, endeavor to entice away from the
Company, CSI or any Subsidiary or
1
<PAGE> 5
otherwise interfere with any person who was an employe of or consultant to the
Company, CSI or any Subsidiary of CSI during the six (6) month period preceding
such termination: (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 in
the business of manufacturing or producing copper alloy rod or any other
products manufactured, distributed, licensed, sold or marketed by the Company
or any Subsidiary of the Company during the Term (collectively, "Products"), or
any company which otherwise is directly competitive with the Company or any of
its Subsidiaries, in any geographical area in which the Company or its
Subsidiaries engage in business at the time of such termination or in which any
of them, prior to termination of Executive's employment, evidenced in writing,
at any time during the six (6) 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 or business enterprise to purchase Products
from any person or business enterprise other than the Company if the Company
provides, or negotiated to provide, Products to that person or business
enterprise 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 employee of the Company to purchase
Products from any person or business enterprise other than the company;
provided, however, that the provisions of this Section 3(a) shall not apply in
the event (i) the Company terminates Executive's employment with the Company
other than for "Cause" (as herein defined) or otherwise in violation of this
Agreement or (ii) Executive terminates this Agreement for Good Reason (as
hereinafter defined). 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
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 the Company in which the
provisions of Section 3(a) are applicable. Executive is not in compliance with
the terms of Section 3(a), the Company shall be entitled to, among other
remedies, compliance by Executive with the terms of Section 3(a) for an
additional number of 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 3(a) are reasonable and are no broader than are necessary
to maintain and to protect the legitimate business interests of the Company, the
Company's Subsidiaries and CSI.
(d) Separate Covenants. The parties hereto intend that the covenants
contained in each of subsections 3(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 in each geographic area in which the Company or any
Subsidiary of the Company 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 3(a)(i), (ii), (iii), and (iv)
hereof. Furthermore, each of the covenants in subsections 3(a)(i), (ii),
(iii), and (iv) hereof shall be deemed a separate and independent covenant,
each being enforceable
2
<PAGE> 6
irrespective of the enforceability (with or without reformation) of the other
covenants contained in subsections 3(a)(i), (ii), (iii), and (iv) hereof.
4. Confidentiality. Executive shall not, directly or indirectly, at any
time during or following termination of his employment with the Company, 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 the Company or any of its
Subsidiaries), any information acquired during the course of employment
hereunder with regard to the financial business or other affairs of the Company,
CSI or any Subsidiary of CSI (including without limitation any list or record of
persons or entities with which the Company, CSI or any Subsidiary of CSI 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 to that conducted by the Company, CSI or any
Subsidiary of CSI; (iii) information that Executive is required to disclose
under the following circumstances: (A) at the express direction of any
authorized governmental entity; (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 the Company, CSI or any
Subsidiary of CSI in his capacity as an employee, officer, director, or
stockholder of the Company, CSI or any Subsidiary of CSI; or (iv) during the
period of his employment hereunder, Executive may disclose such confidential
information to another employee of the Company, CSI or any Subsidiary of CSI or
to representatives or agents of the Company, CSI or any Subsidiary of CSI (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 as an executive officer of the Company. Executive shall,
at any time requested by the Company (either during or within one year after
the termination of his employment with the Company), promptly deliver to the
Company all memoranda, notes, reports, lists and other documents (and all copies
thereof) relating to the business of the Company, CSI or any Subsidiary of CSI
which he may then possess or have under his control.
5. Compensation and Related Matters.
(a) Base Salary. Executive shall receive a base salary paid by the
Company ("Base Salary") at the annual rate of $225,000 during each calendar year
of the Term, payable in substantially equal monthly installments (or such other
more frequent times as executives of the Company normally are paid). The Base
Salary shall be reviewed by the Compensation Committee of the Board of Directors
of CSI (the "Compensation Committee") at least as often as the compensation of
other senior officers of the Company is reviewed, and may be increased (but not
decreased) at any time in the sole discretion of the Compensation Committee,
provided that the first review of Executive's Base Salary shall occur in 2001,
if this Agreement is extended pursuant to Section 1, with respect to Base Salary
for 2001.
(b) Bonus Payments. Executive shall be entitled to receive, in addition
to the Base Salary, such bonus payments, if any, as the Compensation Committee
may specify. Each bonus payment may be in an amount of up to 50% of Executive's
Base Salary for the period to which such bonus relates; provided, that Executive
shall first be entitled to receive a bonus payment in 2001 for services rendered
during 2000. Factors to be considered by the Compensation Committee
3
<PAGE> 7
in determining Executive's bonus for any given calendar year will include the
financial and operating performance of the Company and Executive's contribution
to profitability of the Company.
(c) Expenses and Other Benefits. Executive shall be (i) reimbursed for
all reasonable expenses incurred by him in performing services hereunder,
provided that Executive properly accounts therefor in accordance with Company
policy, and (ii) entitled to participate in or receive benefits under any
employee benefit plan or other arrangement made available by the Company now or
in the future to its senior executive officers and key management employees,
other than the Company's Chairman of the Board, subject to and on a basis
consistent with the terms, conditions, and overall administration of such plan
or arrangement.
(d) Vacations. Executive shall be entitled to 15 paid vacation days
during each year of the Term. For purposes of this Section 5(d), weekends shall
not count as vacation days and Executive shall also be entitled to all paid
holidays given by the Company to its senior executive officers. Unused vacation
days for a calendar year shall expire as of such calendar year end if not used
during that calendar year.
