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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-25834
EASCO, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 94-3157362 706 South State Street, Girard, Ohio 44420
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(State or other jurisdiction of (I.R.S. Employer (Address of principal executive offices) (Zip Code)
incorporation or organization) Identification) No.)
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Registrant's telephone number, including area code (330) 545-4311
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting Common Stock held by
non-affiliates of the Registrant, based upon the closing sale price of the
Common Stock on March 25, 1997 as reported on the Nasdaq National Market, was
approximately $45,698,573.
Number of Shares of common Stock outstanding as of March 26, 1997: - 10,409,670
DOCUMENTS INCORPORATED BY REFERENCE
(See following page)
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Documents Incorporated by Reference
Certain portions of the documents listed below have been incorporated by
reference into the indicated part of this Form 10-K.
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Document Incorporated Part of Form 10-K
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Annual Report to Stockholders Items 5, 7, and 8 of Part II and
Item 14(a)1 of Part IV
Proxy Statement for 1996 Annual Meeting of Items 10, 11, 12 and 13 of
Stockholders to be held May 9, 1997 Part III
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is the largest independent extruder of soft alloy aluminum
products in the United States, with shipments of approximately 310.2 million
pounds of aluminum extrusions in 1996, representing an approximate 9.6% market
share. The Company operates 22 aluminum extrusion presses and three casting
facilities at thirteen plants in five states, and its products include standard
and custom profiles (shapes of specific lengths and cross-sectional design),
conduit and drawn tubing. The Company also produces vinyl extrusions.
All references to the Company refer to Easco, Inc., its wholly-owned
subsidiary, Easco Corporation ("Easco") and its subsidiary, Dolton Aluminum
Company, Inc. ("Dolton"). In December 1994 Easco purchased two extrusion presses
and related assets in Kokomo, Indiana, and in January 1995 it purchased Dolton.
The Company serves approximately 2,600 customers spanning five
industry groups (building and construction, transportation, distribution,
electrical and consumer durables), and its extrusions are used in a wide variety
of products including door and window frames, truck bodies, truck trailers,
recreational vehicles, automobiles, boats, home appliances, patio enclosures and
furniture, office furniture and equipment, picture frames, sport and exercise
equipment, health care equipment, coaxial cable and electrical conduit. The
Company's vinyl extrusions are used primarily by replacement window
manufacturers.
During November 1996, the Company's executive staff was reorganized.
This reorganization resulted in the turnover of several key executive positions,
including President and Chief Executive Officer, Executive Vice President and
Chief Financial Officer and Vice President, Sales and Marketing. In addition,
the positions of Vice President, Manufacturing and Vice President, Raw Materials
were established. The new management team has begun a detailed review of all
operations with the goal of returning the Company to profitability by focusing
on product quality and the improvement of production methods.
In addition, on January 1, 1997 Robert Cizik was named Chairman of the
Board of Directors, replacing Donald W. Davis, who retired after serving as
Chairman since 1993.
Management's beliefs specified below concerning the Company's potential
business opportunities including without limitation with respect to the coaxial
cable business and the growth in the vinyl market, the Company's opportunities
for productivity enhancement and long-term profit potential, and other
statements that are not historical facts or use forward-looking terminology such
as "may", "will", "plans", "expects", "anticipates", "estimates", "intends",
"should" or "continue", or the negative thereof or similar terminology, are
forward-looking statements that are qualified by the Company's "Cautionary
Statement" set forth below which identifies factors that could cause the
Company's actual performance to differ materially from that contemplated by any
such forward-looking statements.
PRODUCTS
Overview. The Company's aluminum extrusions are sold to a wide array of
industries as summarized in the following table. Aluminum's valuable physical
properties include its light weight, resistance to corrosion, thermal and
electrical conductivity and high tensile strength.
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PERCENTAGE OF TOTAL
ALUMINUM SALES BY WEIGHT
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INDUSTRY PRIMARY CUSTOMERS PRINCIPAL END-PRODUCTS 1996 1995
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Building and Manufacturers, assemblers New and replacement windows and 27% 28%
Construction and contractors storm doors, wall partitions,
structural beams, patio
enclosures, bleacher seats, road
signs, skylights and curtain
walls
Transportation Manufacturers of vehicles Components used in truck bodies, 31% 28%
and their suppliers recreational vehicles,
railcars, step vans, van
conversions, automobiles, trailers
emergency vehicles and livestock
Distribution General metal distributors Building and construction and 19% 19%
and service centers transportation products and a
primarily serving the variety of general industrial
building and construction applications
and transportation industries
Electrical and Other Manufacturers of coaxial Coaxial cable, electrical 15% 17%
cable and distributions, conduit, heat sinks and
contractors and fabricators connectors
Consumer Durables Manufacturers and assemblers Components for boats, sports and 8% 8%
of finished goods and major exercise equipment, swimming
subassemblers pools, health care equipment,
greenhouses, lawn and patio
furniture
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The Company also produces vinyl extrusions, which are sold primarily to
manufacturers and distributors of replacement windows.
The Company does not consider its business to be dependent on sales to
any single customer or small number of customers, the loss of which would have a
material adverse effect on the Company's business or financial condition, with
the possible exception of coaxial cable sheathing sales, which are limited to a
market of only two customers, as discussed below. Including sales to this
market, the Company's top ten customers accounted for approximately 33% of its
1996 pounds shipped. For additional information on the Company's customers, see
"-- Managing Aluminum Price Fluctuations" and "-- Marketing and Distribution;
Customer Service."
Building and Construction. Products for the building and construction
industry include new and replacement windows and storm door frames, wall
partitions, railings, structural beams and other components, patio enclosures,
solariums, skylights, bleacher seats, road signs, curtain walls and other
products for both the commercial and residential markets. Window and door
products represent one of the Company's single largest markets, comprising
approximately 19% of total sales by weight in 1996. The Company's products are
sold to manufacturers, assemblers and contractors in both the new construction
and replacement window and door markets. The Company's commercial replacement
window market
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is most prevalent in Northeastern cities as older commercial buildings are
retrofitted with energy saving windows.
Transportation. The transportation industry is a significant market for
extruded shapes used in truck bodies, recreational vehicles, step vans (delivery
vehicles) and van conversions as well as automobiles, beverage delivery trucks,
emergency vehicles, livestock trailers and motor homes. Through acquisitions and
capital spending, the Company has enhanced its position in the market for
transportation products, which represented approximately 31% of the Company's
total aluminum sales by weight in 1996. The Company is well positioned
geographically to serve this market through its Dolton, Illinois, Elkhart and
Kokomo, Indiana and Girard and Fostoria, Ohio plants. Since 1995, the Company
has expanded its access to the market for large structural aluminum shapes
(e.g., aluminum flooring and frame components) used by manufacturers of truck
trailers, truck bodies and railcars.
Distribution. The Company has historically served the distribution
market primarily through sales to distributors servicing the building and
construction and transportation industries and, to a lesser extent, through
general metal distributors and service centers. These customers resell
extrusions and other metal products to manufacturers, contractors and other
industrial end users. To better meet the requirements of this market, the
Company has established and stocked depots to provide more rapid customer order
fulfillment on a number of inventory items.
Electrical and Other. The Company is one of two principal manufacturers
in the world of sheathing for coaxial cable. Coaxial cable is predominantly
manufactured by only two companies. For over 10 years, the Company has been the
principal supplier to one of these manufacturers and currently serves as a
secondary supplier to the other.
Sales in this segment depend upon new and replacement cable
installations, both domestically and internationally. Because coaxial cable has
an expected life of approximately 10 to 15 years before signal integrity begins
to erode, the replacement market could represent a large and stable market for
coaxial cable sheathing. Additionally, management believes that if cable
companies proceed with their announced cable system architecture to install
fiber optics (which do not utilize aluminum sheathing) from the head end
(transmission source) to the feeder nodes, it will be necessary to replace the
older, less efficient coaxial cable network that runs between the feeder nodes
and individual homes with new coaxial cable. Management believes that the
telecommunication industry will continue to undergo rapid change, both
technological and legislative; however, it is not possible to predict the impact
these changes will have on the market for sheathing for coaxial cable.
The Company is one of three extruders in the United States that
manufactures aluminum electrical conduit pipe. Aluminum conduit is considered to
be superior to that manufactured with steel because aluminum is lighter in
weight, non-sparking, non-magnetic and resistant to corrosion. Aluminum
electrical conduit is frequently specified by engineers for use in applications
involving pulp, paper and petro- chemicals due to its non-sparking
characteristics. The Company also manufactures extrusions for heat sinks,
connectors, and other electrical parts that are used by electrical equipment
manufacturers and utilities.
Consumer Durables. The Company extrudes products for manufacturers of
finished goods and major sub-assemblers of consumer durable products. End use
products in this segment include, among others, boats, sports and exercise
equipment, swimming pools, health care equipment, appliances, greenhouses and
lawn and patio furniture. In 1996, sales by weight to the consumer durables
market accounted for approximately 8% of the Company's total aluminum sales.
Vinyl Products. The Company's vinyl extrusions are sold primarily to
manufacturers of replacement windows used in the building and construction
industry. In 1996, vinyl extrusion shipments totaled 9.7 million pounds,
representing 3.0 % of the Company's total shipments by weight. During 1995, the
Company relocated and consolidated its vinyl extrusion operations into a new
leased facility located in
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Austintown, Ohio and expanded its production capacity by approximately 50%
by adding four advanced, high-capacity extrusion lines to the 14 previous lines.
The Company's new management intends to continue the commitment to increase
Easco's participation in this growing market segment.
MANUFACTURING
The Company's manufacturing operations consist principally of casting,
extruding, fabricating and finishing aluminum. First, cylindrical aluminum logs
of between 16 and 20 feet in length and of varying diameters are cast from a
mixture of pure aluminum ingot and scrap aluminum. The logs are homogenized in
large ovens and cut into the optimal aluminum billet lengths (usually between 24
and 36 inches) for the products to be extruded. The aluminum billet is the raw
material used to manufacture aluminum extrusions. The process begins by heating
the billet and forcing it under high pressure in an extrusion press through a
die that forms the desired cross-sectional pattern or profile. Next, the
extrusions are either straightened by stretching, after which they are cut to
required lengths and, in most cases, age-hardened in ovens, or coiled onto reels
(as in the case of coaxial cable sheathing). These "mill finish" extrusions are
then either packed and shipped directly to customers or receive further
finishing and/or fabrication as specified by the customer.
Raw Materials
The Company's major raw material for aluminum extrusions is aluminum
billet. Billet is cast in a number of standard alloys dictated by the physical
properties required of the finished product. The Company has historically
produced approximately 85% of its billet requirements in its own casting
facilities utilizing primary aluminum ingot, purchased scrap aluminum and scrap
recycled from the Company's extrusion plants. The remainder of the Company's
billet requirements are purchased in the open market. Ingot, purchased scrap and
internally generated scrap each comprise approximately one-third of the total
aluminum used in the Company's casting facilities, although the Dolton facility
uses a higher level of scrap content due primarily to the different alloy
specifications of its products.
The Company buys primary aluminum ingot from metal brokers as well as
primary aluminum producers. As a global commodity, aluminum ingot is widely
available, and no single supplier or group of suppliers has been able to dictate
pricing. The Company typically purchases aluminum for casting as necessary to
meet its requirements, and generally engages in forward aluminum purchases to
meet the requirements of fixed price sales contracts. See "-- Managing Aluminum
Price Fluctuations."
Approximately one-half of the Company's scrap aluminum requirements are
purchased from scrap brokers, dealers, other extruders and customers, with the
balance of such requirements supplied by internally generated scrap. Aluminum
scrap sells at a discount to primary aluminum, with the amount of the
differential dependent upon aluminum price levels, grade of the scrap and scrap
market conditions. Historical differentials have been advantageous for companies
with casting capabilities. These differentials, measured as a percentage of
primary aluminum prices, have generally been fairly consistent over time.
Casting Operations
Billet casting operations typically fall into one of two categories:
primary and secondary. Primary billet refers to billet produced as part of the
original process of smelting aluminum from alumina and is dominated by the large
integrated aluminum producers, including Alcan Aluminum Ltd., Alumax, Inc.,
Aluminum Company of America (Alcoa), Kaiser Aluminum Corporation, Noranda
Aluminum Inc., Pechiney Corp. and Reynolds Metals Company. Secondary billet,
which refers to billet cast from recycled and remelted aluminum, is produced by
a number of casting operations, including the Company's casting operations,
other extruders with casting capabilities and independent casting companies.
The first step in the Company's casting process is to melt aluminum
ingot and scrap in a large natural gas fired furnace. The liquid aluminum is
either alloyed directly in the melting furnace or transferred to a holding
furnace where the proper alloying materials are added. The aluminum is then cast
into logs of varying diameters, with lengths of 16 to 20 feet. These logs are
subsequently heated in ovens.
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This heating process, called homogenization, allows the cast aluminum to
achieve an evenly distributed chemical composition which is optimal for
extruding and ensures consistency. After homogenization, the logs are cut into
shorter lengths called billet, bundled and shipped or transferred to the
Company's extrusion plants.
Aluminum Extrusion
In the aluminum extrusion process, a billet is first heated, placed
into an extrusion press, and forced, or extruded, through a die that creates the
desired profile or cross-sectional design. Extrusions are then either
straightened by stretching and cut to the required lengths (in the case of
lineal extrusions) or coiled onto reels (in the case of coaxial cable
sheathing). Most extrusions are hardened by aging in large ovens for four to ten
hours. Drawn tubing requires additional processing in which an extruded pipe is
pulled through a die to create thin-walled aluminum tubing.
During the extrusion process, scrap is generated at several stages and
is collected and shipped to the Company's casting facilities for recasting into
billet. The Company's new management intends to focus on programs intended to
reduce internally generated scrap levels with a goal of scrap levels below those
previously achieved by the Company.
Fabrication and Finishing
The Company provides its customers with a variety of value-added
services, such as painting, anodizing, thermal filling, threading, bending,
cutting to length and drilling. Value-added services enhance the Company's
ability to produce factory-finished extrusions that are ready for the customer's
manufacturing or assembly processes. Management believes that the Company is an
industry leader in painted extrusions, with approximately 90 million pounds
shipped in 1996. Approximately 39% of all products sold by the Company in 1996
included some degree of value-added processing.
Utilization and Capacity
The Company's objective is to operate at maximum facility utilization,
defined as full machine usage three shifts per day, seven days per week, 50
weeks per year. Achievement of this objective would allow the Company to produce
approximately 450 million pounds of aluminum extrusions annually, compared to
approximately 310 million pounds of aluminum extrusions shipped by the Company
in 1996. While several plants already operate at full capacity during periods of
high demand, the Company's sales and marketing efforts are focused on achieving
greater sales and profitability in the first and fourth quarters, when capacity
utilization has generally been lower.
Management believes the Company operates at a higher level of
utilization than the industry average based on the Company's production of
approximately 9.6% of all soft alloy extrusions shipped in 1996 with
approximately 4.8% of the industry's active presses. Management believes the
Company has a cost advantage over many smaller competitors, since a high level
of facility utilization is important in order to utilize operating leverage by
spreading fixed costs over the greatest possible production levels.
The Company believes that its existing casting facilities, coupled with
purchases of extrusion billet and log on the open market, will be adequate to
supply the billet requirements of the Company's extrusion plants operating at
full utilization rates. Because efficient in-house casting provides cost
advantages, the Company's new management team intends to focus on improving the
Company's casting capability, commencing with the Dolton plant in 1997.
Vinyl Extrusion
In the vinyl extrusion process, PVC compound is fed into a vinyl
extruder where it is heated, melted and forced through a die to shape the
material. Downstream vacuum sizing and cooling equipment form it to precise
dimensions. The continuous vinyl extrusion is then pulled, cut to predetermined
lengths and packaged for shipment to the customer.
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MANAGING ALUMINUM PRICE FLUCTUATIONS
In 1990, the Company began offering its Customer Conversion Program,
allowing its larger customers to provide the Company with the aluminum ingot
needed to produce their extrusion requirements. The Company, in turn, casts the
customer-supplied ingot along with its own purchased ingot and scrap aluminum
into billet and subsequently manufactures the customer's extrusions to order.
The Company performs the casting and extrusion for an agreed upon tolling fee,
shipping extruded products to Conversion Program customers in the amount
ordered, which generally corresponds to the weight of the aluminum provided by
the customer. The Customer Conversion Program offers the Company's customers the
flexibility, at their choosing, to lock in aluminum costs by making forward
purchases of aluminum ingot. This program effectively eliminates the Company's
risk of aluminum price volatility with respect to these larger customers. While
some of the Company's competitors have implemented similar programs, management
believes the Customer Conversion Program provides the Company with a competitive
advantage over the independent extruders that do not have casting operations.
Management believes this program increases sales volume and loyalty from certain
customers, particularly those that enter into longer term aluminum supply
contracts, and consequently will enter into a relationship with the Company for
at least the duration of their aluminum supply contract. Furthermore, the
program reduces the working capital requirements of the Company by reducing both
accounts receivable and inventories. In 1996, shipments under the Customer
Conversion Program accounted for 36.6% of the Company's total pounds shipped,
compared to 10.1% in 1990, the first full year of the program.
In addition to the Customer Conversion Program, the Company offers
three pricing alternatives that allow its customers to control the impact of
aluminum price fluctuations and minimize the Company's aluminum price
fluctuation risk. These three alternatives are (i) a formula, adjusted monthly
or quarterly, which sets the Company's selling price at the market price of
aluminum plus a spread; (ii) an arrangement whereby the Company concurrently
enters into an agreement to sell certain quantities of finished product to the
customer and an agreement to buy or set aside the same amount of raw aluminum at
pre-determined prices on set dates; and (iii) market-based pricing, where the
Company's selling prices are quoted at a spread to the spot price of aluminum.
The Company also regularly monitors its inventory levels, purchase commitments
and sales commitments and, from time to time, adjusts its inventory levels and
enters into forward aluminum commodity sales and/or purchase contracts to keep
its inventory levels and production requirements in balance.
CAPITAL EXPENDITURES
Beginning in 1992, the Company began implementing a capital expenditure
program focused on cost reduction and efficiency improvement projects,
particularly relating to improving material handling equipment and reducing
scrap rates. Under the Company's capital structure prior to 1992, numerous
attractive cost reduction projects could not be undertaken because capital
expenditures were generally limited to maintenance-level requirements. During
1990 and 1991, the Company's total capital expenditures averaged $2.0 million
annually. From 1993 through 1996, the Company's capital expenditures have
averaged approximately $9.2 million annually.
Several key capacity expansion and productivity improvement projects
have been completed since 1992, including: new and refurbished extrusion
presses; new extrusion press handling systems; one new and one upgraded paint
line; a new vinyl manufacturing facility and new high capacity vinyl extruders.
MARKETING AND DISTRIBUTION; CUSTOMER SERVICE
The Company markets its products through a separate sales force based
at each facility, selling to approximately 2,600 customers in 1996 in a variety
of industries and markets located throughout the U.S., though the Company's
primary focus is in the Eastern, Southeastern and Midwestern United States. Each
sales force is responsible for promoting the Company's products, identifying
marketing opportunities, servicing
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customers, and pricing and selling the Company's products. By focusing its
sales efforts at the plant level, the Company enables each general manager and
sales staff to establish ongoing relationships with the customers in their area
and to tie their sales effort to regional requirements and plant capabilities.
Management believes this decentralized philosophy provides a higher overall
level of customer service and results in a greater degree of customer loyalty.
The Company employs a total of 23 direct salespersons, and utilizes many outside
sales agents. Compensation of the direct sales force is comprised of salary and
performance-based bonuses.
Management believes the most important elements of customer service in
the extrusion industry are responsiveness to customer orders, predictable lead
times, short delivery cycles and on-time delivery. The Company seeks to provide
its customers with predictable lead times and short product delivery cycles so
that its customers can optimize their inventory management. The Company reserves
press time for key customers to accommodate their production schedules, and is
generally able to fulfill critical orders from key customers within 48 hours of
receipt by taking advantage of its strategically located plants and its own
fleet of trucks. While the Company's percentage of on-time deliveries has
improved since the institution of better scheduling procedures in 1993, the new
management team believes further improvements are required.
Pricing in the aluminum extrusion industry is typically based upon
spreads over aluminum prices, with the amount of the spreads determined
primarily by the type of extrusion. For example, spreads are generally higher
for certain products that are relatively more difficult or time consuming to
extrude, such as hollow shapes or thin-wall items.
The Company distributes approximately 40% of its products through its
own fleet of 20 tractors and 256 trailers. All of the Company's tractors and 102
of its trailers are leased. Management believes that maintaining a fleet of
tractor-trailers enhances the level of service to its customers by enabling the
Company to deliver its products in a more timely manner with less damage.
Beginning in 1992, the Company rationalized its distribution strategy by using
contract carriers and common carriers for certain long hauls, partial loads and
trips where no back haul is available, thereby reducing the number of leased
tractors and trailers necessary, and reducing operating costs without materially
affecting delivery capabilities.
Because most of the Company's products are manufactured to customer
specifications pursuant to purchase orders and on-time delivery is important,
the dollar amount of backlog orders is not significant.
COMPETITION
The soft alloy aluminum extrusion industry is fragmented and highly
competitive. Management estimates that, in the United States, over 100
independent and integrated aluminum extruders operate more than 170 aluminum
extrusion plants and more than 450 extrusion presses. Management believes a
majority of these competitors operate only one or two presses and estimates that
nearly one half of the industry's output is produced by large, vertically
integrated producers of primary aluminum such as Alumax, Kaiser and Reynolds.
Management believes that while capacity within the aluminum extrusion industry
has increased during the past two years, it is at a level lower than the late
1980's. The industry has undergone consolidation in recent years, the largest
transaction being the acquisition of Cressona Aluminum by Alumax.
Competition is generally conducted on a regional basis due in part to
the large number of extruders and transportation costs. The marketplace requires
each competitor to supply a quality product at a competitive price. Suppliers
differentiate themselves based upon shorter lead times, timely deliveries, the
availability of value-added finishing and fabricating services and overall
customer service.
The U.S. extrusion industry has not faced significant foreign
competition since the high level of service required to compete effectively in
the U.S. market would generally be difficult to maintain with foreign production
facilities, where the delay between the receipt of orders and delivery of
finished products, coupled with incremental shipping costs, places foreign
manufacturers at a competitive disadvantage. Management believes that these
factors would require an importer of foreign aluminum extrusions to maintain a
comparatively high level of finished goods inventories in the U.S. to meet
routine customer demands. These
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required inventories would increase an importer's relative working capital
requirements and its exposure to swings in aluminum prices and product changes.
Management is not aware of any significant foreign extruders that have pursued
this strategy.
EMPLOYEES
As of December 31, 1996, the Company employed 1,983 people, 1,375 of
whom were covered by collective bargaining agreements. The Company's collective
bargaining agreements are independently negotiated at each manufacturing
facility and expire on a staggered basis. Locals affiliated with the
International Union of Operating Engineers and the United Steelworkers of
America represent most of the organized employees. Since 1980, the Company has
operated without a work stoppage, and Dolton has experienced only one single-day
work stoppage in 1991; however, there can be no assurance that work stoppages
will not occur in the future. In 1996 and early 1997, three union contracts were
successfully renewed. In 1997, one additional contract is scheduled for renewal.
ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of federal, state and local
environmental laws and regulations ("Environmental Laws") which continue to be
adopted and amended. These Environmental Laws regulate, among other things, air
and water emissions and discharges at the Company's manufacturing facilities;
the generation, storage, treatment, transportation and disposal of solid and
hazardous waste by the Company; the release of hazardous substances, pollutants
and contaminants into the environment at properties operated by the Company and
at other sites; and, in some circumstances, the environmental condition of
property prior to a transfer or sale. Risks of significant environmental costs
and liabilities are inherent in the operations and facilities of the Company, as
well as other participants in the aluminum extrusion industry. The Company
believes, however, that its current operations are in substantial compliance
with Environmental Laws.
The Company believes that approximately 16 of the disposal facilities
known to have been used by the Company are "Superfund" sites or potentially will
be considered for Superfund status. The Company has been named as a "potentially
responsible party" with respect to the disposal of wastes at six of these waste
disposal sites under the federal "Superfund" statute and certain analogous state
statutes. Based upon information known to the Company concerning the size of
these sites, their years of operation, the number of past users and the
characteristics of the Company's waste generation, management believes that the
Company's proportionate share of the cost of the necessary investigation and
eventual remedial work that may need to be performed at the sites will not have
a material adverse effect on the Company's financial condition or results of
operations. During 1996, the Company paid $320,000 to settle its share of the
liability at the Macon/Dockery site in North Carolina, which management felt
presented the greatest possible risk to the Company at this time.
A number of the Company's present and past facilities have been in
operation for many years, and it is possible that additional environmental
issues that could be material may arise in the future. Also, future regulations
and changes in the text or interpretation of existing Environmental Laws may
subject the Company's operations to increasingly stringent standards. While the
precise effect of these changes on the Company cannot be estimated, compliance
with such requirements may make it necessary, at costs which may be substantial,
to retrofit existing facilities with additional pollution-control equipment and
to undertake new measures in connection with the storage, transportation,
treatment and disposal of by-products and wastes.
While the ultimate extent of the Company's liability for compliance,
remedial costs, claims and litigation relating to Environmental Laws and health
and safety matters and the future capital expenditures associated with
Environmental Laws cannot be determined at this time, with the assistance of
outside environmental consultants, the cost of the Company's known potential
environmental liabilities (primarily attributable to potential clean up and
investigation costs at current facilities, former facilities and off-site
disposal facilities) is estimated to range from $1.8 million to $31.3 million.
Based on its best estimate of the reasonably expected cost of such liabilities,
the Company has reserves of $9.3 million as of December 31, 1996. Management
believes such amounts, under existing laws and regulations, are adequate to
cover
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presently identified environmental liabilities, but no assurance can be
given that such amounts will be adequate to cover the ultimate costs of these
liabilities, or the cost of environmental liabilities that may arise or be
identified in the future. Although management expects that any cash outlays with
respect to such matters would be made over a number of years, the timing of any
such expenditures cannot be determined.
PATENTS
The Company owns certain patents and licenses some patent rights from
third parties. The Company does not believe, however, that its business as a
whole, or the business of its industry, is dependent on any single patent, group
of patents, trademark or franchise.
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EXECUTIVE OFFICERS
NAME AGE POSITION
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Joseph M. Byers 52 Vice President, Sales and Marketing
James R. McKeithan 52 Vice President, Manufacturing
Lawrence J. Sax 64 Vice President, Raw Materials
Terry D. Smith 42 Executive Vice President and Chief Financial Officer
Norman E. Wells, Jr. 48 President and Chief Executive Officer
</TABLE>
Mr. Byers joined the Company as Vice President, Sales and Marketing in
November 1996. For more than five years previously, he was Vice President, Sales
and Marketing for Barmet Aluminum Corporation, a producer of continuous cast
aluminum sheet.
Mr. McKeithan joined the Company as Vice President, Manufacturing in
November 1996. Previously he was Vice President, Production for Barmet Aluminum
Corporation from 1992 to 1996. Prior thereto he held a similar position with
Ravenswood Aluminum Company, a producer of aluminum sheet and plate.
Mr. Sax joined the Company as Vice President, Raw Materials in December
1996. From 1992 to 1996 he served as Vice President, Materials Management for
Barmet Aluminum Corporation. From 1988 to 1992 he served as Vice President,
Recycling for WTE Corporation, a materials recycler.
Mr. Smith joined the Company as Executive Vice President and Chief
Financial Officer in November 1996. Previously he was Vice President, Chief
Financial Officer and Treasurer for CasTech Aluminum Group Inc., a producer of
continuous cast aluminum sheet, from 1987 to 1996.
Mr. Wells joined the Company as President and Chief Executive Officer
in November 1996. From March 1993 to November 1996 he was President and Chief
Executive Officer for CasTech Aluminum Group Inc. From 1989 to 1993 he held
various executive positions with CasTech. Prior to his CasTech experience, he
spent 14 years with Kaiser Aluminum.
CAUTIONARY STATEMENT
Holders of the Company's securities and prospective investors should
consider the following factors with the other information contained in this
Annual Report on Form 10-K, in connection with an investment in the Company's
securities. Information contained or incorporated by reference in this Annual
Report on Form 10-K contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, which are not historical
facts or use forward-looking terminology such as "may," "will," "plans,"
"expects," "anticipates," "estimates," "intends," "should" or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
matters set forth below constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain risks
and uncertainties, that could cause actual results to differ materially from
those contemplated by any such forward-looking statements.
11
<PAGE> 12
CUSTOMERS IN CYCLICAL INDUSTRIES; LIMITED BACKLOGS
Demand for most of the Company's products is cyclical in nature and
subject to changes in general economic conditions that affect market demand.
Sales to the building and construction markets are driven by trends in
commercial and residential construction, housing starts, residential repair and
remodelings. Transportation sales are also cyclical in nature and typically
follow the trends in the automotive, truck and recreational vehicle
manufacturing industries, while sales of coaxial cable sheathing are dependent
upon the replacement and/or expanded installation of coaxial cable for cable
television. Many of the industries served by the Company have experienced
recessionary or slow growth conditions for substantial periods in the past, and
adverse economic conditions may have a material adverse effect on the Company's
business or financial condition. Historically, lower demand has led to lower
margins, lower production levels or both. The Company's capacity utilization is
also materially affected by demand levels, and capacity utilization is an
important factor in the Company's operating performance. The Company and the
extrusion industry generally operate with limited order backlogs, so that
adverse changes in demand can rapidly impact production levels and operating
performance. Adverse economic conditions affecting the overall economy or one or
more of the Company's end-use markets therefore may have a material adverse
effect on the Company's business and financial condition.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged with a debt to total capitalization
ratio of 57.4% at December 31, 1996. The Company is also permitted to incur
additional indebtedness if, at the time, it is able to comply with restrictions
under the indenture governing its 10% Senior Notes due 2001 (the "Senior Note
Indenture") and the Company's revolving credit agreement (the "Credit
Agreement"). The Company is more highly leveraged than certain of its
competitors, which may place the Company at a competitive disadvantage. The
Company's degree of leverage may make it more vulnerable to a downturn in
general economic conditions, particularly in the building and construction and
transportation industries, and limit its ability to respond to changing business
and economic conditions. In addition, the Company expects that it will likely
require additional financing to refinance its Senior Notes at maturity in 2001.
There can be no assurance that such additional financing will be available at
that time, or available on reasonable terms.
ALUMINUM MARKET CONDITIONS
The Company's primary raw materials are aluminum ingot and scrap
aluminum. The Company is therefore subject to the short-term commodity risk of
carrying aluminum in its inventory. In addition, because changes in aluminum
prices are generally passed through to the Company's customers, increases or
decreases in aluminum prices generally cause corresponding increases and
decreases in reported net sales, causing fluctuations in reported revenues that
are unrelated to the level of business activity. Any major dislocation in the
supply and/or price of aluminum could have a material adverse effect on the
Company's business and financial condition. If the Company is unable to pass
through aluminum price changes to its customers in the future, the Company could
be materially adversely affected. Aluminum price levels may also impact the
level of inventories the Company's customers seek to maintain, and may thereby
impact the Company's order rates as customers adjust their inventories.
VARIABLE COSTS
In a competitive industry that has experienced limited market growth in
recent periods, the Company's operating performance depends to a material extent
on its ability to control variable costs. Certain of the Company's costs are
significantly affected by factors beyond the Company's control. For example, the
Company's casting operations use significant quantities of natural gas,
increases in the price of which adversely impacted the Company's operating
performance in 1996 and could adversely affect operating performance in future
periods. Similarly, the Company's labor costs are affected by regional and
national labor market conditions, which could adversely affect labor costs in
the event of labor shortages or prevailing wage increases in one or more
locations. In addition, the Company attempts to control variable costs in part
12
<PAGE> 13
through capital expenditures that are intended to increase manufacturing
efficiency. There can be no assurance that the Company's capital expenditure
program will successfully reduce or limit operating costs, or that the Company's
other variable costs will not experience material increases.
COMPETITION AND MODERATE BARRIERS TO ENTRY
The aluminum extrusion industry is fragmented and highly competitive.
The Company faces competition from other independent aluminum extruders as well
as certain vertically integrated aluminum companies (i.e., those with primary
aluminum ingot production capacity) that participate in the extrusion market.
Some of the Company's competitors, particularly those that are vertically
integrated, have greater financial resources than the Company, and certain
competitors have merged in recent years (including Alumax Aluminum and Cressona
Aluminum in 1995). The impact of competition can be particularly acute in market
segments where there are a limited number of customers (e.g., cable sheathing).
The aluminum extrusion industry has not experienced significant growth in recent
years, and market share expansion may require price competition that can
adversely affect profitability. There can be no assurance that the Company will
be able to compete successfully or that competition will not have a material
adverse effect on the Company's business or financial condition.
Other building materials (such as vinyl) may be substituted for
aluminum in certain applications (particularly replacement window frames) and
competition from manufacturers of these materials could adversely affect the
Company's business to the extent the Company does not participate in any growth
in use of these alternative materials.
Management believes that the extrusion industry offers only moderate
barriers to entry, and extrusion presses and other capital equipment are readily
available on the open market. Although management is aware of no significant
recent entrants, there can be no assurance that new entrants will not increase
competition in the aluminum extrusion industry, which could adversely affect the
Company.
ENVIRONMENTAL RISKS
See "Environmental Matters" in this Annual Report on Form 10-K.
ACQUIRED ASSETS
The Company may acquire companies or assets that would enable the
Company to offer complementary products or expand geographic coverage, and that
management considers likely to enhance the Company's operations and
profitability. There can be no assurance that any business or assets acquired by
the Company will be integrated successfully into the Company's operations or be
able to operate profitably. For example, the Company's acquisitions of Dolton
Aluminum Company and certain extrusion assets in Kokomo, Indiana have not been
profitable, resulting in a special pre-tax charge of approximately $23.3 million
to write down the carrying value of certain related assets in the year ended
December 31, 1996.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is subject to seasonal and quarterly
fluctuations. Historically, demand for extrusions and therefore capacity
utilization has generally been highest in the summer months, resulting in a
higher portion of the Company's net sales and profits in the second and third
quarters relative to the first and fourth quarters of each year. LIFO
adjustments may materially affect results from quarter to quarter, depending on
changes in aluminum price levels, without regard to the level of the Company's
underlying business activity. The Company's quarterly earnings may also be
affected by the timing of acquisitions (if any) or the integration or
commencement of new press operations which may affect the availability and
extent of utilization of additional press capacity.
13
<PAGE> 14
MANAGEMENT REALIGNMENT; DEPENDENCE ON KEY MANAGEMENT
In November 1996, the Company appointed a new group of senior executive
officers, including its President and Chief Executive Officer, its Executive
Vice President and Chief Financial Officer, its Vice President-Sales and
Marketing, its Vice President-Operations and Vice President-Raw Materials. In
connection with this management realignment, the Company incurred special
pre-tax charges of approximately $3.5 million in the year ended December 31,
1996. The success of the Company depends to a large extent on this new
management team, including the Company's President and Chief Executive Officer,
Norman E. Wells, Jr. There can also be no assurance that the Company's new
senior executive officers will have any favorable impact on the Company's
business or financial condition. The Company does not maintain key-man life
insurance on any of its executive officers.
LIMITATION ON DIVIDENDS
The declaration and payment of dividends by the Company are subject to
the discretion of the Board of Directors of the Company. Any future
determination to pay dividends will depend on the Company's results of
operations, financial condition, capital requirements, contractual restrictions
and other factors deemed relevant by the Board of Directors. Presently, the
Senior Note Indenture and the Credit Agreement contain certain covenants which
limit Easco's ability to pay dividends to Easco, Inc. and therefore limit Easco,
Inc.'s ability to pay dividends. The Company intends to retain earnings to
retire indebtedness and support the growth of the Company's business. Although
the Company presently intends to continue its practice of paying a regular
quarterly dividend of $.01 per share, there can be no assurance that the Board
of Directors of the Company will declare or pay dividends on the Common Stock in
the future.
CONTROL BY PRINCIPAL STOCKHOLDER
American Industrial Partners Capital Fund, L.P. ("AIP") beneficially
owns 40.7% of Easco, Inc.'s outstanding Common Stock. Accordingly, AIP will have
substantial voting power in the election of the Board of Directors of Easco,
Inc. and, in general, the determination of any corporate transaction or other
matter submitted to the stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of the assets of the
Company, and in preventing or causing a change in control of the Company.