(e) Perquisites. Executive shall be entitled to receive the
perquisites and fringe benefits appertaining to the offices of the Company held
by Executive in accordance with any practice established by the Company.
Notwithstanding, and in addition to, any perquisites to which Executive is
entitled pursuant to the preceding sentence, during the Term (i) the Company
shall pay for Executive's membership at one country club, located within 25
miles of Executive's principal residence (as relocated as contemplated in
Section 5(g) below) or the Company's operating headquarters, to which Executive
is or may become a member as of or after the date hereof, with the selection of
the country club subject to prior approval by the Chairman of the Board, which
consent shall not be unreasonably withheld; provided that in the event Executive
terminates his membership in any such country club, either during the Term or
thereafter, the Company shall be entitled to any amounts that may be payable as
a refund of Executive's initiation fee or monthly dues paid by the Company and
(ii) the Company shall provide Executive with the use of an automobile, make
and model to be agreed upon between Executive and the Chairman of the Board, and
shall reimburse Executive for all reasonable expenses related to maintenance of
the automobile, in accordance with Internal Revenue Service rulings.
(f) Proration. Any payments or benefits payable to Executive hereunder
in respect of any calendar year during which Executive is employed by the
Company for less than the entire year, unless otherwise provided in the
applicable plan or arrangement, shall be prorated in accordance with the number
of days in such calendar year during which he is so employed.
(g) Relocation Expenses. The Company shall reimburse Executive for
moving expenses incurred by Executive in connection with the relocation of
Executive's current principal residence to a location within 70 miles of the
Company's operating headquarters in Montpelier, Ohio, including the expenses
incurred by Executive in moving the personal property of Executive and his
immediate family to Executive's new principal residence, in accordance with, and
subject to, the following terms and restrictions: (i) the Company will reimburse
Executive for all reasonable and customary closing expenses incurred or paid by
Executive in connection with the purchase of a new principal residence in
connection with such relocation; (ii) the Company will reimburse Executive for
all broker's and agent's commissions and other closing expenses and fees
incurred by Executive
4
<PAGE> 8
in connection with the sale of Executive's current principal residence
in Seal Beach, California: (iii) the Company will reimburse Executive for
reasonable expenses incurred by Executive and Executive's family in connection
with up to two trips to the Montpelier, Ohio, area for house-hunting
purposes, such reimbursable expenses to include airfare for Executive and
Executive's immediate family, hotel expenses meals, and auto rental during the
course of such trips; and (iv) the Company will pay Executive a one-time lump
sum cash payment of up to $10,000, to be used at Executive's discretion to
cover incidental costs associated with relocating Executive's principle
residence as provided herein, which amount will not be deducted from or applied
towards any expenses referred to in clauses (i) through (iii) of this Section
5(g) or in Section 5(h). If, as a result of providing the reimbursement provided
for under this Section 5(g), Executive shall incur any federal income tax
liability that otherwise would not have been incurred, then, in addition to the
amounts otherwise payable to Executive under this Section 5(g), the Company
shall pay to Executive cash in an amount necessary to discharge any additional
federal income tax liability incurred by Executive as a result of the receipt of
the benefits provided for under this Section 5(g) (including the tax gross-up
provided by this sentence).
(h) Temporary Living Expenses. Until Executive procures a principle
residence within 70 miles of the Company's headquarters, or from the period
commencing as of the effective date of this Agreement until April 12, 2000,
whichever period is shorter, the Company shall reimburse Executive for all local
travel, hotel and related living expenses incurred by Executive as a result of
Executive's not having a principle residence within such proximity. In addition,
during this period the Company shall reimburse Executive for transportation
costs incurred by Executive returning to his principle residence, prior to
relocation as contemplated by Section 5(g), up to two trips per month. Expenses
reimbursed pursuant to this Section 5(h) shall not be duplicative of the
expenses reimbursed pursuant to Section 5(g) hereof.
(i) Stock Options. As of the effective date of this Agreement, CSI has
granted to Executive stock options to purchase 50,000 shares of common stock
of CSI at a per share exercise price equal to the closing price of CSI's common
stock as reported on the New York Stock Exchange on the effective date of this
Agreement (the "Stock Options"). The Stock Options will be subject to the
applicable terms and conditions set forth in the Company's 1994 Long-Term
Incentive Plan (the "Plan"), and the Stock Options will vest and become
exercisable with respect to 10,000 shares of CSI common stock on each of the
first five anniversaries of the date of grant, subject to the provisions of
the Plan. Executive hereby acknowledges receipt of the Stock Options.
6. Termination. Executive's employment hereunder may be terminated by the
Company or Executive, as applicable, without any breach of this Agreement only
under the following circumstances:
(a) Death/Disability. Executive's employment hereunder shall terminate
(i) automatically upon Executive's death or (ii) upon the good faith
determination by the Board of Directors of CSI (the "CSI Board") that, as a
result of Executive's incapacity or disability due to physical or mental
illness, Executive shall have been unable to perform hereunder with or without
reasonable accommodation on a full time basis for 120 consecutive calendar
days, and within 30 days after written notice of termination is given (which may
occur no sooner than 30 days prior to the end of such 120 day period) Executive
shall not have returned to the performance of his material managerial duties and
responsibilities hereunder on a full time basis; provided, however, that during
5
<PAGE> 9
any period of Executive's incapacity or disability the Company may assign
Executive's duties to any other employee of the Company 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 this Agreement pursuant to Section 6(c)(i)
hereof.