American Industrial Partners Management Company ("AIPM") will continue to
provide advisory services to the Company on an ongoing basis pursuant to a
Services Agreement.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Amended and Restated Certificate of
Incorporation (the "Certificate") of Easco, Inc. may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt that a
stockholder might consider to be in its best interest. These provisions (i)
classify Easco, Inc.'s Board of Directors into three classes, each of which will
serve for different three-year periods, (ii) authorize the issuance of up to
1,000,000 shares of preferred stock of Easco, Inc., the rights, preferences,
privileges, qualifications, limitations and restrictions of which the Board of
Directors is authorized to fix without any further vote or action by the
stockholders, (iii) generally prohibit stockholder action by written consent and
stockholder-called special meetings unless approved by the Board of Directors,
(iv) prohibit removal of Easco, Inc.'s directors except upon the vote of a
majority of the Board of Easco, Inc. or upon a vote of the holders of 80% of the
Common Stock and (v) require a vote of the holders of 80% of the Common Stock to
amend the classified board and director removal provisions. Easco, Inc. is also
subject to Section 203 of the Delaware General Corporation Law, which prohibits
certain business combinations between Easco, Inc. and certain stockholders.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales
of shares of Common Stock or availability of such shares for future sale will
have on the market price of the Common Stock prevailing from
14
<PAGE> 15
time to time. Sales of substantial amounts of Common Stock (including
shares issued upon the exercise of stock options), or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock. Easco, Inc. has approximately 10.4 million shares of Common Stock
outstanding (net or treasury shares), excluding approximately 1.2 million
issuable upon the exercise of stock options held by Citicorp Venture Capital,
Ltd. and management, and stock options eligible for future grants. Such shares
are generally freely tradeable subject to the volume and other limitations of
Rule 144 under the Securities Act of 1933. Pursuant to a registration rights
agreement, certain existing stockholders have "piggy-back" registration rights
with respect to their shares in any future registration of Common Stock by
Easco, Inc.
ITEM 2. PROPERTIES
The Company operates three casting facilities, nine extrusion
facilities, one drawn tube facility, one fabrication facility, one vinyl
extrusion facility, a total of 22 aluminum extrusion presses and four paint
lines. The Company's facilities, which are located in five states, are listed
below:
<TABLE>
<CAPTION>
NO. OF ACTIVE
ALUMINUM
EXTRUSION
LOCATION OPERATIONS BLDG. SQ. FT. PRESSES
- -------- ---------- ------------- -------
<S> <C> <C> <C>
Connecticut:
Berlin Extrusion/Paint 100,000 2
Illinois:
Dolton Extrusion/Casting 348,000 3
Indiana:
Elkhart Extrusion 80,000 2
Kokomo1/ Extrusion 234,000 2
-
North Carolina:
Ahoskie Casting 33,000 --
Burlington Extrusion 180,000 4
Winton Extrusion/Fabrication 370,000 3
Drawn Tube/Paint
Ohio:
Austintown1/ 18 vinyl extruders 163,000 --
-
Fostoria Extrusion 33,000 1
Girard Extrusion/Paint 343,000 3
Niles Extrusion 31,000 2
Niles Casting 78,000 --
------------ --
Totals 1,993,000 22
============ ==
- ---------------------
<FN>
1/ The Kokomo and Austintown facilities are leased. All other facilities are owned.
</TABLE>
None of the Company's owned facilities are mortgaged.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various lawsuits arising in the ordinary
course of business. The Company does not believe that the outcome of any of
these lawsuits will have a material adverse effect on the Company's business or
financial condition. Certain other lawsuits involving the Company relate to
environmental matters. See "Business --Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1996 through a solicitation of proxies or
otherwise.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The information regarding market price and dividends on the Company's
Common Stock and related stockholder matters as required by this Item is
incorporated by reference to page 24 of the Company's 1996 Annual Report to
Stockholders. In connection with the Company's hiring of the five members of its
new executive management team beginning in November, 1996, the Company agreed to
sell an aggregate of 220,000 shares of Common Stock to its new executive
officers without registration under the Securities Act. These sales were subject
to, and consummated upon, entry into definitive employment agreements between
the Company and these new executive officers. On December 20, 1996, the Company
sold an aggregate of 137,500 shares of Common Stock to the following executive
officers for an aggregate amount of $1,375, or $.01 per share, in reliance upon
the exemption set forth in Section 4 (2) of the Securities Act: Norman E. Wells,
Jr. (100,000 shares), Terry D. Smith (12,500 shares), Joseph M. Byers (12,500
shares) and James R. McKeithan (12,500 shares). On December 20, 1996, the
Company issued 70,000 shares of Common Stock to Mr. Wells (which Mr. Wells had
elected, upon commencement of employment on November 26, 1996, to receive in
lieu of cash as part of his signing bonus) for an aggregate amount of $420,000,
or $6.00 per share, in reliance upon the exemption set forth in Section 4 (2) of
the Securities Act. On December 30, 1996, the Company sold 12,500 shares of
Common Stock to Lawrence J. Sax for an aggregate amount of $125, or $.01 per
share, without registration under the Securities Act in reliance upon the
exemption set forth in Section 4 (2) of the Securities Act.
ITEM 6. THE SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Easco, Inc. (1) Predecessor(1)
----------------------------------------------------------------- --------------
For the For the
Pro Forma Period Period
Year May 16, January 1,
Year Ended December 31, Ended 1992 to 1992 to
--------------------------------- December 31, December 31, May 15,
1996 1995 1994 1993 1992 (2) 1992 (2) 1992
---- ---- ---- ---- -------- -------- ----
(Amounts in millions, except per share and per pound data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $333.0 $339.7 $267.6 $211.7 $206.9 $127.4 $79.5
Gross profit............ 50.0 61.9 55.0 45.9 39.1 22.7 16.4
Reorganization charges (3) 3.5 -- 1.2 0.8 -- -- 2.7
Impairment of assets.... 23.3 -- -- -- -- -- --
Income (loss) before
extraordinary loss (4) (22.3) 11.7 7.9 6.0 3.0 2.5 (3.0)
Net income (loss)....... (22.3) 11.7 4.9 6.0 3.0 2.5 (3.0)
Earnings (loss) per common
share:
Income before
extraordinary
loss.................. $(2.17) $1.22 $0.96 $0.62 $0.31 -- --
Extraordinary loss...... -- -- 0.37 -- -- -- --
------ ------ ------ ------- ------
Net income (loss)....... $(2.17) $1.22 $0.59 $0.62 $0.31 -- --
Weighted average number of
common shares outstanding 10.3 9.5 8.3 9.7 9.7 -- --
Balance Sheet Data:
Total assets............ 230.5 $258.5 $203.2 $184.4 $182.7 -- --
Total debt.............. 85.0 85.0 85.0 57.8 65.0 -- --
Stockholders' equity.... 63.0 85.1 42.3 57.5 51.8 -- --
Cash dividends per common
share................ $0.04 $0.02 -- -- -- -- --
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Adjusted EBITDA (5)..... $19.3 $37.6 $29.8 $23.6 $17.7 $8.3 $9.4
Capital expenditures (net) 6.5 13.7 10.1 6.4 4.2 0.7 3.5
Depreciation of fixed 7.6 6.2 4.5 3.9 3.8 1.5 2.3
assets....................
Pounds shipped.......... 319.9 303.3 268.1 223.6 198.1 122.7 75.4
Average market price of
aluminum per pound (6) $0.720 $0.864 $0.720 $0.538 $0.580 -- --
</TABLE>
(1) Easco, Inc. was formed on February 19, 1992 and, on May 16, 1992,
Easco, Inc. acquired the stock of Easco Corporation ("Easco") (the
"1992 Transaction"). References to the "Predecessor" are to Easco
prior to the 1992 Transaction. Prior to the 1992 Transaction, Easco,
Inc. had no substantive operations.
(2) The 1992 Transaction was accounted for as a purchase transaction, with
the purchase price being allocated to assets and liabilities based on
the estimated fair value thereof as of the date of the 1992 Transaction.
The pro forma financial data for 1992 give effect to the 1992
Transaction as if it occurred as of January 1, 1992 and reflect (a) a
reduction of goodwill amortization by $0.9 (due to a write-off of
goodwill in the purchase) and interest expense by $3.1 (due to a
reduction of indebtedness) in connection with the change in the capital
structure of the Company, (b) an elimination of the unusual item of $2.7
attributable to the repurchase of predecessor stock options in the 1992
Transaction, (c) an increase in management fees of $0.3 and (d) related
income tax effects of $2.9. The pro forma financial data presented are
not necessarily indicative of the results the Company would have
attained had such events occurred as of January 1, 1992.
(3) Reorganization charges include the repurchase in 1992 of Predecessor
stock options, the resignation and replacement of the Company's former
President in 1993, and a plant closure and a disposal of an extrusion
press in 1994, and a 1996 management reorganization.
(4) Extraordinary loss on early extinguishment of debt of $3.1 million, net
of federal income tax benefits of $2.0 in 1994. This loss relates to the
write-off of unamortized debt issuance costs associated with Easco's
previous credit agreement which was paid in full during the first
quarter of 1994.
(5) Management uses Adjusted EBITDA as an important measure of the Company's
performance and its ability to service debt. Adjusted EBITDA represents
operating profit plus non-cash charges and unusual items as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
Combined
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating profit (loss)...... $(17.5) $29.4 $22.6 $17.4 $ 8.8
Depreciation and amortization 10.0 8.3 6.0 5.4 6.2
Reorganization charges (3)... 3.5 -- 1.2 0.8 2.7
Impairment of long-lived assets. 23.3 -- -- -- --
----- ----- ----- ----- -----
Adjusted EBITDA.............. $19.3 $37.7 $29.8 $23.6 $17.7
----- ----- ----- ----- -----
</TABLE>
The 1992 results reflect Easco, Inc.'s results of operations for the
period February 19, 1992 (date of inception) to December 31, 1992 and the
results of operations for the Predecessor for the period of January 1,
1992 to May 15, 1992 (Easco, Inc. having had no substantive activity
prior to its acquisition of Easco on May 16, 1992).
17
<PAGE> 18
================================================================================
Adjusted EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity.
(6) Average of monthly average transaction prices for aluminum ingot, as
published by Metals Week.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to
pages 7 through 11 of the Company's 1996 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to
pages 5 and 6 and pages 12 through 22 of the Company's 1996 Annual Report to
Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The information concerning the Company's directors required by this
Item is incorporated by reference to the Company's 1996 Proxy Statement under
the caption "Proposal I -- Election of Directors."
The information concerning the Company's executive officers required by
this Item is incorporated by reference herein to the section in Part I, Item I
under the caption "Executive Officers."
The information regarding compliance with Section 16 of the Securities
and Exchange Act of 1934 is incorporated by reference to the Company's 1996
Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the Company's 1996 Proxy Statement under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Company's 1996 Proxy Statement under the caption "Ownership of the Company's
Common Stock."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the Company's 1996 Proxy Statement under the captions "Certain Transactions" and
"Executive Compensation -- Compensation Committee Interlocks and Insider
Participation."
18
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. Financial Statements:
(a) The following documents are filed as a part of this report:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations and Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
None Required
3. Exhibits:
Exhibit
Number Description
------ -----------
2.1* Stock Purchase Agreement dated as of January 18, 1995,
among Easco Corporation, Dolton Aluminum Company, Inc.
("Dolton") and Stockholders of Dolton
3.1(a)* Amended and Restated Certificate of Incorporation
3.1(b)*** Certificate of Correction dated June 2, 1995
3.2* By-Laws of Easco, Inc.
4.1* Form of Common Stock Certificate
4.2* Indenture dated March 18, 1994 between Easco and United
States Trust Company, as Trustee, with respect to 10%
Senior Notes due 2001
4.3(a)* Credit Agreement dated March 18, 1994 between Easco and
Bank of America (formerly Continental Bank)
4.3(b)* First Amendment to Credit Agreement dated January 31,
1995
4.3(c) Second Amendment to Credit Agreement dated February 18,
1997 (filed herewith)
4.4* Information and Registration Rights Agreement dated as
of May 15, 1992
10.1** Amended and Restated Services Agreement for general
management, financial and other services between Easco
and American Industrial Partners Management Company,
Inc.
19
<PAGE> 20
10.3(a)* Option Agreement for the right to purchase stock of
Easco, Inc. between Easco, Inc. and Citicorp Venture
Capital
10.3(b)* Amendment to Option Agreement dated as of April 12, 1995
10.5(a) Easco, Inc. Stock Option Plan dated December 17, 1993,
as amended effective November 24, 1996+ (filed herewith)
10.5(b)(i) Form of Stock Option Agreement between Easco, Inc. and
each of Norman E. Wells, Jr., Terry D. Smith, Joseph M.
Byers, Lawrence J. Sax and James R. McKeithan+
($3.00 exercise price) (filed herewith)
(ii) Form of Stock Option Agreement relating to Options
between Easco, Inc. and each of Norman E. Wells, Jr.,
Terry D. Smith, Joseph M. Byers, Lawrence J. Sax and
James R. McKeithan+ ($6.00 exercise price) (filed
herewith)
(iii) Form of Stock Option Agreement relating to Options
between Easco, Inc. and each of Terry D. Smith, Joseph
M. Byers, James R. McKeithan and Lawrence J. Sax+ ($5.75
exercise price except for Lawrence J. Sax - $7.25
exercise price) (filed herewith)
10.5(c) Employment Agreement between Easco Corporation and
Norman E. Wells, Jr. dated as of December 20, 1996+
(filed herewith)
10.5(d) Employment Agreement between Easco Corporation and Terry
D. Smith dated as of December 20, 1996+ (filed herewith)
10.5(e) Employment Agreement between Easco Corporation and
Joseph M. Byers dated as of December 20, 1996+
(filed herewith)
10.5(f) Employment Agreement between Easco Corporation and James
R. McKeithan dated as of December 20, 1996+ (filed
herewith)
10.5(g) Employment Agreement between Easco Corporation and
Lawrence J. Sax dated as of December 30, 1996+ (filed
herewith)
10.8* Easco Corporation Supplemental Executive Welfare Benefit
Plan+
10.9 Easco Corporation Supplemental Executive Retirement Plan
as amended effective 1996+ (filed herewith)
10.10* Easco Corporation Retirement Plan for Corporate Vice
Presidents and Other Selected Executives+
10.11 Employment and Separation Agreement between Easco
Corporation and Frank L. Rich+ (Incorporated by
reference to corresponding exhibit filed as an exhibit
to Form 10-Q filed August 12, 1996) (SEC file number
0-25834)
10.12 Consulting Agreement between Easco Corporation and Frank
L. Rich+ (Incorporated by reference to corresponding
exhibit filed as an exhibit to Form 10-Q filed August
12, 1996.) (SEC file number 0-25834)
20
<PAGE> 21
10.13 General Release and Severance Agreement between Easco,
Inc. and Michael M. Hagerty, dated December 11, 1996+
(filed herewith)
12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges (filed herewith)
13.1 1996 Annual Report to Stockholders (filed herewith)
Only those portions of such Annual Report which are
expressly incorporated by reference in this Annual
Report on Form 10-K are deemed "filed" as part of this
Annual Report on Form 10-K.
15.1 Consent of Deloitte & Touche LLP (filed herewith)
21.1* Subsidiaries of Easco, Inc.
* Incorporated by reference to corresponding exhibit filed as an
exhibit to the Company's Registration Statement on Form S-1 dated
February 15, 1995, as amended by Amendment No. 1 thereto filed
March 22, 1995, Amendment No. 2 filed March 28, 1995, and
Amendment No. 3 filed April 12, 1995 (Registration Statement
Number 33-89556).
** Incorporated by reference to corresponding exhibit filed as an
exhibit to Form 10-Q filed May 15, 1995.
*** Incorporated by reference to corresponding exhibit filed as an
exhibit to Form 10-Q filed November 13, 1995.
+ Executive compensation plan or arrangement
(b) Reports on Form 8-K
A Form 8-K was filed on November 27, 1996 to announce a management
reorganization.
21
<PAGE> 22
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, on the 28th day of March
1997.
EASCO, INC.
By: /s/ NORMAN E. WELLS, JR.
------------------------------------
Norman E. Wells, Jr., 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 indicated on the 28th day of March 1997.
PRINCIPAL EXECUTIVE OFFICER (AND DIRECTOR) DIRECTORS
<TABLE>
<CAPTION>
<S> <S>
/s/ NORMAN E. WELLS, JR. /s/ ROBERT CIZIK
- --------------------------------------------------- --------------------------------------------------
<C> <C>
Norman E. Wells, Jr., President and Robert Cizik
Chief Executive Officer
/s/ TOM H. BARRETT
--------------------------------------------------
PRINCIPAL ACCOUNTING OFFICER AND Tom H. Barrett
PRINCIPAL FINANCIAL OFFICER
/s/ TERRY D. SMITH /s/ W. RICHARD BINGHAM
- --------------------------------------------------- --------------------------------------------------
Terry D. Smith, Executive Vice President W. Richard Bingham
and Chief Financial Officer
/s/ ROBERT J. KLEIN
--------------------------------------------------
Robert J. Klein
/s/ LAWRENCE W. WARD, JR.
--------------------------------------------------
Lawrence W. Ward, Jr.
/s/ GENE E. LITTLE
--------------------------------------------------
Gene E. Little
/s/ THEODORE C. ROGERS
--------------------------------------------------
Theodore C. Rogers
/s/ SAMUEL H. SMITH, JR.
--------------------------------------------------
Samuel H. Smith, Jr.
</TABLE>
22
<PAGE> 23
INDEX TO EXHIBITS
Description
-----------
Exhibit
Number Description
------ -----------
2.1* Stock Purchase Agreement dated as of January 18, 1995,
among Easco Corporation, Dolton Aluminum Company, Inc.
("Dolton") and Stockholders of Dolton
3.1(a)* Amended and Restated Certificate of Incorporation
3.1(b)*** Certificate of Correction dated June 2, 1995
3.2* By-Laws of Easco, Inc.
4.1* Form of Common Stock Certificate
4.2* Indenture dated March 18, 1994 between Easco and United
States Trust Company, as Trustee, with respect to 10%
Senior Notes due 2001
4.3(a)* Credit Agreement dated March 18, 1994 between Easco and
Bank of America (formerly Continental Bank)
4.3(b)* First Amendment to Credit Agreement dated January 31,
1995
4.3(c) Second Amendment to Credit Agreement dated February 18,
1997 (filed herewith)
4.4* Information and Registration Rights Agreement dated as
of May 15, 1992
10.1** Amended and Restated Services Agreement for general
management, financial and other services between Easco
and American Industrial Partners Management Company,
Inc.
10.3(a)* Option Agreement for the right to purchase stock of
Easco, Inc. between Easco, Inc. and Citicorp Venture
Capital
10.3(b)* Amendment to Option Agreement dated as of April 12, 1995
10.5(a) Easco, Inc. Stock Option Plan dated December 17, 1993,
as amended effective November 24, 1996+ (filed herewith)
10.5(b)(i) Form of Stock Option Agreement between Easco, Inc. and
each of Norman E. Wells, Jr., Terry D. Smith, Joseph M.