(b) Cause. The Company may terminate Executive's employment hereunder
for Cause. For purposes of this Agreement, the Company shall have "Cause" to
terminate Executive's employment hereunder upon:
(i) the continued failure by Executive to substantially
perform his duties hereunder (other than any such failure resulting
from Executive's incapacity or disability due to physical or mental
illness) after written demand for substantial performance is delivered
by the Company specifically identifying the manner in which the Company
believes Executive has not substantially performed his duties;
(ii) dishonesty by Executive that relates to the performance
of the Executive's duties hereunder or the commission by Executive of
an act of fraud upon, or willful misconduct toward, the Company, as
reasonably determined by the CSI Board 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 the Company which results or may result in material injury to the
Company, CSI or any other Subsidiary of CSI;
(v) Executive's material breach of any of the covenants
contained in Section 3(a) or 4 of the Agreement;
(vi) notwithstanding the provisions of Section 6(a), the use
by Executive of alcohol which renders Executive unable to perform the
essential functions of his position under this Agreement or the use by
Executive of illegal or controlled drugs or other substances; or
(vii) the failure of Executive to cease any conduct determined
by the Chairman of the Board to be detrimental to the well-being or
morale, or otherwise not in the best interest, of the Company, CSI or
any other Subsidiary of CSI after written demand directing Executive to
cease such conduct is delivered by the Company specifically identifying
such conduct and demanding cessation thereof.
If the effect of the occurrence of the event described in clauses (iv) or
(v) of Section 6(b) may be cured, Executive shall have the opportunity to cure
any such effect for a period of 30 days following receipt of the Company's
Notice of Termination.
6
<PAGE> 10
(c) Termination by Executive. At his option, Executive may terminate
his employment hereunder (i) for Good Reason or (ii) if his health should become
impaired to an extent that makes the continued performance of his duties
hereunder hazardous to his physical or mental health or his life.
For purposes of this Agreement, the termination of Executive's employment
hereunder by Executive because of the occurrence of any one or more of the
following events shall be deemed to have occurred for "Good Reason":
(A) a material reduction in the nature or scope of Executive's
responsibilities or authorities that is not consented to or approved by
Executive;
(B) any failure by the Company to comply in any material respect
with Section 5 hereof that is not consented to or approved by Executive;
provided, that, any change in Executive's discretionary bonus as from time
to time determined by the Compensation Committee shall not constitute Good
Reason for resignation;
(C) the liquidation, dissolution, merger, consolidation (other
than resulting from a sale by CSI of the outstanding Voting Securities of
the Company as contemplated by Section 9(e)(ii)(5)) or reorganization of
the Company 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 substantially all of its assets have been transferred (directly or
by operation of law) shall have assumed all duties and obligations of the
Company under this Agreement pursuant to Section 10 hereof or
(D) failure by the Company to comply with any other material
term or provision hereof.
If the effect of the occurrence of the event described in clauses (A)
through (D) of this Section 6(c) may be cured, the Company shall have the
opportunity to cure any such effect for a period of 30 days following receipt
of Executive's Notice of Termination.
7. Compensation Upon Termination Prior to a Change in Control of the
Company. Prior to the occurrence of a Change in Control of the Company,
Executive shall be entitled to the following compensation from the Company upon
the termination of his employment.
(a) Death. If Executive's employment shall be terminated by reason of
his death, the Company shall pay to such person as shall have been designated
in a notice filed with the Company prior to Executive's death, or, if no such
person shall be designated, to his estate as a death benefit, his Base Salary to
the date of his death in addition to any payments Executive's spouse,
beneficiaries, or estate may be entitled to receive pursuant to any pension or
employee benefit plan or other arrangement or group life insurance policy
maintained by the Company.
(b) Disability. During any period that Executive fails to perform his
material managerial duties and responsibilities hereunder as a result of
incapacity due to physical or mental illness, Executive shall continue to
receive his Base Salary and any bonus payments until Executive's
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<PAGE> 11
employment is terminated pursuant to Section 6(a) hereof or until Executive
terminates his employment pursuant to Section 6(c)(ii) hereof, whichever first
occurs. After such termination, Executive shall be entitled to receive, and
the Company agrees to pay, the following compensation:
(i) the remainder, if any, of Executive's Base Salary which was
earned but not paid prior to the Date of Termination (hereinafter
defined); plus
(ii) any disability payments otherwise payable to Executive by
or pursuant to group plans provided by the Company.
(c) Cause or Without Good Reason. If Executive's employment shall be
terminated by the Company for Cause or by Executive other than as permitted
under Section 6(a) or 6(c)(i) of this Agreement, the Company shall pay Executive
his Base Salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given. Subject to the application of Sections 6(a)
and 6(b) of this Agreement, such payments shall fully discharge the Company's
obligations hereunder.
(d) Breach by the Company or for Good Reason. If (A) the Company shall
terminate Executive's employment other than for Cause or (B) Executive shall
terminate his employment for Good Reason, then the Company shall pay Executive:
(i) his Base Salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given:
(ii) in lieu of any further salary payments to Executive for
periods subsequent to the Date of Termination, the Company shall pay as
severance pay to Executive on or before the fifteenth day following the Date of
Termination, a lump sum in cash equal to one-half (1/2) of Executive's annual
Base Salary at the rate in effect at the time the Notice of Termination is
given;
(iii) maintain in full force and effect, for the continued benefit
of Executive (and, if applicable, Executive's spouse and minor children) for a
six-month period beginning upon the Date of Termination, all medical and dental
insurance coverages as in effect and in which such persons were participating
immediately prior to the Date of Termination, 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, the Company 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 the Company 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; 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; and
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<PAGE> 12
(iv) all benefits payable under the terms of all employee benefit
plans or other arrangements as of the Date of Termination.
Executive shall not be required to mitigate the amount of any payment
provided for in this Section 7(d) by seeking other employment or otherwise, nor,
subject to the last proviso of clause (iii) of this Section 7(d), shall the
amount of any payment provided for in this Section 7(d) be reduced by any
compensation earned by Executive as the result of employment by another
employer after the Date of Termination, or otherwise.
8. Compensation Upon Termination After a Change in Control of the Company.
If, after the occurrence of a Change in Control of the Company, Executive's
employment is terminated by the Company or by Executive, as the case may be, for
any of the reasons described in Section 6 above, then Executive shall be
entitled to the same compensation benefits from the Company as set forth in
Section 7 above to which he would have been entitled if the termination of his
employment had occurred prior to the occurrence of a Change in Control of the
Company; provided, that, in the event the termination occurs as described in
Section 7(d) above within one year after the occurrence of the Change of
Control, then Executive shall be entitled to, in lieu of the compensation
provided in Section 7(d)(ii), a lump sum in cash, which shall be paid within 30
days after the termination of employment or resignation, in an amount equal to
the sum of (a) the greater of (i) Executive's Base Salary in effect immediately
prior to the Change in Control and (ii) Executive's Base Salary in effect at the
time of termination or, if Executive resigns 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 in Control or, if bonuses
for such calendar year have not been determined for such calendar year as of the
date of the Change in Control, the prior calendar year; provided, however, that
the amount of cash paid pursuant to this Section 8 plus the value of any other
compensation paid to or deemed received by or attributed to Executive, pursuant
to this Agreement or otherwise, as a result of the Change in Control that is
subject to the provisions of Section 280G of the Code shall in no event exceed
$100 less than 3.00 times Executive's Annualized Includable Compensation and
the amount of the Company's cash payment to Executive under this Section shall
be adjusted accordingly to achieve this result. Notwithstanding the provisions
of this Section, nothing contained in this Section shall be construed to imply
that any payments to the Executive other than pursuant to this Section are
subject to the provisions of Section 280G of the Code.
9. Other Provisions Relative to Termination; Definitions.
(a) Notice of Termination. Any termination of Executive's employment by
the Company or by Executive (other than termination because of the death of
Executive) shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
(b) Date of Termination. For purposes of this Agreement, "Date
of Termination" shall mean (i) if Executive's employment is terminated by his
death, the date of his death; (ii) if Executive's employment is terminated
because of a disability pursuant to Section 6(a), then 30 days
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<PAGE> 13
after Notice of Termination is given (provided that Executive shall not have
returned to the performance of his duties on a full-time basis during such 30
day period); (iii) if Executive's employment is terminated by the Company for
Cause or by Executive for Good Reason, then the date specified in the Notice of
Termination (which date shall be a date between the date Notice of Termination
is given and 30 days thereafter (inclusive)); and (iv) if Executive's
employment is terminated for any other reason, the date on which a Notice of
Termination is given.
(c) Good Reason. If Executive does not give a Notice of Termination to
the Company within 30 days after learning of the occurrence of an event giving
rise to Good Reason, then this Agreement will remain in effect; provided,
however, that the failure of Executive to terminate this Agreement for Good
Reason shall not be deemed a waiver of Executive's right to terminate his
employment for Good Reason upon the occurrence of a subsequent event described
in clauses (A) through (D) of Section 6(c) in accordance with the terms of this
Agreement. Notwithstanding the foregoing, the right of Executive to terminate
his employment for Good Reason under Section 6(c) shall not limit the Company's
right to terminate Executive's employment for Cause under Section 6(b) if Cause
is determined to exist prior to the time Good Reason is determined to exist.
(d) Cause. If the Company does not give a Notice of Termination to
Executive within 30 days after learning of the occurrence of an event giving
rise to Cause, then this Agreement will remain in effect; provided, however, the
failure of the Company to terminate this Agreement for Cause shall not be deemed
a waiver of the Company's right to terminate Executive's employment for Cause
upon the occurrence of a subsequent event described in clauses (i) through (vi)
of Section 6(b) in accordance with the terms of this Agreement. Notwithstanding
the foregoing, the right of the Company to terminate Executive's employment for
Cause under Section 6(b) shall not limit Executive's right to terminate his
employment for Good Reason under Section 6(c) if Good Reason is determined to
exist prior to the time Cause is determined to exist.
(e) Certain Definitions.
(i) Acquiring Person: shall mean any individual, group, partnership,
corporation, association, trust, or other entity or organization (a "Person")
other than (A) Executive or any Executive Affiliate, (B) CSI, any of CSI's
Subsidiaries, any employee benefit plan of CSI or of a Subsidiary of CSI or of a
corporation owned directly or indirectly by the stockholders of CSI in
substantially the same proportions as their ownership of stock of CSI, or any
trustee or other fiduciary holding securities under an employee benefit plan of
CSI or of a Subsidiary of CSI or of a corporation owned directly or indirectly
by the stockholders of CSI in substantially the same proportions as their
ownership of stock of CSI, 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.