Byers, Lawrence J. Sax and James R. McKeithan+
($3.00 exercise price) (filed herewith) page
(ii) Form of Stock Option Agreement relating to Options
between Easco, Inc. and each of Norman E. Wells, Jr.,
Terry D. Smith, Joseph M. Byers, Lawrence J. Sax and
James R. McKeithan+ ($6.00 exercise price) (filed
herewith) page
23
<PAGE> 24
(iii) Form of Stock Option Agreement relating to Options
between Easco, Inc. and each of Terry D. Smith, Joseph
M. Byers, James R. McKeithan and Lawrence J. Sax+ ($8.75
exercise price except for Lawrence J. Sax - $7.25
exercise price) (filed herewith) page
10.5(c) Employment Agreement between Easco Corporation and
Norman E. Wells, Jr. dated as of December 20, 1996+
(filed herewith) page
10.5(d) Employment Agreement between Easco Corporation and Terry
D. Smith dated as of December 20, 1996+ (filed herewith)
page
10.5(e) Employment Agreement between Easco Corporation and
Joseph M. Byers dated as of December 20, 1996+ (filed
herewith) page
10.5(f) Employment Agreement between Easco Corporation and
James R. McKeithan dated as of December 20, 1996+
(filed herewith) page
10.5(g) Employment Agreement between Easco Corporation and
Lawrence J. Sax dated as of December 30, 1996+ (filed
herewith) page
10.8* Easco Corporation Supplemental Executive Welfare Benefit
Plan+
10.9 Easco Corporation Supplemental Executive Retirement Plan
as amended effective 1996+ (filed herewith) page
10.10* Easco Corporation Retirement Plan for Corporate Vice
Presidents and Other Selected Executives+
10.11 Employment and Separation Agreement between Easco
Corporation and Frank L. Rich+ (Incorporated by
reference to corresponding exhibit filed as an exhibit
to Form 10-Q filed August 12, 1996) (SEC file number
0-25834)
10.12 Consulting Agreement between Easco Corporation and
Frank L. Rich+ (Incorporated by reference to
corresponding exhibit filed as an exhibit to Form
10-Q filed August 12, 1996.) (SEC file number 0-25834)
10.13 General Release and Severance Agreement between Easco,
Inc. and Michael M. Hagerty, dated December 11, 1996+
(filed herewith) page
12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges (filed herewith) page
13.1 1996 Annual Report to Stockholders (filed herewith)
follows page Only those portions of such Annual Report
which are expressly incorporated by reference in this
Annual Report on Form 10-K are deemed "filed" as part of
this Annual Report on Form 10-K.
15.1 Consent of Deloitte & Touche LLP (filed herewith)
21.1* Subsidiaries of Easco, Inc.
27 Financial Data Schedule
* Incorporated by reference to corresponding exhibit filed as an
exhibit to the Company's Registration Statement on Form S-1 dated
February 15, 1995, as amended by Amendment
24
<PAGE> 25
No. 1 thereto filed March 22, 1995, Amendment No. 2 filed March
28, 1995, and Amendment No. 3 filed April 12, 1995 (Registration
Statement Number 33-89556).
** Incorporated by reference to corresponding exhibit filed as an
exhibit to Form 10-Q filed May 15, 1995.
*** Incorporated by reference to corresponding exhibit filed as an
exhibit to Form 10-Q filed November 13, 1995.
+ Executive compensation plan or arrangement
25
<PAGE> 1
Exhibit 4.3(c)
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT"), dated as
of February 18, 1997, is entered into among EASCO CORPORATION ("BORROWER"), the
various financial institutions which are parties hereto ("LENDERS") and BANK OF
AMERICA ILLINOIS, as agent ("AGENT"),
W I T N E S S E T H:
WHEREAS, Borrower, Lenders and Agent are parties to a Credit Agreement
dated as of March 18, 1994 as amended and modified by a First Amendment dated as
of January 31, 1995, (the "CREDIT AGREEMENT"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement in
certain respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. Terms defined in the Credit Agreement and not
otherwise defined herein are used herein as therein defined.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT.
The Credit Agreement is amended as follows:
SECTION 2.1. AMENDMENT OF SECTION 2.1.2. Section 2.1.2(i) is amended by deleting
"$55,000,000" and substituting "$40,000,000 (provided, however, that such amount
shall be reduced to $30,000,000 during any period when the Borrower is not in
full compliance with the financial covenants in Sections 8.24 (a), (b) and (c),
as such covenants existed prior to February 18, 1997)" in place thereof.
SECTION 2.2. AMENDMENT OF SECTION 8.2.4(a). Section 8.2.4(a) is amended by
adding the following proviso at the end thereof:
"Notwithstanding the foregoing, the Fixed Charge Coverage Ratio shall not be
applicable during the period from the fourth Fiscal Quarter, 1996 through the
last day of the third Fiscal Quarter, 1997."
SECTION 2.3. AMENDMENT OF SECTION 8.2.4(b). Section 8.2.4(b) is amended by
adding the following to the end thereof:
"Notwithstanding the foregoing, the Consolidated Leverage Ratio shall
<PAGE> 2
not be applicable during the period from the fourth Fiscal Quarter, 1996
through the last day of the third Fiscal Quarter, 1997."
SECTION 2.4. AMENDMENT OF SECTION 8.2.5. Section 8.2.5 is amended by adding the
following to the end thereof:
"Notwithstanding the foregoing, throughout the Fiscal year of 1997, additional
investments or acquisitions made after February 1, 1997 in the aggregate in
excess of $5,000,000 shall be permitted only upon the prior consent of the
Required Lenders."
SECTION 2.5. ADDITION OF NEW SECTION 8.1.13. A new Section 8.1.13 is added to
the Credit Agreement as follows:
"SECTION 8.1.13 MINIMUM CONSOLIDATED EBITDA. The Borrower will maintain a
cumulative Consolidated EBITDA with respect to the cumulative periods of its
1997 Fiscal Year of at least $3,900,000 through the last day of the first Fiscal
Quarter, 1997; $10,900,000 through the last day of the second Fiscal Quarter,
1997 and $17,500,000 through the last day of the third Fiscal Quarter, 1997."
SECTION 2.6. AMENDMENT TO DEFINITIONS. The definition of "Borrowing Base" in
Schedule I to the Credit Agreement is hereby amended by deleting "80%" and
substituting "70%" in place thereof and by further deleting "60%" and
substituting "50%" in place thereof.
SECTION 2.7. AMENDMENT TO DEFINITION OF NON-USE FEE PERCENTAGE. The definition
of "Non-Use Fee Percentage" in Schedule I to the Credit Agreement is hereby
amended by deleting the percentages in the columns entitled "Non-Use Fee
Percentage" and substituting the following in place thereof:
"Non-Use Fee Percentage
.500%
.500%
.375%
.250%
.250%"
SECTION 2.8. AMENDMENT TO DEFINITION OF APPLICABLE MARGIN. The following is
added to the end of the table referenced in the definition of "Applicable
Margin" in Schedule I of the Credit Agreement:
"Notwithstanding the foregoing, the following pricing
<PAGE> 3
grid shall be effective throughout 1997:
<TABLE>
<CAPTION>
Consolidated Leverage Ratio Applicable Margin
Base Letter of
Greater Less than OR Rate Eurodollar Credit Face
Level Than Equal to Loans Loans Amount Fee
----- ----------- ------------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C>
I 5.0 to 1.0 0.625% 1.875% 1.875%
II 4.0 to 1.0 5.0 to 1.0 0.375% 1.625% 1.625%
III 3.0 to 1.0 4.0 to 1.0 0.125% 1.375% 1.375%
IV 2.0 to 1.0 3.0 to 1.0 0.00% 1.125% 1.125%
V 2.0 to 1.0 0.00% 0.875% 0.875%
</TABLE>
SECTION 3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Agent and Lenders, as of the date of the actual execution of this
Amendment, that:
3.1. DUE AUTHORIZATION, ETC. The execution and delivery by it of this
Amendment and the Replacement Note and the performance by it of its obligations
under the Credit Agreement, and the Replacement Note are duly authorized by all
necessary corporate action, do not require any filing or registration with or
approval or consent of any governmental agency or authority, do not and will not
conflict with, result in any violation of or constitute any default under any
provision of its Organic Documents or the Organic Documents of any of its
Subsidiaries or any material agreement or other document binding upon or
applicable to it or any of its Subsidiaries (or any of their respective
properties) or any material law or governmental regulation or court decree or
order applicable to it or any of its Subsidiaries, and will not result in or
require the creation or imposition of any Lien on nay of its properties or the
properties of any of its Subsidiaries pursuant to the provisions of any
agreement binding upon or applicable to it or any of its Subsidiaries.
3.2. VALIDITY. This Amendment and the Replacement Note have been duly
executed and delivered by Borrower and, together with the Credit Agreement (as
amended hereby), are legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance
<PAGE> 4
with their respective terms subject, as to enforcement only, to bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforceability of the rights of creditors generally and by general principles
of equity (regardless of whether enforcement is sought in a proceeding at
equity or law).
3.3. NO DEFAULT; REPRESENTATIONS AND WARRANTIES. After giving effect to
the Amendment as set forth herein, (A) No Event of Default or Default has
occurred and is continuing and (B) the representations and warranties contained
in Article VII of the Credit Agreement are true and correct, except to the
extent (a) that such representations and warranties solely relate to an earlier
date or (b) changed by circumstances permitted by the Credit Agreement.
SECTION 4. CONDITIONS PRECEDENT. The amendments to the Credit Agreement set
forth in Section 2 of this Amendment shall become effective as follows:
4.1. CONDITIONS. The amendments contained in Sections 2.1 and 2.3 of this
Amendment shall become effective on such date when all of the following
conditions precedent shall have been satisfied:
(a) RECEIPT OF DOCUMENTS. Agent shall have received all of the
following, each in form and substance satisfactory to Agent:
(i) AMENDMENT. A counterpart original of this Amendment duly
executed by Borrower;
(ii) RESOLUTIONS, ETC. A certificate of the secretary or an
assistant secretary of Borrower dated the date of the execution of
this Amendment or such other date as shall be acceptable to Agent;
(iii) AMENDMENT FEE. Evidence of payment from the Borrower to the
Agent of the amendment fee for the account of each Lender, such fee to
be equal to 0.10% of the amount of such Lender's Commitment (as of the
date of this Amendment, after giving effect hereto) and to be
distributed by the Agent to each Lender upon the effectiveness of this
Amendment; and
(iv) OTHER. Such other documents as Agent may reasonably request.
(b) NO DEFAULT. No Event of Default or Default shall have occurred and
be continuing, after giving effect to this Amendment.
<PAGE> 5
SECTION 5. MISCELLANEOUS.
5.1. DOCUMENTS REMAIN IN EFFECT. Except as amended and modified by this
Amendment, the Credit Agreement and the other Credit Documents, including but
not limited to the Security Agreement, remain in full force and effect and
Borrower hereby ratifies, adopts and confirms its representations, warranties,
agreements and covenants contained in, and obligations and liabilities under,
the Credit Agreement and the other Credit Documents, including but not limited
to the Security Agreement.
5.2. REFERENCE TO CREDIT AGREEMENT. On and after the Effective Date,
each reference in the Credit Agreement to "this Agreement," "hereunder,"
"herein" or words of like import, and each reference to the "Credit Agreement"
in the Replacement Note and in any Credit Document, or other agreements,
documents or other instruments executed and delivered pursuant to the Credit
Agreement, shall mean and be a reference to the Credit Agreement, as amended
herein.
5.3. HEADINGS. Headings used in this Amendment are for convenience of
reference only, and shall not affect the construction of this Amendment.
5.4. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment. One or more executed counterparts of this Amendment or any
document or instrument related hereto may be delivered by telecopier, with the
intention that they shall have the same effect as an original executed
counterpart hereof or thereof. Any party hereto delivering an executed
counterpart of this Amendment or any related document or instrument by
telecopier shall promptly provide an original of such counterpart to Agent.
5.5. EXPENSES. Borrower agrees to pay on demand all costs and expenses
of Agent (including reasonable fees, charges and disbursements of Agent's
attorneys) in connection with the preparation, negotiation, execution, delivery
and administration of this Amendment and all other instruments or documents
provided for herein or delivered or to be delivered hereunder or in connection
herewith. In addition, Borrower agrees to pay, and save Agent and Lenders
harmless from all liability for, any stamp or other taxes
<PAGE> 6
which may be payable in connection with the execution or delivery of this
Amendment, the borrowings under the Credit Agreement, and the execution and
delivery of any instruments or documents provided for herein or delivered or to
be delivered hereunder or in connection herewith. All obligations provided in
this Section 5.5 shall survive any termination of this Amendment or the Credit
Agreement.
5.6. GOVERNING LAW. THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO ITS
PRINCIPLES OF CONFLICTS OF LAW. Wherever possible each provision of this
Amendment shall be interpreted in such manner as to be effective and valid under
applicable laws, but if any provision of this Amendment shall be prohibited by
or invalid under such laws, such provisions shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Amendment.
5.7. SUCCESSORS. This Amendment shall be binding upon Borrower,
Lenders, Agent and their respective permitted successors and assigns, and shall
inure to the benefit of Borrower, Lenders, Agent and their respective permitted
successors and assigns.
5.8. PERCENTAGE. After giving effect to the decrease in the Total
Commitment Amount in Section 2.1.1 of this Amendment, each Lender's
Commitment and Percentage shall be as shown beneath such Lender's signature
on the signature page to this Amendment.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized and delivered at
Chicago, Illinois as of the date first above written.
EASCO CORPORATION
By: /s/ Terry D. Smith
---------------------------------
Title: Executive Vice President & CFO
--------------------------------
BANK OF AMERICA ILLINOIS,
individually and as Agent
By: /s/ Lynn Stetson
---------------------------------
Title: Managing Director
--------------------------------
Commitment: $15,272,727.27
Percentage: .3818181818%
PNC BANK, N.A.
By: /s/ David Williams
---------------------------------
Title: Vice President
--------------------------------
Commitment: $13,818,181.82
Percentage: .3454545454%
NATIONAL CITY BANK
By: /s/ Michael P. McCuen
---------------------------------
Title: Vice President
--------------------------------
Commitment: $10,909,090.91
Percentage: .2727272727%
<PAGE> 1
Exhibit 10.5(a)
EASCO, INC.
Stock Option Plan
December 17, 1993
[amended as of October 10, 1994, December 15, 1995 and November 24,
1996]
<PAGE> 2
EASCO, INC.
STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
The Stock Option Plan (the "Plan") of Easco, Inc. (the
"Company") adopted by the Board of Directors and stockholders of the Company
effective December 17, 1993 and as amended as of October 10, 1994 and as of
December 15, 1995, is intended to advance the best interests of the Company by
providing executive and other key employees of the Company or any Subsidiary who
have substantial responsibility for the management and growth of the Company or
any Subsidiary (including, without limitation, Easco Corporation ("Easco")) with
additional incentives by allowing such employees to acquire an ownership
interest in the Company.
ARTICLE II
DEFINITIONS
For purposes of the Plan the following terms have the
indicated meanings:
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"COMMITTEE" means the Compensation Committee or such other
committee of the Board as the Board may designate to administer the Plan or, if
for any reason the Board has not designated such a committee, the Board. The
Committee, if other than the Board, shall be composed of two or more directors
as appointed from time to time by the Board. Notwithstanding the foregoing, the
Board of Directors shall either (i) serve as the Committee with respect to any
action affecting the grant, exercise, vesting, acceleration, payment or other
material provision of any Option granted to or held by any officer of the
Company that is subject to Section 16 of the Securities Exchange Act of 1934, as
amended, or (ii) approve any action taken by the Committee subject to approval
by the Board with respect to any such officer, before that action is effective;
PROVIDED HOWEVER, that (A) the Committee may continue in such circumstances to
be responsible for administrative matters with respect to the Plan and such
Options, (B) the Board may in its discretion delegate any responsibility for the
administration of the Plan or any Option to the Committee; and (C) any Common
Stock issued upon exercise of any Option hereunder shall be validly issued,
fully paid and non-assessable, whether the Option grant with respect thereto was
approved by the Committee, the Board or both.
<PAGE> 3
"COMMON STOCK" means the Class A Common Stock, par value $.01
per share, of the Company.
"ERISA" shall mean the Employment Retirement Income Security
Act of 1974, as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FAIR MARKET VALUE" of a share of the Company's Common Stock
as of a given date shall be: (i) the last sales price of the Company's Common
Stock on the NASDAQ National Market on the most recent day previous to such date
on which a sale occurred as reported by NASDAQ or any successor quotation
system; or (ii) if the Common Stock is not listed on the NASDAQ National Market,
the closing price of a share of such class of the Company's Common Stock on the
principal exchange on which shares of the Company's Common Stock are then
trading, if any, on the day previous to such date, or, if shares were not traded
on the day previous to such date, then on the next preceding trading day during
which a sale occurred; or (iii) if such Common Stock is not publicly traded on
an exchange and not quoted on NASDAQ or a successor quotation system, the mean
between the closing bid and asked prices for the Company's Common Stock, on the
day previous to such date, as determined in good faith by the Committee; or (iv)
if the Company's Common Stock is not publicly traded, the fair market value
established by the Committee acting in good faith.
"INCENTIVE STOCK OPTION" shall mean an Option which conforms
to the applicable provisions of Section 422 of the Code and which is designated
as an Incentive Stock Option by the Committee.
"NON-QUALIFIED OPTION" shall mean an Option which is not
designated as an Incentive Stock Option by the Committee.
"OPTIONS" is defined in Article III. An Option granted under
this Plan shall, as determined by the Committee, be a Non-Qualified Stock Option
unless designated by the Committee as an Incentive Stock Option.
"OPTIONEE" shall mean an employee to whom an Option is granted
under the Plan.
"PARTICIPANT" means any executive or other key employee of the
Company or any Subsidiary who has been selected to participate in the Plan by
the Committee.
"SALE OF THE COMPANY" means (i) a sale by one or more
stockholders in one transaction or a series of related transactions, of equity
securities representing more than fifty percent (50%) of the aggregate voting
power of shares entitled to vote in the election of directors, or (ii) a
liquidation, dissolution or other winding up of the Company.
2
<PAGE> 4
"SUBSIDIARY" means any person or entity of which the Company
or Easco owns, directly or indirectly, fifty percent (50%) or more of the
outstanding capital stock of such person or entity.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Committee. Subject to
the limitations of the Plan, the Committee shall have the sole and complete
authority to: (i) select Participants, (ii) grant stock purchase options
("Options") to Participants in such forms and amounts as it shall determine,
(iii) impose such limitations, restrictions and conditions upon such Options as
it shall deem appropriate, (iv) interpret the Plan and adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan,
(v) correct any defect or omission or reconcile any inconsistency in the Plan or
in any Option granted under the Plan and (vi) make all other determinations and
take all other actions necessary or advisable for the implementation and
administration of the Plan. The Committee's determinations on matters within its
authority shall be conclusive and binding upon the Participants, the Company and
all other persons. All expenses associated with the administration of the Plan
shall be borne by the Company.
ARTICLE IV
LIMITATION ON AGGREGATE SHARES
The number of shares of Common Stock with respect to which
Options may be granted under the Plan shall not exceed (i) in the aggregate,
775,592 shares, or (ii) with respect to Options granted to any Participant in
any fiscal year, 213,287 shares, subject in each case to adjustment in
accordance with paragraph 6.6. To the extent any Options expire unexercised or
are cancelled, terminated or forfeited in any manner without the issuance of
Common Stock thereunder, such shares shall again be available under the Plan.
The shares of Common Stock available under the Plan may consist of authorized
and unissued shares, treasury shares or a combination thereof, as the Committee
may determine.
ARTICLE V
AWARDS
5.1 GRANT OF OPTIONS. The Committee may grant Options to Participants
from time to time in accordance with this Article V. Options granted under the
Plan may be Non-Qualified Options or Incentive Stock Options within the meaning
of Section 422 of the Code or any successor provision, as specified by the
Committee; provided, however, that no
3
<PAGE> 5
Incentive Stock Option may be granted to any Participant who, at the time of
grant, owns stock of the Company (or any Subsidiary) representing more than 10%
of the total combined voting power of all classes of stock of the Company (or
such Subsidiary). The exercise price per share of Common Stock under each Option
shall be fixed by the Committee at the time of grant of the Option and may be
greater than, equal to or less than the Fair Market Value of such Common Stock
on the date of grant; PROVIDED, HOWEVER, that such exercise price shall, in the
case of any Incentive Stock Option, equal at least 100% of the Fair Market Value
of a share of Common Stock on the date of grant. The exercise price per share of
Common Stock shall be in no event be less than $5.24 per share (as adjusted
pursuant to paragraph 6.5); PROVIDED, HOWEVER, that the aggregate Fair Market
Value of the Common Stock (determined as of the date of Option grant) with
respect to which Incentive Stock Options are exercisable for the first time by
any Participant during any calendar year (under all stock option plans of the
Company and any Subsidiaries) may not exceed $100,000. Options shall be
exercisable at such time or times as the Committee shall determine; PROVIDED,
HOWEVER, that to the extent necessary for this Plan to meet the requirements of
Rule 16b-3, no option granted hereunder shall be exercisable for at least six
months (or such other period as may be specified in said Rule) after such Option
is granted. The Committee shall determine the term of each Option, which term
shall not exceed ten years from the date of grant of the Option.
5.2 MANNER OF EXERCISE. All or a portion of an exercisable Option shall
be deemed exercised upon receipt of the following to the Secretary of the
Company or the Secretary's office:
(a) A written notice signed by the Optionee (or other person
then entitled to exercise such Option or portion), stating that such Option or
portion thereof is being exercised and such notice complies with all applicable
rules established by the Committee; and
(b) Payment in full for the shares subject to such exercise:
(i) In cash or by certified or cashier's check; or
(ii) In the discretion of the Committee, in shares of
the Company's Common Stock owned by the Optionee, or by
withholding of Common Stock that would otherwise be issuable
upon exercise of the Option. Previously owned shares must be
duly endorsed for transfer to the Company and will be credited
at the Fair Market Value on the date of delivery; or
(iii) In the discretion of the Committee and the
Company, by a full recourse promissory note bearing interest
(at no less than such rate as shall then preclude the
imputation of interest under the Code or successor provision)
and payable upon such terms as may be prescribed by the
Committee. The Committee may also prescribe the form of such
note and the security to be given for such note. No Option
may, however, be exercised by delivery of a
4
<PAGE> 6
promissory note or by a loan from the Company when or where
such loan or other extension of credit is prohibited by law;
or
(iv) Any combination of the consideration provided in
the foregoing subsections (i), (ii), and (iii); or
(v) In the discretion of the Committee and to the
extent permitted by law (including then existing
interpretations of Rule 16b-3) with respect to an exercise by
an Optionee subject to Section 16 of the Exchange Act a
"cashless exercise procedure" satisfactory to the Committee
which permits the Optionee to deliver an exercise notice to a
broker-dealer, who then sells the Option shares, delivers the
exercise price and withholding taxes to the Company and
delivers the excess funds less commission and withholding
taxes to the Optionee; and
(c) Such representations and documents as the Committee, in
its absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer orders to transfer agents and registrars; and
(d) Appropriate proof of the right of such person or persons
to exercise the option or portion thereof in the event that the Option or
portion thereof shall be exercised pursuant to Section 5.1 by any person or
persons other than the Optionee; and
(e) Full payment of all amounts which, under federal, state or
local law, it is required to withhold upon exercise of the Option. In the
discretion of the Committee, (i) shares of the Company's Common Stock owned by
the Employee duly endorsed for transfer or (ii) shares of the Company's Common
Stock issuable to the Employee upon exercise of the Option, valued at their Fair
Market Value as of the date of exercise, may be used to make all or part of such
payment.
5.3 [Deleted]
5.4 GENERAL CONDITIONS AND LIMITATIONS ON EXERCISE. At the discretion
of the Committee, Options may be made exercisable, in one or more installments,
upon (i) the happening of certain events, (ii) the passage of a specified period
of time, (iii) fulfillment of certain conditions, or (iv) the achievement by the
Company or any Subsidiary of certain performance goals. In the event of a Sale
of the Company, the Committee may provide, in its discretion, that the
outstanding Options shall become immediately exercisable and that such Options
shall terminate if not exercised as of the date of the Sale of the Company or
any other designated date or that such Options shall thereafter represent only
the right to receive the excess of the consideration per share of Common Stock
offered in such Sale of the Company over the exercise price of such Options. The
Committee may make such
5
<PAGE> 7
determinations and adopt such rules and conditions as it deems appropriate to
ensure that any resulting exercise with respect to any accelerated installment
is conditioned upon the consummation of the contemplated corporate transaction.
5.5 LIMITATION ON EXERCISABILITY OF INCENTIVE STOCK OPTIONS. To the
extent that the aggregate Fair Market Value of stock with respect to which
Incentive Stock Options (within the meaning of Section 422 of the Code, but
without regard to Section 422(d) of the Code) are exercisable for the first time
by an Optionee during any calendar year (under the Plan and all other incentive
stock option plans of the Company and any subsidiary) exceeds $100,000, such
Options shall be treated as Non-Qualified Options to the extent required by
Section 422 of the Code. The rule set forth in the preceding sentence shall be
applied by taking Options into account in the order in which they were granted.
For purposes of this Section 5.5, the Fair Market Value of stock shall be
determined as of the time the Option with respect to such stock is granted.
5.6 EXPIRATION.
(A) NORMAL EXPIRATION. In no event shall any part of any
Option be exercisable after the stated date of expiration thereof.
(B) EARLY EXPIRATION UPON TERMINATION OF EMPLOYMENT. Except as
otherwise provided by the Committee at the time of grant of such Options or by
any option agreement entered into pursuant to paragraph 6.1, upon termination
for any reason of a Participant's employment by the Company and its
Subsidiaries, all Options or portions thereof held by such Participant that are
not vested and exercisable on the date of such termination shall expire and be
forfeited as of such date and all vested Options held by such Participant shall
expire to the extent not theretofore exercised on the first anniversary of the
date of such termination.
ARTICLE VI
GENERAL PROVISIONS
6.1 WRITTEN AGREEMENT. Each Option granted hereunder shall be embodied
in a written option agreement which shall be signed by the Participant to whom
the Option is granted and shall be subject to the terms and conditions set forth
herein and therein. Stock Option Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
6.2 LISTING, REGISTRATION AND LEGAL COMPLIANCE. If at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of the shares subject to Options upon any securities exchange or
under any state or federal securities or other law or regulation, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of Options or the purchase or
issuance of shares thereunder, no Options may be granted or exercised, in whole
or in
6
<PAGE> 8
part, unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee. The holders of such Options will supply the Company with such
certificates, representations and information as the Company shall request and
shall otherwise cooperate with the Company in obtaining such listing,
registration, qualification, consent or approval. In the case of officers and
other persons subject to Section 16 of the Exchange Act, the Committee may at
any time impose any limitations upon the exercise of Options that, in the
Committee's discretion, are necessary or desirable in order to comply with such
Section 16 and the rules and regulations thereunder. If the Company, as part of
an offering of securities or otherwise, finds it desirable because of federal or
state regulatory requirements to reduce the period during which any Options may
be exercised, the Committee may, in its discretion and without the Participant's
consent, so reduce such period on not less than 15 days' written notice to the
holders thereof.
6.3 NONTRANSFERABILITY. No Options, or interest under this Plan or part
thereof shall be liable for the debts, contracts or engagements of any Optionee
or their respective successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; PROVIDED, HOWEVER, that nothing in this
Section 6.3 shall prevent transfers by will or by the applicable laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
by the Code or Title I of ERISA, or the rules thereunder. If and only to the
extent transfers of Options are otherwise permitted without adversely affecting
the status of the Plan under Section 16 of the Exchange Act or the Code and
without requiring any vote of the stockholders of the Company, the Committee
may, in its discretion, provide in any Option Agreement, or authorize the
amendment of any existing Option Agreement, for such permitted transfers.
6.4 TRANSFER RESTRICTIONS. To the extent required for compliance of the
Plan with any applicable provisions of Rule 16b-3, shares acquired from exercise
of any Option under this Plan may not be sold or otherwise transferred for at
least six months (or such other period as provided in such Rule) after such
acquisition.
6.5 WITHHOLDING OF TAXES. The Company and any Subsidiary may, if
necessary or desirable, withhold from any amounts due and payable by the Company
or any Subsidiary to any Participant (or secure payment from such Participant in
lieu of withholding) the amount of any withholding or other tax due from the
Company or any Subsidiary with respect to any issuance or exercise of Options
granted under the Plan to such Participant, and the Company may defer such
issuance or exercise unless indemnified to its satisfaction against the payment
of any such amount.
6.6 ADJUSTMENTS. In the event of a reorganization, recapitalization,
stock dividend or stock split, or combination or other change in the shares of
Common Stock, the Committee may, in order to prevent the dilution or enlargement
of rights under outstanding
7
<PAGE> 9
Options, make such adjustments in the number and type of shares authorized by
the Plan, the number and type of shares covered by outstanding Options and the
exercise prices specified therein as may be determined to be appropriate and
equitable.
6.7 RIGHTS OF PARTICIPANTS. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate any
Participant's employment at any time (with or without cause), or confer upon any
Participant any right to continue in the employ of the Company or any Subsidiary
for any period of time or to continue to receive such Participant's current (or
other) rate of compensation. No employee shall have a right to be selected as a
Participant or, having been so selected, to be selected again as a Participant.
6.8 AMENDMENT, SUSPENSION AND TERMINATION OF PLAN. The Board or the
Committee may suspend or terminate the Plan or any portion thereof at any time
and may amend it from time to time in such respects as the Board or the
Committee may deem advisable; provided, however, that no such amendment shall be
made without stockholder approval to the extent such approval is required by
law, agreement or the rules of the NASD or any exchange upon which the Common
Stock is listed, and no such amendment, suspension or termination shall impair
the rights of Participants under outstanding Options without the consent of the
Participants affected thereby, except as provided below. No Options shall be
granted hereunder after December 17, 2003.
6.9 AMENDMENT AND CANCELLATION OF OUTSTANDING OPTIONS. The Committee
may amend or modify any Option in any manner to the extent that the Committee
would have had the authority under the Plan initially to grant such Option;
provided that, except as expressly contemplated elsewhere herein or in any
agreement evidencing such Option, no such amendment or modification shall impair
the rights of any Participant under any outstanding Option without the consent
of such Participant.
6.10 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or the Committee, the
members of the Committee shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any action
taken or failure to act under or in connection with the Plan or any Option
granted under the Plan, and against all amounts paid by them in settlement
thereof, and for advancement of expenses upon request of the members of the
Committee prior to disposition of any such matter (subject to any undertaking
required by law) to the full extent permitted by law.
6.11 LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND PERFORMANCE-BASED
COMPENSATION. Notwithstanding any other provision of this Plan, any Option
awarded to a key Employee who is then subject to Section 16 of the Exchange Act
shall be subject to any additional limitations set forth in any applicable
exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) that are requirements for the application of
such exemptive rule, and this Plan shall be deemed
8
<PAGE> 10
amended to the extent necessary to conform to such limitations. Furthermore,
notwithstanding any other provision of this Plan, any Option intended to qualify
as performance-based compensation as described in Section 162(m)(4)(C) of the
Code shall be subject to any additional limitations set forth in Section 162(m)
of the Code (including any amendment to Section 162(m) of the Code) or any
regulations or rulings issued thereunder that are requirements for qualification
as performance-based compensation as described in Section 162(m)(4)(C) of the
Code, and this Plan shall be deemed amended to the extent necessary to conform
to such requirements.
6.12 EFFECT OF PLAN UPON OTHER OPTION AND COMPENSATION PLANS. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company or any Subsidiary (a) to establish
any other forms of incentives or compensation for employees of the Company or
any Subsidiary or (b) to grant or assume options otherwise than under this Plan
in connection with any proper corporate purpose, including, but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.
9
<PAGE> 1
10.5(b)(i)
[Form of Grant Letter for $3.00 grants outside of Plan]
EASCO, INC.
706 South State Street
Girard, Ohio 44420
[Grant Date]
[Optionee]
[Address]
Re: Easco, Inc. - Grant of Stock Options
------------------------------------
Dear [Optionee]:
Easco, Inc. (the "Company") is pleased to advise you that you
have been granted a stock option ("Option"), as provided below.
1. DEFINITIONS. For the purposes of this Agreement, the
following terms have the indicated meanings:
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"COMMITTEE" means the Compensation Committee or such other
committee of the Board as the Board may designate to administer the Plan or, if
for any reason the Board has not designated such a committee, the Board. The
Committee, if other than the Board, shall be composed of two or more directors
as appointed from time to time by the Board. As provided in the Plan, the Board
may serve as the Committee or approve actions taken by the Committee in respect
of this Option if you are an officer subject to Section 16 of the Securities
Exchange Act of 1934, as amended.
"COMMON STOCK" means the Company's Common Stock, par value
$.01 per share, or, in the event that the outstanding Common Stock is hereafter
changed into or exchanged for different stock or securities of the Company, such
other stock or securities.
"DISABILITY" means you have a physical or mental disability
which has existed for at least six (6) months and which has continuously during
this period prevented, and can
<PAGE> 2
[Optionee]
[Grant Date]
Page 2
reasonably be expected to continue to prevent, you from fulfilling your duties
as an employee of the Company or any Subsidiary.
"SALE OF THE COMPANY" means (i) a sale by one or more
stockholders in one transaction or a series of related transactions, of equity
securities representing more than fifty percent (50%) of the aggregate voting
power of shares entitled to vote in the election of directors, or (ii) a
liquidation, dissolution or other winding up of the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and any successor statute.
"SUBSIDIARY" means any person or entity of which the Company
or Easco owns, directly or indirectly, fifty percent (50%) or more of the
outstanding capital stock of such person or entity.
"TERMINATION FOR CAUSE" means a termination of your employment
by the Company or any Subsidiary arising out of or related to (i) your personal
dishonesty, inability or unwillingness to perform duties appropriate to your
employment by the Company or any Subsidiary, willful misconduct, material
conflict of interest or material breach of fiduciary duty owed to the Company or
any Subsidiary, (ii) any material (as opposed to technical), willful violation
of any law, rule, regulation or final cease-and-desist order, or (iii) any
material breach of any provision of any agreement to which you and the Company
or any Subsidiary are parties which remains uncured for more than ten (10) days
after written notice describing such breach is given to you by the Company or
any Subsidiary.
2. OPTION TERMS.
(a) GRANT. You hereby are granted an Option to purchase up to
shares of Common Stock (the "OPTION SHARES") at a price of $3.00 per share,
subject to adjustment pursuant to paragraph 9 below (the "EXERCISE PRICE"),
payable upon exercise as set forth in paragraph 3 below. Your Option will expire
at the close of business on the tenth anniversary of the date hereof (the
"EXPIRATION DATE"), subject to earlier expiration in connection with the
termination of your employment as provided below. Your Option is not intended to
be an "incentive stock option" within the meaning of Section 422 of the Code.
(b) EXERCISABILITY/VESTING.
(i) VESTING. Your Option will be exercisable
only to the extent it has vested. Your Option will be vested in three
installments of _____ shares, ____ shares and ____ shares on the first, second
and third anniversaries of this Agreement, respectively, provided that you have
been continuously employed by the Company or a Subsidiary through such
respective vesting dates, and subject to earlier expiration in connection with
the termination of your employment as provided below. Your Option is
<PAGE> 3
[Optionee]
[Grant Date]
Page 3
subject to your commencement of full time employment with the Company on or
before December 31, 1996 and will automatically terminate if you do not commence
full time employment with the Company on or before such date. Your Option is
also subject to your entry into an employment agreement with the Company on
terms satisfactory to the Company, and shall not be exercisable to any extent,
and you shall have no rights hereunder, unless and until such agreement has been
entered into.
(ii) VESTING AND EXERCISE UPON SALE OF THE
COMPANY. In connection with any Sale of the Company, (x) your Option shall be
fully vested without regard to the vesting schedule set forth in clause (i)
above (but subject to your commencement of full-time employment and entry into
an employment agreement as provided therein) as of a date, not less than 20 days
prior to consummation of such Sale of the Company, specified in a written notice
from the Committee, and (y) the Company may provide on not less than 20 days'
notice to you that any portion of your Option which has not been exercised prior
to or in connection with the Sale of the Company will be forfeited. In lieu of
requiring such exercise, the Company may provide for the cancellation of the
exercisable portion of your Option in exchange for a payment equal to the excess
(if any) of the consideration per share of Common Stock receivable in connection
with such Sale of the Company over the Exercise Price.