(ii) Change in Control: shall be deemed to have occurred if:
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<PAGE> 14
(1) 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 CSI
representing fifty percent or more of the combined voting power of the then
outstanding Voting Securities of the Company; or
(2) 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 CSI or the Company, and the Board of Directors of CSI or the
Company, respectively, 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 benefits payable to Executive under Section 8 hereof
shall not be payable solely as a result of an event described in this
clause (2) unless, within one year after the occurrence of such event, an
event described in clauses (1), (3) or (4) of this Section 9(e)(ii) shall
have occurred, in which case such benefits payable under Section 8 hereof
shall be payable within fifteen days after the occurrence of such event; or
(3) the stockholders of CSI or the Company approve a merger or
consolidation of CSI or the Company, respectively, with any other
corporation or partnership (or, if no such approval is required, the
consummation of such a merger or consolidation of CSI or the Company),
other than a merger or consolidation that would result in the Voting
Securities of CSI or the Company, as applicable, 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 assume full conversion thereof) of the
surviving entity (or its parent) outstanding immediately after that merger
or consolidation; or
(4) the stockholders of CSI or the Company approve a plan of
complete liquidation of CSI or the Company, respectively, or an agreement
for the sale or disposition by CSI or the Company of all or substantially,
all of CSI's or the Company'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 CSI
or the Company's assets in one transaction or a series of related
transactions to a Subsidiary of CSI or any other corporation owned directly
or indirectly by the stockholders of CSI in substantially the same
proportions as their ownership of stock of CSI; or
(5) CSI ceases to be the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing at least a majority of the combined voting power of
the then outstanding Voting Securities of the Company other than pursuant
to a transaction in which, immediately after the consummation of such
transaction, all of the outstanding Voting Securities of the Company or any
corporation or other entity into which the
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<PAGE> 15
Company is merged or otherwise consolidated which are not owned by CSI or any
Subsidiary of CSI are owned, directly or indirectly, by the stockholders of CSI
in substantially the same proportions as their ownership of stock of CSI
immediately prior to such transaction.
(iii) Subsidiary: with respect to any Person, any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by that Person.
(iv) Voting Securities: (i) any securities 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 CSI, all
shares of CSI'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 the
Company).
(f) Affiliate. For purposes of this Agreement, the term "affiliate" shall
mean, with respect to any Person (including an entity), 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 through
ownership of Voting Securities, by contract, or otherwise.
10. Successors and Assignments. This Agreement shall be binding upon, and
inure to the benefit of, the Company Executive, and their respective successors,
assigns, personal and legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees, as applicable. This Agreement may not be
assigned (either voluntarily or involuntarily) by any party hereto without the
express written consent of the other party; provided, however, that the Company
may at any time, without the consent of Executive (a) assign this entire
Agreement to (i) any Subsidiary of the Company or CSI; or (ii) any other
corporation, partnership, or other entity that controls, is controlled by, or is
under common control with the Company or CSI; and (b) assign the Company's
rights and obligations under Sections 3, 4.12 and 13 of this Agreement to any
successor (whether direct or indirect, by purchase of securities, merger,
consolidation, sale of assets, or otherwise) to all or substantially all of the
business or assets of the Company. Any attempted assignment in violation of this
Section 10 shall be void and ineffective for all purposes. In the event of an
assignment permitted by this Section 10, this Agreement shall be binding upon
the heirs, successors, and assigns of the parties hereto.
11. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when (i) delivered personally; (ii) sent by
facsimile or similar electronic device and confirmed; (iii) delivered by
overnight express; or (iv) if sent by any other means, upon receipt. Notices
and all other communications provided for this Agreement shall be addressed
as follows:
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If to Executive:
John H. Steadman
Chase Brass & Copper Company, Inc.
State Route 15
Montpelier, Ohio 43543
Facsimile No. 419/485-8150
If to the Company:
Chase Brass & Copper Company, Inc.
State Route 15
Montpelier, Ohio 43543
Attention: Chief Financial Officer
Facsimile No: 419/485-8150
or to such other address as any party may have furnished to the other in writing
in accordance herewith.