(c) EXPIRATION OF OPTION. In no event shall any part
of your Option be exercisable after the Expiration Date set forth in paragraph
2(a). If you cease to be an employee of the Company or any Subsidiary as a
result of a Termination for Cause, all of your Option not previously exercised
shall expire and be forfeited upon notice by the Company of such Termination for
Cause, whether vested and exercisable or not. Unless otherwise determined by the
Committee, the portion of your Option that is not vested and exercisable on the
date of termination of your employment for any other reason shall expire and be
forfeited. The portion of your Option that is vested and exercisable on the date
of such other termination of your employment shall expire, to the extent not
theretofore exercised, upon the first to occur of the following events: (i) the
expiration of three (3) months from the date of your termination by reason of
your retirement after reaching age 59 1/2 (or earlier retirement pursuant to a
plan approved by the Company or any Subsidiary by which you are employed) or the
effective date of a termination by the Company or any Subsidiary that is not a
Termination for Cause; (ii) the expiration of one year from the date of your
termination by reason of your death; (iii) the expiration of one year from the
date of your termination by reason of Disability; or (iv) the effective date of
your termination of employment, for any reason not stated above (including
voluntary resignation).
3. PROCEDURE FOR EXERCISE. You may exercise all or any portion
of your Option to the extent permitted hereby, at any time and from time to time
by delivering written notice to the Company (to the attention of the Company's
Secretary) accompanied by payment in full of an amount equal to the product of
(i) the Exercise Price multiplied by (ii) the number of Option Shares to be
acquired. Payment of the Exercise Price shall be made in
<PAGE> 4
[Optionee]
[Grant Date]
Page 4
(i) cash or by certified or cashier's check; (ii) in the discretion of the
Committee, in shares of the Company's Common Stock that you own (these shares
must be duly endorsed for transfer to the Company and will be credited at the
Fair Market Value on the date of delivery) or that would otherwise be issuable
upon exercise of this Option; (iii) in the discretion of the Committee, by
delivery of a full recourse promissory note bearing interest at a rate not less
than the applicable federal rate determined pursuant to Section 1274 of the Code
as of the date of exercise or by delivery of shares of Common Stock, or
withholding of shares of Common Stock otherwise issuable upon exercise of this
Option (in each case, valued at their Fair Market Value); or (iv) any
combination of the consideration described in sections (i), (ii) or (iii), or
(v) in the discretion of the Committee, in a "cashless exercise procedure"
whereby, satisfactory to the Committee which permits the Optionee to deliver an
exercise notice to a broker-dealer, who then sells the Option shares, delivers
the exercise price and withholding taxes to the Company and delivers the excess
funds less commission and withholding taxes to the Optionee. In addition, you
will permit the Company to deliver to you all financial and other information
regarding the Company that the Company reasonably considers necessary or that
you reasonably request to enable you to make an informed investment decision,
and you will make all customary investment representations which the Company
requires.
4. OPTION NOT TRANSFERABLE. Your Option is personal to you and
is not transferable by you other than by will of the laws of descent and
distribution or pursuant to a qualified domestic relations order, unless
otherwise approved by the Board of Directors of the Company. During your
lifetime only you (or your guardian or legal representative) may exercise your
Option. In the event of your death, your Option may be exercised only by the
executor or administrator of your estate or the persons to whom your rights
under the Option shall pass by will or the laws of descent and distribution.
5. RIGHTS OF PARTICIPANTS. Nothing in this Agreement shall
interfere with or limit in any way the right of the Company or any Subsidiary
(including Easco) to terminate your employment at any time (whether or not a
Termination for Cause), or confer upon you any right to continue in the employ
of the Company or any Subsidiary for any period of time or to continue to
receive your current (or other) rate of compensation.
6. WITHHOLDING OF TAXES. The Company and any Subsidiary may,
if necessary or desirable, withhold from any amounts due and payable by the
Company or any Subsidiary to you (or secure payment from you in lieu of
withholding) the amount of any withholding or other tax due from the Company or
any Subsidiary with respect to the issuance or exercise of your Option, and the
Company may defer such issuance or exercise unless indemnified by you to its
satisfaction against the payment of any such amount. In the discretion of the
Committee, such withholding obligation may be satisfied by (i) delivery of
shares of Common Stock you own, or (ii) the withholding of shares of Common
Stock otherwise issuable to you upon exercise of this Option (in each case,
valued at Fair Market Value).
<PAGE> 5
[Optionee]
[Grant Date]
Page 5
7. ADJUSTMENTS. In the event of a reorganization,
recapitalization, stock dividend or stock split, or combination or other change
in the shares of Common Stock, the Committee may, in order to prevent the
dilution or enlargement of rights under your Option, make such adjustments in
the number and type of shares covered by your Option and the Exercise Price
specified herein as may be determined to be appropriate and equitable.
8. CONFIDENTIAL INFORMATION. Optionee understands that any
financial statements and other information concerning the Company or any of its
Subsidiaries (including, without limitation, financial, production, cost,
pricing and sales information) received by Optionee from, or in connection with
Optionee's employment by, the Company or any Subsidiary with respect to the
exercise of the Option, as a stockholder of the Option Shares or otherwise, is
non-public, confidential and/or proprietary information (the "Confidential
Information"), except to the extent that such information has been publicly
disclosed by or on behalf of the Company or any Subsidiary, or was made or
becomes available to the Optionee on a non-confidential basis from a source
other than the Company. Optionee agrees that all information so received by the
Optionee will be treated as Confidential Information and will be kept
confidential by the Optionee and the Optionee's legal and financial advisors (if
any). Optionee agrees not to disclose Confidential Information to any person or
entity (including, without limitation, any competitor of the Company or any
Subsidiary) other than Optionee's legal and financial advisors (if any), to
inform such advisors of the confidential nature of the Confidential Information
and to direct such advisors not to disclose such information to any person or
entity, and to be responsible to the Company for any breach of the terms of this
paragraph by the Optionee or any person or entity to whom the Optionee discloses
Confidential Information. If the Optionee is legally required (by subpoena or
other legal process) to disclose any Confidential Information, Optionee will
provide the Company with prompt notice thereof so that the Company may seek a
protective order or other appropriate remedy.
9. ADMINISTRATION. This Option shall be administered by the
Compensation Committee of the Board or, in the discretion of the Board, by the
Board, and all determinations with respect to this Option made by the
Compensation Committee or the Board (including, without limitation, whether a
termination is a Termination for Cause) shall be binding on the Optionee and the
Company.
10. GOVERNING LAW. The corporate law of Delaware will govern
all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement will be governed by the internal law, and not
the law of conflicts, of California.
11. NOTICES. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally or mailed by certified or registered mail, return receipt requested
and postage prepaid, to the recipient. Such notices, demands
<PAGE> 6
[Optionee]
[Grant Date]
Page 6
and other communications shall be sent to you and to the Company at the
addresses indicated below:
(a) If to the Optionee:
[Optionee & address]
(b) If to the Company:
Easco, Inc.
706 South State Street
Girard, Ohio 44420
Attention: Secretary
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Please execute the extra copy of this Agreement in the space
below and return it to the Company's Secretary at its executive offices to
confirm your understanding and acceptance of the agreements contained in this
Agreement.
Very truly yours,
EASCO, INC.
By:
----------------------------
Chairman of the Board of Directors
Enclosures: Extra copy of this Agreement
The undersigned hereby acknowledges that he or she has read the Agreement and
hereby agrees to be bound by all provisions set forth herein and therein.
Dated as of ________ __, 1996
- ----------------------------------
Optionee
<PAGE> 1
Exhibit 10.5(b)(ii)
[Form of Grant Letter for $6.00 grants under Plan]
EASCO, INC.
706 South State Street
Girard, Ohio 44420
[Grant Date]
[Optionee]
[Address]
Re: Easco, Inc. - Grant of Stock Options
------------------------------------
Dear [Optionee]:
Easco, Inc. (the "Company") is pleased to advise you that you
have been granted a stock option ("Option") under the Easco, Inc. Stock Option
Plan, as amended (the "Plan") (a copy of which is attached hereto) established
by the Company for officers and key employees of the Company and its
Subsidiaries, including Easco Corporation ("Easco"), as provided below.
1. DEFINITIONS. For the purposes of this Agreement, the
following terms have the indicated meanings:
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"COMMITTEE" means the Compensation Committee or such other
committee of the Board as the Board may designate to administer the Plan or, if
for any reason the Board has not designated such a committee or otherwise
determines, the Board. The Committee, if other than the Board, shall be composed
of two or more directors as appointed from time to time by the Board. As
provided in the Plan, the Board may serve as the Committee or approve actions
taken by the Committee in respect of this Option if you are an officer subject
to Section 16 of the Securities Exchange Act of 1934, as amended.
"COMMON STOCK" means the Company's Common Stock, par value
$.01 per share, or, in the event that the outstanding Common Stock is hereafter
changed into or exchanged for different stock or securities of the Company, such
other stock or securities.
<PAGE> 2
[Optionee]
[Grant Date]
Page 2
"DISABILITY" means you have a physical or mental disability
which has existed for at least six (6) months and which has continuously during
this period prevented, and can reasonably be expected to continue to prevent,
you from fulfilling your duties as an employee of the Company or any Subsidiary.
"FAIR MARKET VALUE" shall have the meaning as defined in the
Plan.
"SALE OF THE COMPANY" means (i) a sale by one or more
stockholders in one transaction or a series of related transactions, of equity
securities representing more than fifty percent (50%) of the aggregate voting
power of shares entitled to vote in the election of directors, or (ii) a
liquidation, dissolution or other winding up of the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and any successor statute.
"SUBSIDIARY" means any person or entity of which the Company
or Easco owns, directly or indirectly, fifty percent (50%) or more of the
outstanding capital stock of such person or entity.
"TERMINATION FOR CAUSE" means a termination of your employment
by the Company or any Subsidiary arising out of or related to (i) your personal
dishonesty, inability or unwillingness to perform duties appropriate to your
employment by the Company or any Subsidiary, willful misconduct, material
conflict of interest or material breach of fiduciary duty owed to the Company or
any Subsidiary, (ii) any material (as opposed to technical), willful violation
of any law, rule, regulation or final cease-and-desist order, or (iii) any
material breach of any provision of any agreement to which you and the Company
or any Subsidiary are parties which remains uncured for more than ten (10) days
after written notice describing such breach is given to you by the Company or
any Subsidiary.
2. OPTION TERMS.
(a) GRANT. You hereby are granted an Option to
purchase up to shares of Common Stock (the "OPTION SHARES") at a price of $6.00
per share, subject to adjustment pursuant to paragraph 9 below (the "EXERCISE
PRICE"), payable upon exercise as set forth in paragraph 3 below. Your Option
will expire at the close of business on the tenth anniversary of the date hereof
(the "EXPIRATION DATE"), subject to earlier expiration in connection with the
termination of your employment as provided below. Your Option is not intended to
be an "incentive stock option" within the meaning of Section 422 of the Code.
<PAGE> 3
[Optionee]
[Grant Date]
Page 3
(b) EXERCISABILITY/VESTING.
(i) VESTING. Your Option will be exercisable
only to the extent it has vested. Your Option will be vested in three
installments of _____ shares, ____ shares and ____ shares on the first, second
and third anniversaries of this Agreement, respectively, provided that you have
been continuously employed by the Company or a Subsidiary through such
respective vesting dates, and subject to earlier expiration in connection with
the termination of your employment as provided below. Your Option is subject to
your commencement of full time employment with the Company on or before December
31, 1996 and will automatically terminate if you do not commence full time
employment with the Company on or before such date. Your Option is subject to
your entry into an employment agreement with the Company on satisfactory terms,
and shall not be exercisable to any extent, and you shall have no rights
hereunder, unless and until such agreement has been entered into.
(ii) VESTING AND EXERCISE UPON SALE OF THE
COMPANY. In connection with any Sale of the Company, (x) your Option shall be
fully vested without regard to the vesting schedule set forth in clause (i)
above (but subject to Board approval and your commencement of full-time
employment and entry into an employment agreement as provided therein) as of a
date, not less than 20 days prior to consummation of such Saleo of the Company,
specified in a written notice from the Committee, and (y) the Company may
provide on not less than 20 days' notice to you that any portion of your Option
which has not been exercised prior to or in connection with the Sale of the
Company will be forfeited. In lieu of requiring such exercise, the Company may
provide for the cancellation of the exercisable portion of your Option in
exchange for a payment equal to the excess (if any) of the consideration per
share of Common Stock receivable in connection with such Sale of the Company
over the Exercise Price.
(c) EXPIRATION OF OPTION. In no event shall any part
of your Option be exercisable after the Expiration Date set forth in paragraph
2(a). If you cease to be an employee of the Company or any Subsidiary as a
result of a Termination for Cause, all of your Option not previously exercised
shall expire and be forfeited upon notice by the Company of such Termination for
Cause, whether vested and exercisable or not. Unless otherwise determined by the
Committee, the portion of your Option that is not vested and exercisable on the
date of termination of your employment for any other reason shall expire and be
forfeited. The portion of your Option that is vested and exercisable on the date
of such other termination of your employment shall expire, to the extent not
theretofore exercised, upon the first to occur of the following events: (i) the
expiration of three (3) months from the date of your termination by reason of
your retirement after reaching age 59 1/2 (or earlier retirement pursuant to a
plan approved by the Company or any Subsidiary by which you are employed) or the
effective date of a termination by the Company or any Subsidiary that is not a
Termination for Cause; (ii) the expiration of one year from the date of your
termination by reason of your death; (iii) the expiration of one year from the
date of
<PAGE> 4
[Optionee]
[Grant Date]
Page 4
your termination by reason of Disability; or (iv) the effective date of your
termination of employment, for any reason not stated above (including voluntary
resignation).
3. PROCEDURE FOR EXERCISE. You may exercise all or any portion
of your Option to the extent permitted hereby, at any time and from time to time
by delivering written notice to the Company (to the attention of the Company's
Secretary) accompanied by payment in full of an amount equal to the product of
(i) the Exercise Price multiplied by (ii) the number of Option Shares to be
acquired. Payment of the Exercise Price shall be made in (i) cash or by
certified or cashier's check; (ii) in the discretion of the Committee, in shares
of the Company's Common Stock that you own (these shares must be duly endorsed
for transfer to the Company and will be credited at the Fair Market Value on the
date of delivery) or that would otherwise be issuable upon exercise of this
Option; (iii) in the discretion of the Committee, by delivery of a full recourse
promissory note bearing interest at a rate not less than the applicable federal
rate determined pursuant to Section 1274 of the Code as of the date of exercise
or by delivery of shares of Common Stock (valued at their Fair Market Value); or
(iv) any combination of the consideration described in sections (i), (ii) or
(iii), or (v) in the discretion of the Committee, in a "cashless exercise
procedure" satisfactory to the Committee which permits the Optionee to deliver
an exercise notice to a broker-dealer, who then sells the Option shares,
delivers the exercise price and withholding taxes to the Company and delivers
the excess funds less commission and withholding taxes to the Optionee. In
addition, you will permit the Company to deliver to you all financial and other
information regarding the Company that the Company reasonably considers
necessary or that you reasonably request to enable you to make an informed
investment decision, and you will make all customary investment representations
which the Company requires.
4. OPTION NOT TRANSFERABLE. Your Option is personal to you and
is not transferable by you other than by will of the laws of descent and
distribution or pursuant to a qualified domestic relations order, unless
otherwise approved by the Board of Directors of the Company. During your
lifetime only you (or your guardian or legal representative) may exercise your
Option. In the event of your death, your Option may be exercised only by the
executor or administrator of your estate or the persons to whom your rights
under the Option shall pass by will or the laws of descent and distribution.
5. CONFORMITY WITH PLAN. Your Option is intended to conform in
all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. By executing and returning the enclosed copy of this Agreement, you
acknowledge your receipt of this Agreement and the Plan and agree to be bound by
all of the terms of this Agreement and the Plan.
6. RIGHTS OF PARTICIPANTS. Nothing in this Agreement shall
interfere with or limit in any way the right of the Company or any Subsidiary
(including Easco) to terminate your employment at any time (whether or not a
Termination for Cause), or confer
<PAGE> 5
[Optionee]
[Grant Date]
Page 5
upon you any right to continue in the employ of the Company or any Subsidiary
for any period of time or to continue to receive your current (or other) rate of
compensation. Nothing in this Agreement shall confer upon you any right to be
selected again as a Plan participant.
7. WITHHOLDING OF TAXES. The Company and any Subsidiary may,
if necessary or desirable, withhold from any amounts due and payable by the
Company or any Subsidiary to you (or secure payment from you in lieu of
withholding) the amount of any withholding or other tax due from the Company or
any Subsidiary with respect to the issuance or exercise of your Option, and the
Company may defer such issuance or exercise unless indemnified by you to its
satisfaction against the payment of any such amount. In the discretion of the
Committee, such withholding obligation may be satisfied by (i) delivery of
shares of Common Stock you own, or (ii) the withholding of shares of Common
Stock otherwise issuable to you upon exercise of this Option (in each case,
valued at Fair Market Value).
8. ADJUSTMENTS. In the event of a reorganization,
recapitalization, stock dividend or stock split, or combination or other change
in the shares of Common Stock, the Committee may, in order to prevent the
dilution or enlargement of rights under your Option, make such adjustments in
the number and type of shares authorized by the Plan, the number and type of
shares covered by your Option and the Exercise Price specified herein as may be
determined to be appropriate and equitable.
9. CONFIDENTIAL INFORMATION. Optionee understands that any
financial statements and other information concerning the Company or any of its
Subsidiaries (including, without limitation, financial, production, cost,
pricing and sales information) received by Optionee from, or in connection with
Optionee's employment by, the Company or any Subsidiary with respect to the
exercise of the Option, as a stockholder of the Option Shares or otherwise, is
non-public, confidential and/or proprietary information (the "Confidential
Information"), except to the extent that such information has been publicly
disclosed by or on behalf of the Company or any Subsidiary, or was made or
becomes available to the Optionee on a non-confidential basis from a source
other than the Company. Optionee agrees that all information so received by the
Optionee will be treated as Confidential Information and will be kept
confidential by the Optionee and the Optionee's legal and financial advisors (if
any). Optionee agrees not to disclose Confidential Information to any person or
entity (including, without limitation, any competitor of the Company or any
Subsidiary) other than Optionee's legal and financial advisors (if any), to
inform such advisors of the confidential nature of the Confidential Information
and to direct such advisors not to disclose such information to any person or
entity, and to be responsible to the Company for any breach of the terms of this
paragraph by the Optionee or any person or entity to whom the Optionee discloses
Confidential Information. If the Optionee is legally required (by subpoena or
other legal process) to disclose any Confidential Information,
<PAGE> 6
[Optionee]
[Grant Date]
Page 6
Optionee will provide the Company with prompt notice thereof so that the Company
may seek a protective order or other appropriate remedy.
10. GOVERNING LAW. The corporate law of Delaware will govern
all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement will be governed by the internal law, and not
the law of conflicts, of California.
11. NOTICES. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally or mailed by certified or registered mail, return receipt requested
and postage prepaid, to the recipient. Such notices, demands and other
communications shall be sent to you and to the Company at the addresses
indicated below:
(a) If to the Optionee:
[Optionee & address]
(b) If to the Company:
Easco, Inc.
706 South State Street
Girard, Ohio 44420
Attention: Secretary
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
<PAGE> 7
[Optionee]
[Grant Date]
Page 7
Please execute the extra copy of this Agreement in the space
below and return it to the Company's Secretary at its executive offices to
confirm your understanding and acceptance of the agreements contained in this
Agreement.
Very truly yours,
EASCO, INC.
By:
-----------------------
Chairman of the Board of Directors
Enclosures: 1. Extra copy of this Agreement
2. Copy of the Plan
The undersigned hereby acknowledges that he or she has read the Agreement and
the Plan and hereby agrees to be bound by all provisions set forth herein and
therein.
Dated as of ________ __, 1996
- ----------------------------------
Participant
<PAGE> 1
Exhibit 10.5(b)(iii)
[Form of Grant Letter for $5.75 and $7.25 grants under Plan]
EASCO, INC.
706 South State Street
Girard, Ohio 44420
[Grant Date]
[Optionee]
[Address]
Re: Easco, Inc. - Grant of Stock Options
------------------------------------
Dear [Optionee]:
Easco, Inc. (the "Company") is pleased to advise you that you
have been granted a stock option ("Option") under the Easco, Inc. Stock Option
Plan, as amended (the "Plan") (a copy of which is attached hereto) established
by the Company for officers and key employees of the Company and its
Subsidiaries, including Easco Corporation ("Easco"), as provided below.
1. DEFINITIONS. For the purposes of this Agreement, the
following terms have the indicated meanings:
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"COMMITTEE" means the Compensation Committee or such other
committee of the Board as the Board may designate to administer the Plan or, if
for any reason the Board has not designated such a committee or otherwise
determines, the Board. The Committee, if other than the Board, shall be composed
of two or more directors as appointed from time to time by the Board. As
provided in the Plan, the Board may serve as the Committee or approve actions
taken by the Committee in respect of this Option if you are an officer subject
to Section 16 of the Securities Exchange Act of 1934, as amended.
"COMMON STOCK" means the Company's Common Stock, par value
$.01 per share, or, in the event that the outstanding Common Stock is hereafter
changed into or exchanged for different stock or securities of the Company, such
other stock or securities.
"DISABILITY" means you have a physical or mental disability
which has existed for at least six (6) months and which has continuously during
this period prevented, and can
<PAGE> 2
[Optionee]
[Grant Date]
Page 2
reasonably be expected to continue to prevent, you from fulfilling your duties
as an employee of the Company or any Subsidiary.
"FAIR MARKET VALUE" shall have the meaning as defined in the
Plan.
"SALE OF THE COMPANY" means (i) a sale by one or more
stockholders in one transaction or a series of related transactions, of equity
securities representing more than fifty percent (50%) of the aggregate voting
power of shares entitled to vote in the election of directors, or (ii) a
liquidation, dissolution or other winding up of the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and any successor statute.
"SUBSIDIARY" means any person or entity of which the Company
or Easco owns, directly or indirectly, fifty percent (50%) or more of the
outstanding capital stock of such person or entity.
"TERMINATION FOR CAUSE" means a termination of your employment
by the Company or any Subsidiary arising out of or related to (i) your personal
dishonesty, inability or unwillingness to perform duties appropriate to your
employment by the Company or any Subsidiary, willful misconduct, material
conflict of interest or material breach of fiduciary duty owed to the Company or
any Subsidiary, (ii) any material (as opposed to technical), willful violation
of any law, rule, regulation or final cease-and-desist order, or (iii) any
material breach of any provision of any agreement to which you and the Company
or any Subsidiary are parties which remains uncured for more than ten (10) days
after written notice describing such breach is given to you by the Company or
any Subsidiary.
2. OPTION TERMS.
(a) GRANT. You hereby are granted an Option to
purchase up to ______ shares of Common Stock (the "OPTION SHARES") at a price of
$____ per share, subject to adjustment pursuant to paragraph 8 below (the
"EXERCISE PRICE"), payable upon exercise as set forth in paragraph 3 below. Your
Option will expire at the close of business on the tenth anniversary of the date
hereof (the "EXPIRATION DATE"), subject to earlier expiration in connection with
the termination of your employment as provided below. Your Option is not
intended to be an "incentive stock option" within the meaning of Section 422 of
the Code.
(b) EXERCISABILITY/VESTING.
(i) VESTING. Your Option will be exercisable
only to the extent it has vested. Your Option will be vested either (A) on the
seventh anniversary of the date hereof or (B) in three installments of ______
shares, ______ shares and ______ shares on January 31, 1998, January 1, 1999 and
January 1, 2000, respectively, provided that (x) you have been continuously
employed by the Company or a Subsidiary through such
<PAGE> 3
[Optionee]
[Grant Date]
Page 3
respective vesting dates, and (y) in the case of clause (b) with respect to each
such installment, the Company has satisfied the performance criteria applicable
to such installment as specified in an attachment hereto approved by the Board,
subject in each case to earlier expiration in connection with the termination of
your employment as provided below. Your Option is subject to your commencement
of full time employment with the Company prior to December 31, 1996 and will
automatically terminate if you do not commence full time employment with the
Company on or before such date. Your Option is subject to your entry into an
employment agreement with the Company on satisfactory terms, and shall not be
exercisable to any extent, and you shall have no rights hereunder, unless and
until such agreement has been entered into.
(ii) VESTING AND EXERCISE UPON SALE OF THE
COMPANY. In connection with any Sale of the Company, (x) your Option shall be
fully vested without regard to the vesting schedule set forth in clause (i)
above (but subject to your commencement of full-time employment and entry into
an employment agreement as provided therein) as of a date, not less than 20 days
prior to consummation of such Sale of the Company, specified in a written notice
from the Committee, and (y) the Company may provide on not less than 20 days'
notice to you that any portion of your Option which has not been exercised prior
to or in connection with the Sale of the Company will be forfeited. In lieu of
requiring such exercise, the Company may provide for the cancellation of the
exercisable portion of your Option in exchange for a payment equal to the excess
(if any) of the consideration per share of Common Stock receivable in connection
with such Sale of the Company over the Exercise Price.
(c) EXPIRATION OF OPTION. In no event shall any part
of your Option be exercisable after the Expiration Date set forth in paragraph
2(a). If you cease to be an employee of the Company or any Subsidiary as a
result of a Termination for Cause, all of your Option not previously exercised
shall expire and be forfeited upon notice by the Company of such Termination for
Cause, whether vested and exercisable or not. Unless otherwise determined by the
Committee, the portion of your Option that is not vested and exercisable on the
date of termination of your employment for any other reason shall expire and be
forfeited. The portion of your Option that is vested and exercisable on the date
of such other termination of your employment shall expire, to the extent not
theretofore exercised, upon the first to occur of the following events: (i) the
expiration of three (3) months from the date of your termination by reason of
your retirement after reaching age 59 1/2 (or earlier retirement pursuant to a
plan approved by the Company or any Subsidiary by which you are employed) or the
effective date of a termination by the Company or any Subsidiary that is not a
Termination for Cause; (ii) the expiration of one year from the date of your
termination by reason of your death; (iii) the expiration of one year from the
date of your termination by reason of Disability; or (iv) the effective date of
your termination of employment, for any reason not stated above (including
voluntary resignation).
3. PROCEDURE FOR EXERCISE. You may exercise all or any portion
of your Option to the extent permitted hereby, at any time and from time to time
by delivering written notice to the Company (to the attention of the Company's
Secretary) accompanied by
<PAGE> 4
[Optionee]
[Grant Date]
Page 4
payment in full of an amount equal to the product of (i) the Exercise Price
multiplied by (ii) the number of Option Shares to be acquired. Payment of the
Exercise Price shall be made in (i) cash or by certified or cashier's check;
(ii) in the discretion of the Committee, in shares of the Company's Common Stock
that you own (these shares must be duly endorsed for transfer to the Company and
will be credited at the Fair Market Value on the date of delivery) or that would
otherwise be issuable upon exercise of this Option; (iii) in the discretion of
the Committee, by delivery of a full recourse promissory note bearing interest
at a rate not less than the applicable federal rate determined pursuant to
Section 1274 of the Code as of the date of exercise or by delivery of shares of
Common Stock (valued at their Fair Market Value); (iv) any combination of the
consideration described in sections (i), (ii) or (iii), or (v) in a "cashless
exercise procedure" satisfactory to the Committee which permits the Optionee to
deliver an exercise notice to a broker-dealer, who then sells the Option shares,
delivers the exercise price and withholding taxes to the Company and delivers
the excess funds less commission and withholding taxes to the Optionee. In
addition, you will permit the Company to deliver to you all financial and other
information regarding the Company that the Company reasonably considers
necessary or that you reasonably request to enable you to make an informed
investment decision, and you will make all customary investment representations
which the Company requires.
4. OPTION NOT TRANSFERABLE. Your Option is personal to you and
is not transferable by you other than by will of the laws of descent and
distribution or pursuant to a qualified domestic relations order, unless
otherwise approved by the Board of Directors of the Company. During your
lifetime only you (or your guardian or legal representative) may exercise your
Option. In the event of your death, your Option may be exercised only by the
executor or administrator of your estate or the persons to whom your rights
under the Option shall pass by will or the laws of descent and distribution.
5. CONFORMITY WITH PLAN. Your Option is intended to conform in
all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. By executing and returning the enclosed copy of this Agreement, you
acknowledge your receipt of this Agreement and the Plan and agree to be bound by
all of the terms of this Agreement and the Plan.
6. RIGHTS OF PARTICIPANTS. Nothing in this Agreement shall
interfere with or limit in any way the right of the Company or any Subsidiary
(including Easco) to terminate your employment at any time (whether or not a
Termination for Cause), or confer upon you any right to continue in the employ
of the Company or any Subsidiary for any period of time or to continue to
receive your current (or other) rate of compensation. Nothing in this Agreement
shall confer upon you any right to be selected again as a Plan participant.
7. WITHHOLDING OF TAXES. The Company and any Subsidiary may,
if necessary or desirable, withhold from any amounts due and payable by the
Company or any Subsidiary to you (or secure payment from you in lieu of
withholding) the amount of any
<PAGE> 5
[Optionee]
[Grant Date]
Page 5
withholding or other tax due from the Company or any Subsidiary with respect to
the issuance or exercise of your Option, and the Company may defer such issuance
or exercise unless indemnified by you to its satisfaction against the payment of
any such amount. In the discretion of the Committee, such withholding obligation
may be satisfied by (i) delivery of shares of Common Stock you own, or (ii) the
withholding of shares of Common Stock otherwise issuable to you upon exercise of
this Option (in each case, valued at Fair Market Value).
8. ADJUSTMENTS. In the event of a reorganization,
recapitalization, stock dividend or stock split, or combination or other change
in the shares of Common Stock, the Committee may, in order to prevent the
dilution or enlargement of rights under your Option, make such adjustments in
the number and type of shares authorized by the Plan, the number and type of
shares covered by your Option and the Exercise Price specified herein as may be
determined to be appropriate and equitable.
9. CONFIDENTIAL INFORMATION. Optionee understands that any
financial statements and other information concerning the Company or any of its
Subsidiaries (including, without limitation, financial, production, cost,
pricing and sales information) received by Optionee from, or in connection with
Optionee's employment by, the Company or any Subsidiary with respect to the
exercise of the Option, as a stockholder of the Option Shares or otherwise, is
non-public, confidential and/or proprietary information (the "Confidential
Information"), except to the extent that such information has been publicly
disclosed by or on behalf of the Company or any Subsidiary, or was made or
becomes available to the Optionee on a non-confidential basis from a source
other than the Company. Optionee agrees that all information so received by the
Optionee will be treated as Confidential Information and will be kept
confidential by the Optionee and the Optionee's legal and financial advisors (if
any). Optionee agrees not to disclose Confidential Information to any person or
entity (including, without limitation, any competitor of the Company or any
Subsidiary) other than Optionee's legal and financial advisors (if any), to
inform such advisors of the confidential nature of the Confidential Information
and to direct such advisors not to disclose such information to any person or
entity, and to be responsible to the Company for any breach of the terms of this
paragraph by the Optionee or any person or entity to whom the Optionee discloses
Confidential Information. If the Optionee is legally required (by subpoena or
other legal process) to disclose any Confidential Information, Optionee will
provide the Company with prompt notice thereof so that the Company may seek a
protective order or other appropriate remedy.
10. GOVERNING LAW. The corporate law of Delaware will govern
all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement will be governed by the internal law, and not
the law of conflicts, of California.
11. NOTICES. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally or mailed by certified or registered
<PAGE> 6
[Optionee]
[Grant Date]
Page 6
mail, return receipt requested and postage prepaid, to the recipient. Such
notices, demands and other communications shall be sent to you and to the
Company at the addresses indicated below:
(a) If to the Optionee:
[Optionee]
[Address]
(b) If to the Company:
Easco, Inc.
706 South State Street
Girard, Ohio 44420
Attention: Secretary
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
<PAGE> 7
[Optionee]
[Grant Date]
Page 7
Please execute the extra copy of this Agreement in the space
below and return it to the Company's Secretary at its executive offices to
confirm your understanding and acceptance of the agreements contained in this
Agreement.
Very truly yours,
EASCO, INC.
By:
-------------------------
Chairman of the Board of Directors
Enclosures: 1. Extra copy of this Agreement
2. Copy of the Plan
The undersigned hereby acknowledges that he or she has read the Agreement and
the Plan and hereby agrees to be bound by all provisions set forth herein and
therein.
Dated as of ________ 26, 1996
- ----------------------------------
[Optionee]
<PAGE> 1
Exhibit 10.5(c)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated December 20, 1996, is made by and
between Easco Corporation, a Delaware corporation (the "Company") and a direct
subsidiary of Easco, Inc. (the "Parent"), and Norman E. Wells, Jr. (the
"Executive").
RECITALS:
A. It is the desire of the Company to assure itself of the
management services of the Executive by engaging him as the President and Chief
Executive Officer of the Company.
B. The Executive desires to commit himself to serve the
Company on the terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS.
(a) "ANNUAL BASE SALARY" is defined in Section 5(a).
(b) "BENEFITS" is defined in Section 5(b).
(c) "BOARD" shall mean the Board of Directors of the
Company.
(d) A "BONUS YEAR" shall be a 12-month period
beginning on January 1 of any given year and ending on December 31 of
such year, except that the first Bonus Year shall commence on the Start
Date and shall terminate December 31, 1997.
(e) "CAUSE": For purposes of this Agreement, the
Company shall have "Cause" to terminate the Executive's employment
hereunder for matters arising out of or related to
(i) the Executive's personal dishonesty,
inability or unwillingness to perform duties appropriate to
his employment by the Company or any Subsidiary, willful
misconduct, material conflict of interest or material breach
of fiduciary duty owed to the Company or any Subsidiary,
(ii) any material (as opposed to technical)
willful violation of any law, rule, regulation or final
cease-and-desist order, or
(iii) any material breach by Executive of
any provision of any agreement between the Executive (on the
one hand) and the Company or any Subsidiary or other parties
(on the other hand) which remains uncured for more than ten
days after written notice describing such breach is given to
the Executive by the Company or the Subsidiary.
(f) "COMMITTEE" shall mean the Compensation Committee
of the Board.
<PAGE> 2
(g) "DISABILITY" shall mean the absence of the
Executive from the Executive's duties to the Company on a full-time
basis for a total of 16 weeks during any 12-month period as a result
of incapacity due to mental or physical illness which is determined to
be total and permanent by a physician selected by the Company and
acceptable to the Executive or the Executive's legal representative
(such agreement as to acceptability not to be withheld unreasonably).
(h) "GOOD REASON" shall mean the Company's failure to
vest in Executive the duties and responsibilities consistent with those
set forth in Section 3 or failure to make any payment to the Executive
when due which, in either case, remains uncured for more than ten days
after written notice describing such breach is given to the Company to
the Executive.
(i) "HOSTILE SALE OF THE PARENT OR COMPANY" shall
mean a Sale of the Parent or Company described in subsection (k)(i)
which is not approved by a majority of the members of the Board of
Directors of the Parent who had such status as of the consummation of
the transaction and also as of the date one year prior thereto. If on
the date of such consummation there are no people satisfying such
condition then the transaction shall be deemed to be a Hostile Sale of
the Parent or Company.
(j) "PERFORMANCE BONUS" is defined in Section 5(c).
(k) "SALE OF THE PARENT OR COMPANY" shall mean
(i) a sale by one or more stockholders in
one transaction or a series of related transactions, of equity
securities representing more than 50% of the aggregate voting
power of shares entitled to vote in the election of directors
of the Parent or the Company, or
(ii) a liquidation, dissolution or other
winding up of the Parent or the Company.
(l) "START DATE" shall mean November 26, 1996.
(m) "STOCK" shall mean the $.01 par value common
stock of the Parent.
(n) "SUBSIDIARY" shall mean any direct or indirect
subsidiary of the Company.
(o) "TERM OF EMPLOYMENT" is defined in Section 2.
2. EMPLOYMENT. The Company shall employ the Executive and the
Executive shall enter the employ of the Company, for the period set forth in
this Section 2, in the positions set forth in Section 3 and upon the other terms
and conditions herein provided. The term of employment under this Agreement
shall commence on the Start Date and continue indefinitely until terminated
pursuant to Section 7 (the "Term of Employment").
3. POSITION AND DUTIES. During the Term of Employment, the
Executive shall serve as the President and Chief Executive Officer of the
Company and shall have such duties, functions, responsibilities and authority as
are consistent with the Executive's position as the senior executive officer in
charge of the general management, business and affairs of the Company.
2
<PAGE> 3
4. PLACE OF PERFORMANCE. In connection with his employment
during the Term of Employment, the Executive shall be based at the corporate
headquarters of the Company currently located in Girard, Ohio, but subject to
relocation at the mutual agreement of the Executive and the Board.