12. Disputes.
(a) Arbitration. Subject to Section 12(b) below, in the event any
claim, demand, cause of action, dispute, controversy or other matter in question
("Claim") arises, whether or not arising out of this Agreement or the Employee's
employment (or its termination), whether arising in contract, tort or otherwise
and whether provided by statute, equity or common law, that the Company may have
against Executive or that Executive may have against the Company, CSI or any
other Subsidiary of CSI, or any of the foregoing entities' respective officers,
directors, employees or agents in their capacity as such or otherwise, and is
not resolved by the mutual written agreement between Executive and the Company,
or otherwise, within 30 days after notice of the dispute is first given, then,
upon the written request of Executive or the Company, such dispute or
controversy shall be submitted to arbitration. Claims covered by this Section 12
include, without limitation, claims by Executive for breach of this Agreement,
wrongful termination, discrimination (based on age, race, sex, disability,
national origin, sexual orientation, or any other factor), harassment and
retaliation, whether or not arising under Title VII of the Civil Rights Act of
1964, the Age Discrimination Employment Act, the Americans with Disabilities
Act, or similar state or local law. Any arbitration shall be conducted in
accordance with the Federal Arbitration Act (FAA") and, to the extent an issue
is not addressed by the FAA or the FAA does not apply, with the then-current
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association ("AAA") or other rules of the AAA as applicable to the
claims asserted. If a party refuses to honor its obligations under this Section
12, the other party may compel arbitration in either federal or state court. The
arbitrators shall apply the substantive law of Ohio (excluding Ohio
choice-of-law principles that might call for the application of some other
state's law) or federal law, or both as applicable to the claims asserted. The
arbitrators shall have exclusive authority to resolve any dispute relating to
the interpretation, applicability or enforceability of this Section 12,
including any claim that all or part of the Agreement is void or voidable and
any claim that an issue is not subject to arbitration. The results of
arbitration will be binding and conclusive on the parties hereto. Any
arbitrators' award or finding or any judgment or verdict thereon will be final
and unappealable. All parties agree that
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<PAGE> 17
venue for arbitration will be in Williams County, Ohio, and that any
arbitration commenced in any other venue will be transferred to Williams
County, Ohio, upon the written request of any party to this Agreement. The
prevailing party will be entitled to reimbursement for reasonable attorneys
fees, reasonable costs and other reasonable expenses pertaining to the
arbitration and the enforcement thereof and such attorneys fees, costs and other
expenses shall become a part of any award judgment or verdict. All arbitrations
will have three individuals acting as arbitrators: one arbitrator will be
selected by Executive, one arbitrator will be selected by the Company, and the
two arbitrators so selected will select a third arbitrator; provided that (i)
Executive or the Company shall use reasonably diligent efforts to select their
respective arbitrator within 60 days after a matter is submitted to arbitration
and (ii) the parties (including arbitrators) shall not be limited to selecting
arbitrators from only the AAA's lists of arbitrators. Any arbitrator selected by
a party will not be affiliated, associated or related to the party selecting
that arbitrator in any matter whatsoever. The arbitrators may use the AAA rules
but are encouraged to adopt rules the arbitrators deem appropriate to accomplish
the arbitration quickly and inexpensively. Accordingly, the arbitrators may, (A)
dispense with any formal rules of evidence and allow hearsay testimony so as to
limit the number of witnesses required, (B) act upon their understanding or
interpretation of the law on any issue without the obligation to research the
issue or accept or act upon briefs on the issue prepared by any party, (C) limit
the time for presentation of any party's case as well as the amount of
information or number of witnesses to be presented in connection with any
hearing (provided that each party shall have the right to call at least three
witnesses), and (D) impose any other rules which the arbitrators believe
appropriate to effect a resolution of the claims quickly and inexpensively. The
types and amount of discovery shall be conducted in accordance with the Federal
Rules of Civil Procedure. The arbitration hearing shall be conducted within 60
days after the selection of the arbitrators. All privileges under state and
federal law, including attorney-client, work product and party communication
privileges, shall be preserved and protected. The decision of the majority of
the arbitrators will be binding on all parties. Arbitrations will be conducted
in a manner so that the final decision of the arbitrators will be made and
provided to Executive and the Company no later than 120 days after a matter is
submitted to arbitration. All proceedings conducted pursuant to this Section 12,
including any order decision or award of the arbitrators, shall be kept
confidential by all parties. EXECUTIVE ACKNOWLEDGES THAT BY SIGNING THIS
EMPLOYMENT AGREEMENT, EXECUTIVE IS WAIVING ANY RIGHT THAT EXECUTIVE MAY HAVE TO
A JURY TRIAL OR A COURT TRIAL.
(b) Specific Enforcement. Executive acknowledges that the covenants of
Executive contained in Sections 3 and 4 of this Agreement are special and
unique, that a breach by Executive of any term or provision of either of
Sections 3 or 4 hereof may cause irreparable injury to the Company, CSI and/or
another Subsidiary of CSI, and that remedies at law for the breach of any terms
or provisions of Sections 3 or 4 hereof may be inadequate. Accordingly,
notwithstanding the provisions of Section 12(a), in addition to any other
remedies it may have in the event of breach, the Company shall be entitled to
enforce specific performance of the terms and provisions of Sections 3 or 4
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 the Company prevails in such action or proceeding. For purposes of
this Section 12(b) and Sections 3 and 4 hereof, CSI and each other Subsidiary of
CSI shall be deemed a third party beneficiary entitled to the benefits of such
Sections and shall be entitled to enforce Sections 3 and 4 of this Agreement in
accordance with this Section 12(b).
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<PAGE> 18
13. Severability. In the event that any provision of this Agreement, 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. Notwithstanding the above, in the event any such
invalidity, illegality or unenforceability of any portion of Section 3 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 the Company, 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
the Company or any of its Subsidiaries to recover damages for any prior
violation of such provision as so limited and reduced, to the extent permitted
under applicable law.
14. Miscellaneous. This Agreement sets forth the entire understandings of
the parties with respect to the subject matter hereof, it incorporates and
merges any and all previous communications and understandings with respect to
the subject matter hereof, oral or written, and no provision of this Agreement
may be modified, waived, or discharged unless such waiver, modification, or
discharge is agreed to in writing signed by Executive and the Company. No waiver
by either party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. The validity, interpretation, construction, and performance
of this Agreement shall be governed by the laws of the State of Ohio, excluding
any choice-of-law provisions thereof.
15. Reimbursement by Executive.
(a) Reimbursement. Subject to Section 15(b), Executive agrees that, in
the event Executive terminates his employment with Company other than for Good
Reason, or is terminated by the Company for Cause, at any time prior to October
12, 2001, Executive will reimburse the Company for amounts paid to Executive by
the Company pursuant to Section 5(g) and (h) of this Agreement in accordance
with the following formula:
ER = AP x ((24 - NM) / 24)
where:
ER = amount to be reimbursed by Executive;
AP = amounts paid by the Company to or on behalf of Executive pursuant to
Sections 5(g) and (h) of this Agreement; and
NM = number of months elapsed from and after October 12, 1999, to (and
including) the Date of Termination.
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<PAGE> 19
Executive agrees that any amounts owed by Executive pursuant to this
Section 15 may be deducted from any portion of any amounts (including
compensation payable under this Agreement) owed by the Company to the Executive
at the time of termination of Executive's employment, subject to any
limitations or restrictions imposed by applicable law. To the extent such
amounts payable by Executive pursuant to this Section 15 are not deducted from
amounts owed by the Company to the Executive, Executive agrees to pay such
excess amounts to the Company within 60 days after the Date of Termination.
(b) Special Provisions for Reimbursement. Notwithstanding Section
15(b), if (i) the Company gives written notice pursuant to Section 1 that it
does not wish to extend the Term beyond October 12, 2000, then Executive shall
have no obligation to reimburse the Company for amounts paid to Executive as
provided in Section 15(a), and (ii) if Executive gives written notice pursuant
to Section 1 that he does not wish to extend the Term beyond October 12, 2000,
then Section 15(a) shall apply and Executive shall be obligated to reimburse the
Company for amounts paid to Executive as provided in Section 15(a).
16. Attorney Fees. Except as otherwise provided in Section 12, 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.
17. 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth below, to be effective as of the date first above written.
THE COMPANY:
CHASE BRASS & COPPER COMPANY, INC.
a Delaware corporation
Date: January 9, 2000 By:/s/ MARTIN V. ALONZO
----------------- --------------------------------
Martin V. Alonzo
Chairman of the Board
EXECUTIVE:
Date: December 20, 1999 By:/s/ JOHN H. STEADMAN
------------------- --------------------------------
John H. Steadman
17
<PAGE> 1
EXHIBIT 10.7
FIRST AMENDMENT
TO THE
CHASE INDUSTRIES INC.
1994 LONG-TERM INCENTIVE PLAN
(AS AMENDED AS OF MAY 14, 1997)
THIS First Amendment is effective as of November 19, 1999, on behalf of
Chase Industries Inc., a Delaware corporation (the "Corporation"), and is
effective as set forth below.
W I T N E S S E T H:
WHEREAS, the Corporation sponsors the Chase Industries Inc. 1994
Long-Term Incentive Plan (the "Plan") for key employees and directors of the
Corporation or its subsidiaries;
WHEREAS, pursuant to Section 11.2 of the Plan the committee appointed
to administer the Plan (the "Committee") may amend the Plan for any purpose
permitted by law except to the extent the amendment (a) materially increases the
aggregate number of shares of stock that may be issued under the Plan, (b)
materially increases benefits accruing under the Plan, or (c) materially
modifies the requirements pertaining to eligibility and termination;
WHEREAS, Section 9.2 of the Plan provides that, upon a change in
control, participants holding options will immediately be granted corresponding
stock appreciation rights subject to the same exercise and transferability
restrictions as the corresponding options;
WHEREAS, the Corporation desires to make the grant of stock
appreciation rights, granted in connection with a change in control,
discretionary rather than automatic; and
WHEREAS, the Committee and the Board of Directors of the Corporation
have approved, effective as of November 19, 1999, the amendment of the Plan to
provide for the discretionary grant of stock appreciation rights upon a change
in control rather than automatic grants.
NOW, THEREFORE, Section 9.2 shall be amended in its entirety, effective
November 19, 1999, to read as follows:
9.2. Changes in Control. Upon the occurrence of a
Change in Control, subject to Subsection 1.7(b), (a) at the
discretion of the Committee, each Holder of an Option shall 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
<PAGE> 2
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 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 in 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.
FURTHER PROVIDED, that except as set forth above the Plan shall
continue to read in its current state.
IN WITNESS WHEREOF, this Amendment has been executed by the
duly-authorized officer of the Corporation to be effective as set forth herein.
CHASE INDUSTRIES INC.
By: /s/ MICHAEL T. SEGRAVES
------------------------
Michael T. Segraves,
Chief Financial Officer
Dallas\CHA712-45001\317248.2
<PAGE> 1
EXHIBIT 10.9
FIRST AMENDMENT
TO THE
CHASE INDUSTRIES INC.
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AS AMENDED AS OF MAY 26, 1998)
THIS First Amendment is effective as of November 19, 1999, on behalf of
Chase Industries Inc., a Delaware corporation (the "Corporation"), and is
effective as set forth below.
W I T N E S S E T H:
WHEREAS, the Corporation sponsors the Chase Industries Inc. 1997
Non-Employee Director Stock Option Plan (the "Plan") for non-employee directors
of the Corporation;
WHEREAS, pursuant to Section 11.2 of the Plan the committee appointed
to administer the Plan (the "Committee") may amend the Plan subject to certain
restrictions herein not applicable;
WHEREAS, Section 8.1 of the Plan provides that, upon a change in
control, participants holding options will immediately be granted corresponding
stock appreciation rights subject to the same exercise and transferability
restrictions as the corresponding options;
WHEREAS, the Corporation desires to make the grant of stock
appreciation rights, granted in connection with a change in control,
discretionary rather than automatic; and
WHEREAS, the Committee and the Board of Directors of the Corporation
have approved, effective as of November 19, 1999, the amendment of the Plan to
provide for the discretionary grant of stock appreciation rights upon a change
in control rather than automatic grants.
NOW, THEREFORE, Section 8.1, shall be amended in its entirety,
effective November 19, 1999, to read as follows:
8.1 Change in Control. Upon the occurrence of a
Change in Control, subject to Subsection 1.7(b), (a) at the
discretion of the Committee, each Holder of an Option shall 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 part of
<PAGE> 2
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.
FURTHER PROVIDED, that except as set forth above the Plan shall
continue to read in its current state.
IN WITNESS WHEREOF, this Amendment has been executed by the
duly-authorized officer of the Corporation to be effective as set forth herein.
CHASE INDUSTRIES INC.
By: /s/ MICHAEL T. SEGRAVES
------------------------
Michael T. Segraves,
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.11
FIRST AMENDMENT
TO THE
CHASE INDUSTRIES INC.
1997 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION PLAN
THIS First Amendment is made effective as of November 19, 1999, on
behalf of Chase Industries Inc., a Delaware corporation (the "Corporation"), and
is effective as set forth below.
W I T N E S S E T H:
WHEREAS, the Corporation sponsors the Chase Industries Inc. 1997
Executive Deferred Compensation Stock Option Plan (the "Plan") for certain
executive officers and key management employees of the Corporation or its
subsidiaries;
WHEREAS, pursuant to Section 10.2 of the Plan the committee appointed
to administer the Plan (the "Committee") may unilaterally amend the Plan except
to the extent the amendment would (a) adversely affect the rights of any holder
of any option outstanding or of any participant, or (b) materially increase the
aggregate number of shares of stock that may be issued under the Plan;
WHEREAS, Section 7.1 of the Plan provides that, upon a change in
control, participants holding options will immediately be granted corresponding
stock appreciation rights subject to the same exercise and transferability
restrictions as the corresponding options;
WHEREAS, the Corporation desires to make the grant of stock
appreciation rights, granted in connection with a change in control,
discretionary rather than automatic; and
WHEREAS, the Committee and the Board of Directors of the Corporation
have approved, effective as of November 19, 1999, the amendment of the Plan to
provide for the discretionary grant of stock appreciation rights upon a change
in control rather than automatic grants.
NOW, THEREFORE, Section 7.1, of the Plan shall be amended in its
entirety effective November 19, 1999, to read as follows:
7.1 Change in Control. Upon the occurrence of a
Change in Control, subject to Subsection 1.7(b), at the
discretion of the Committee, each Holder of an Option 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 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
<PAGE> 2
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.
FURTHER PROVIDED, that except as set forth above the Plan shall
continue to read in its current state.
IN WITNESS WHEREOF, this Amendment has been executed by the
duly-authorized officer of the Corporation to be effective as set forth herein.
CHASE INDUSTRIES INC.
By: /s/ MICHAEL T. SEGRAVES
-------------------------
Michael T. Segraves,
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.13
SCHEDULE OF SUBSTANTIALLY IDENTICAL DOCUMENTS
The following fifteen persons have entered into agreements with the
Company that are substantially identical to the Indemnification Agreement
included as Exhibit 10.12 and that differ only in the name of the person and
the date of the agreement.
<TABLE>
<CAPTION>
Name Date of Agreement
---- -----------------
<S> <C>
Raymond E. Cartledge May 22, 1995
Charles E. Corpening May 22, 1995
Daniel Goehler February 3, 1997
Parry D. Katsafanas October 28, 1996
John R. Kennedy November 10, 1994
Robert D. Kennedy February 9, 2000
David J. Klima October 28, 1996
Thomas F. McWilliams November 10, 1994
Robert J. Moore December 8, 1997
James K. Palmour January 20, 1997
Peter H. Santoro February 10, 1998
Michael T. Segraves October 28, 1996
William A. Spanos October 28, 1996
John H. Steadman October 12, 1999
William R. Toller October 29, 1996
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-87278, 333-28443, 333-28445 and 333-28447) of
Chase Industries Inc. of our report dated February 10, 2000 relating to the
financial statements and financial statement schedule, which appears in this
Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
Detroit, Michigan
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Chase Industries Inc. annual report on Form 10-K for the year ended December
31, 1999.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,142
<SECURITIES> 0
<RECEIVABLES> 34,574
<ALLOWANCES> 1,190
<INVENTORY> 45,230
<CURRENT-ASSETS> 95,706
<PP&E> 169,281
<DEPRECIATION> 48,223
<TOTAL-ASSETS> 229,572
<CURRENT-LIABILITIES> 53,522
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> 133,894
<TOTAL-LIABILITY-AND-EQUITY> 229,572
<SALES> 391,541
<TOTAL-REVENUES> 391,541
<CGS> 330,029
<TOTAL-COSTS> 330,929
<OTHER-EXPENSES> 29,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,166
<INCOME-PRETAX> 30,025
<INCOME-TAX> 11,410
<INCOME-CONTINUING> 18,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,615
<EPS-BASIC> 1.22
<EPS-DILUTED> 1.21
</TABLE>