5. COMPENSATION AND RELATED MATTERS.
(a) ANNUAL BASE SALARY. The Executive shall receive a
base salary ("Annual Base Salary") at a rate of $290,000 per annum,
payable in accordance with the Company's payroll practice for senior
executives.
(b) BENEFITS. During the Term of Employment, the
Executive shall be entitled to such health, dental, life and disability
insurance coverage and other similar benefits as the Company provides
to its senior executive employees generally.
(c) PERFORMANCE BONUS. As additional compensation for
services rendered, for each Bonus Year contained within the Term of
Employment, the Executive shall be eligible to receive a cash
Performance Bonus in an amount ranging from 0% to 200% of his Annual
Base Salary, with such percentage to be determined on the basis of the
Company's financial performance as set forth in a separate document to
be approved by the Committee (the "Schedule"). The Performance Bonus
for each Bonus Year shall be paid no later than 15 days after the
amount of such has been finally determined.
(d) EXPENSES. The Company shall promptly reimburse
the Executive for all reasonable travel and other business expenses
incurred by the Executive in the performance of his duties to the
Company upon submission of proper documentation therefor.
6. SPECIAL INITIAL COMPENSATION
(a) SIGNING BONUS. Promptly following the execution
and delivery of this Agreement and completion of all applicable
registration and listing requirements, Company shall pay Executive
$597,500 in cash, and upon Executive's payment to the Parent of the
$.01 per share par value thereof, the Parent shall issue to the
Executive 70,000 shares of Stock. Unless registered pursuant to
applicable federal and state securities laws, such Stock shall bear a
customary legend restricting transferability. Executive shall be
required to return all of such cash and Stock to the Company upon the
termination of his employment
(i) by the Company for Cause or
(ii) by the Executive for any reason other
than Death, Disability or Good Reason
prior to the second anniversary of the Start Date. In order to give
effect to Executive's obligation under the prior sentence, Executive
agrees not to sell, assign, pledge or otherwise transfer the Stock so
acquired prior to the end of such two-year period, that the certificate
representing such Stock bear a legend to such effect and that the
Company's transfer agent be given appropriate "stop transfer"
instructions with respect thereto.
3
<PAGE> 4
(b) STOCK GRANT. Promptly following execution and
delivery of this Agreement and completion of all applicable
registration and listing requirements, and upon Executive's payment to
the Parent of the $.01 per share par value thereof, the Parent shall
issue to the Executive 100,000 shares of Stock. Unless registered
pursuant to applicable federal and state securities laws, such Stock
shall bear a customary legend restricting transferability.
(c) LOAN. Pursuant to a separate note and security
agreement Company will lend the Executive an amount equal to his
additional 1996 Federal and State income taxes incurred by reason of
the Stock grant described in subsection 6(b), or such lesser amount as
the Executive shall elect. Such note shall bear interest, with annual
compounding, at the applicable Federal Mid-Term Rate set forth pursuant
to Section 1274(d)(1) for the month of the loan and shall provide for
repayment in three equal installments on December 31, 1997, 1998 and
1999. The proceeds of such loan shall be disbursed to Executive not
later than the time or times that Executive shall make the applicable
tax payments provided that the Executive has furnished to the Company,
reasonably in advance, information sufficient for the Company to
calculate the amount of the loan.
(d) STOCK OPTIONS. Pursuant to separate stock option
grant letters and, as applicable, the terms of the Company's Stock
Option Plan, the Company shall grant the Executive options with respect
to 300,000 shares of Stock. One-half of these options shall be
exercisable at $3.00 per share and one-half at $6.00 (which was the
fair market value at the date of grant, November 24, 1996 by the
Committee, subject to approval of the Board (which was obtained
November 26, 1996, subject to entering into this Agreement)). These
options shall become exercisable in 33 1/3% installments on the first,
second and third anniversaries of the Start Date, provided that the
Executive is still employed on each of such respective dates and
provided further that no option shall be exercisable in any year to the
extent that by reason of such exercise any portion of the compensation
payable to the Executive would fail to be deductible by the Company or
Parent by reason of Section 162(m) of the Internal Revenue Code of
1986. The options shall also be fully vested, and, at the election of
the Parent, settled for cash in connection with a Sale of the Parent or
Company, in a manner similar to that specified in one or more recently
executed agreements of other senior executives of the Company.
7. TERMINATION. The Executive's employment hereunder may be
terminated by the Company or the Executive, as applicable, without any breach of
this Agreement only under the following circumstances:
(a) DEATH. The Executive's employment hereunder shall
terminate upon his death.
(b) DISABILITY. If the Company determines in good
faith that the Disability of the Executive has occurred during the Term
of Employment, the Company may give the Executive written notice in
accordance with Section 13(b) of its intention to terminate the
Executive's employment. In such event, the Executive's employment with
the Company shall terminate effective on the 30th day after receipt of
such notice by the Executive, provided that within the 30 days after
such receipt, the Executive shall not have returned to full-time
performance of his duties. The Executive shall continue to receive his
Annual Base Salary and Benefits until the date of termination.
4
<PAGE> 5
(c) CAUSE. The Company may terminate the Executive's
employment hereunder for Cause.
(d) WITHOUT CAUSE. The Company may terminate the
Executive's employment hereunder without Cause upon 30 days notice.
(e) GOOD REASON. The Executive may terminate his
employment hereunder for Good Reason upon 30 days notice.
(f) NOTICE OF TERMINATION. Any termination of the
Executive's employment hereunder by the Company (or by the Executive
pursuant to subsection (e)) shall be communicated by a notice of
termination to the Executive (or to the Company, as appropriate). For
purposes of this Agreement, a "notice of termination" shall mean a
written notice which (i) indicates the specific termination provision
in the Agreement relied upon, (ii) sets forth in reasonable detail any
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision indicated and (iii)
specifies the effective date of the termination.
8. SEVERANCE BENEFITS.
(a) TERMINATION WITHOUT CAUSE: If the Executive's
employment shall terminate without Cause (pursuant to Section 7(d)) or
with Good Reason (pursuant to Section 7(e)), then, if the Executive
agrees to comply with the provisions of paragraph (ii),
(i) the Company shall continue to pay the
Executive his Annual Base Salary under the payment
schedule otherwise in effect and pay the Executive's
COBRA premium, until the earlier of
(A)
(I) if the termination
occurs within six months following a Hostile
Sale of the Parent or Company, the second
anniversary of such termination, or
(II) if the termination
occurs under any other circumstances, the
first anniversary of such termination, and
(B) the date Executive commences
other paid employment with a regular work schedule of
at least 35 hours per week;
(ii) such payments shall be made provided
that the Executive agrees in writing
(A) to a general release of the
Parent, the Company and affiliates in the form used
generally by the Company in the case of the
termination of employment of senior executives,
(B) actively to seek other paid
employment, and
(C) that he shall not, so long as he
is receiving payments pursuant to Section 8(a)(i),
without the prior written consent of the Board,
5
<PAGE> 6
directly or indirectly engage in, or have any
interest in, or manage or operate any person, firm,
corporation, partnership or business (whether as
director, officer, employee, agent, representative,
partner, security-holder, consultant or otherwise)
that engages in the business of providing soft alloy
aluminum extrusions or vinyl extrusions, and which
directly compete with the Company in any of its
markets; PROVIDED, HOWEVER, that Executive shall be
permitted to acquire stock in such a corporation
provided such stock is publicly traded and the stock
so acquired is not more than one percent of the
outstanding shares of such corporation.
(b) TERMINATION BY DISABILITY: If the Executive's
employment is terminated by reason of the Executive's Disability, the
Executive or his estate shall continue to receive his Annual Base
Salary until the date Executive's employment terminates.
9. REPRESENTATIONS OF EXECUTIVE.
(a) The Executive represents that he is under no
contractual or other legal constraint which would prevent him from
executing this Agreement or carrying out in full his responsibilities
hereunder. Executive indemnifies the Company from any cost, loss,
liability, damage or expense (including attorney's fees) which it may
incur by reason of any breach of the representation set forth in this
Section 9(a).
(b) The Executive also represents, warrants and
covenants that:
(i) he is an "accredited investor" within
the meaning of Rule 501(a) under the Securities Act of 1933
(the "Act");
(ii) the purchase of the Stock hereunder by
the Executive will be for his own account;
(iii) the Executive has such knowledge and
experience in financial and business matters that he is
capable of evaluating the merits and risks of purchasing the
Stock and has been provided with comprehensive disclosure
regarding all aspects of the Company's business;
(iv) the Executive is not acquiring Stock
with a view to any distribution thereof in a transaction that
would violate the Act or the securities laws of any State of
the United States or any other applicable jurisdiction; and
10. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of Stock deliverable pursuant to Section 6 or upon
the exercise of an option, or any portion thereof, may be either previously
authorized but unissued shares or issued shares which have then been reacquired
by the Parent. Such shares shall be fully paid and nonassessable. The Parent
shall not be required to issue or deliver any certificate or certificates for
shares of Stock granted pursuant to Section 6 or purchased upon the exercise of
an option or portion thereof prior to fulfillment of all of the following
conditions:
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<PAGE> 7
(a) The obtaining of approval or other clearance from any
state or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the
exercise of the option as the Committee may from time to time establish
for reasons of administrative convenience.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive
acknowledges that during his employment he will have access to:
(a) confidential or secret plans, programs,
documents, agreements, internal management reports, financial
information or other material relating to the business, services or
activities of the Company, and
(b) trade secrets, market reports, customer
investigations, customer lists and other similar information that is
proprietary information of the Company
(collectively referred to as "Confidential Information"). The Executive
acknowledges that such Confidential Information as is acquired and used by the
Company is a special, valuable and unique asset of the Company. In addition, all
records, files and other materials obtained by the Executive in the course of
his employment with the Company shall remain the property of the Company. The
Executive will not use Confidential Information or property of the Company for
his own benefit or the benefit of any person or entity with which he may be
associated. The Executive will not disclose any Confidential Information to any
person, firm, corporation, association or other entity for any reason or purpose
whatsoever without the prior written consent of the Company. The obligations of
this Section shall not apply to (i) information that enters the public domain
without a breach of this Agreement by the Executive or (ii) information
developed by or known to the Executive independently of disclosure to him by the
Company.
12. BINDING ON SUCCESSORS. This Agreement shall be binding
upon and inure to the benefit of the Parent, the Company, the Executive and
their respective successors, assigns, personnel and legal representatives,
executors, administrators, heirs, distributees, devisees, and legatees, as
applicable.
13. GOVERNING LAW. This Agreement shall be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of New York.
14. CONSENT AND JURISDICTION. Each party hereto irrevocably
and unconditionally
(a) agrees that any suit, action or other legal
proceeding arising out of this Agreement may be brought in the United
States District Court for the Southern District of New York or, if such
court does not have jurisdiction or will not accept jurisdiction, in
the Supreme Court of the State of New York, New York County,
(b) consents to the jurisdiction of any such court in
any such suit, action or proceeding, and
(c) waives any objection which such party may have to
the laying of venue of any such, suit, action or proceeding in any such
court.
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<PAGE> 8
15. VALIDITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
16. NOTICES. Any notice, request, claim, demand, document and
other communication hereunder to any party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent by
telex, telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Parent or the Company, addressed to:
Theodore C. Rogers
American Industrial Partners
551 Fifth Avenue
Suite 3800
New York, NY 10176
With a copy to:
Jed W. Brickner
Latham & Watkins
885 Third Avenue
Suite 1000
New York, NY 10022
(b) If to the Executive, to him at the address set
forth below under his signature;
or at any other address as any party shall have specified by notice in writing
to the other parties.
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.
18. ENTIRE AGREEMENT. The terms of this Agreement and the
other documents contemplated hereby are intended by the parties to be the final
expression of their agreement with respect to the employment of the Executive by
the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement and
the other documents contemplated hereby shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial, administrative, or other legal proceeding to vary
the terms of this Agreement.
8
<PAGE> 9
19. AMENDMENTS; WAIVERS. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, signed by the
Executive, and the Chairman of the Board. By an instrument in writing similarly
executed, the Executive or the Company may waive compliance by the other party
or parties with any provision of this Agreement that such other party was or is
obligated to comply with or perform; PROVIDED, HOWEVER, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy, or
power hereunder preclude any other or further exercise of any other right,
remedy, or power provided herein or by law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
EXECUTIVE
/s/ Norman E. Wells, Jr.
----------------------------------
Norman E. Wells, Jr.
543 Bechers Jump
Munroe Falls, OH 44262
EASCO CORPORATION
By: /s/ Terry D. Smith
----------------------------
Name: Terry D. Smith
Title: Chief Financial Officer
EASCO INC.
By: /s/ Donald W. Davis
----------------------------
Name: Donald W. Davis
Title: Chairman of the Board
9
<PAGE> 1
Exhibit 10.5(d)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated December 20, 1996, is made by and between Easco
Corporation, a Delaware corporation (the "Company") and a direct subsidiary of
Easco, Inc. (the "Parent"), and Terry D. Smith (the "Executive").
RECITALS:
A. It is the desire of the Company to assure itself of the management
services of the Executive by engaging him as the Chief Financial Officer of the
Company.
B. The Executive desires to commit himself to serve the Company on the
terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
(a) "ANNUAL BASE SALARY" is defined in Section 5(a).
(b) "BENEFITS" is defined in Section 5(b).
(c) "BOARD" shall mean the Board of Directors of the Company.
(d) A "BONUS YEAR" shall be a 12-month period beginning on
January 1 of any given year and ending on December 31 of such year,
except that the first Bonus Year shall commence on the Start Date and
shall terminate December 31, 1997.
(e) "CAUSE": For purposes of this Agreement, the Company shall
have "Cause" to terminate the Executive's employment hereunder for
matters arising out of or related to
(i) the Executive's personal dishonesty, inability or
unwillingness to perform duties appropriate to his employment
by the Company or any Subsidiary, willful misconduct, material
conflict of interest or material breach of fiduciary duty owed
to the Company or any Subsidiary,
(ii) any material (as opposed to technical) willful
violation of any law, rule, regulation or final
cease-and-desist order, or
(iii) any material breach by Executive of any
provision of any agreement between the Executive (on the one
hand) and the Company or any Subsidiary or other parties (on
the other hand) which remains uncured for more than ten days
after written notice describing such breach is given to the
Executive by the Company or the Subsidiary.
(f) "COMMITTEE" shall mean the Compensation Committee of the
Board.
<PAGE> 2
(g) "DISABILITY" shall mean the absence of the Executive from
the Executive's duties to the Company on a full-time basis for a total
of 16 weeks during any 12- month period as a result of incapacity due
to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(h) "GOOD REASON" shall mean the Company's failure to vest in
Executive the duties and responsibilities consistent with those set
forth in Section 3 or failure to make any payment to the Executive when
due which, in either case, remains uncured for more than ten days after
written notice describing such breach is given to the Company to the
Executive.
(i) "HOSTILE SALE OF THE PARENT OR COMPANY" shall mean a Sale
of the Parent or Company described in subsection (k)(i) which is not
approved by a majority of the members of the Board of Directors of the
Parent who had such status as of the consummation of the transaction
and also as of the date one year prior thereto. If on the date of such
consummation there are no people satisfying such condition then the
transaction shall be deemed to be a Hostile Sale of the Parent or
Company.
(j) "PERFORMANCE BONUS" is defined in Section 5(c).
(k) "SALE OF THE PARENT OR COMPANY" shall mean
(i) a sale by one or more stockholders in one
transaction or a series of related transactions, of equity
securities representing more than 50% of the aggregate voting
power of shares entitled to vote in the election of directors
of the Parent or the Company, or
(ii) a liquidation, dissolution or other winding up
of the Parent or the Company.
(l) "START DATE" shall mean November 26, 1996.
(m) "STOCK" shall mean the $.01 par value common stock of the
Parent.
(n) "SUBSIDIARY" shall mean any direct or indirect subsidiary
of the Company.
(o) "TERM OF EMPLOYMENT" is defined in Section 2.
2. EMPLOYMENT. The Company shall employ the Executive and the Executive
shall enter the employ of the Company, for the period set forth in this Section
2, in the positions set forth in Section 3 and upon the other terms and
conditions herein provided. The term of employment under this Agreement shall
commence on the Start Date and continue indefinitely until terminated pursuant
to Section 7 (the "Term of Employment").
3. POSITION AND DUTIES. During the Term of Employment, the Executive
shall serve as the Chief Financial Officer of the Company and shall have such
duties, functions, responsibilities and authority as are consistent with the
Executive's position as the senior executive officer in charge of the financial
affairs of the Company.
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<PAGE> 3
4. PLACE OF PERFORMANCE. In connection with his employment during the
Term of Employment, the Executive shall be based at the corporate headquarters
of the Company currently located in Girard, Ohio, but subject to relocation at
the mutual agreement of the Company's Chief Executive Officer and the Board.
5. COMPENSATION AND RELATED MATTERS.
(a) ANNUAL BASE SALARY. The Executive shall receive a base
salary ("Annual Base Salary") at a rate of $160,000 per annum, payable
in accordance with the Company's payroll practice for senior
executives.
(b) BENEFITS. During the Term of Employment, the Executive
shall be entitled to such health, dental, life and disability insurance
coverage and other similar benefits as the Company provides to its
senior executive employees generally.
(c) PERFORMANCE BONUS. As additional compensation for services
rendered, for each Bonus Year contained within the Term of Employment,
the Executive shall be eligible to receive a cash Performance Bonus in
an amount ranging from 0% to 150% of his Annual Base Salary, with such
percentage to be determined on the basis of the Company's financial
performance as set forth in a separate document to be approved by the
Committee (the "Schedule"). The Performance Bonus for each Bonus Year
shall be paid no later than 15 days after the amount of such has been
finally determined.
(d) EXPENSES. The Company shall promptly reimburse the
Executive for all reasonable travel and other business expenses
incurred by the Executive in the performance of his duties to the
Company upon submission of proper documentation therefor.
6. SPECIAL INITIAL COMPENSATION
(a) SIGNING BONUS. Company shall pay Executive $200,000 in
cash under the following payment terms:
<TABLE>
<S> <C>
Promptly after Execution
of this Agreement $100,000
First Anniversary
of Start Date $50,000
Second Anniversary
of Start Date $50,000
</TABLE>
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<PAGE> 4
Executive shall be required to return the following indicated amounts
to the Company upon the termination of his employment
(i) by the Company for Cause or
(ii) by the Executive for any reason other than
Death, Disability or Good Reason
prior to the indicated respective dates.
<TABLE>
<S> <C>
Second Anniversary
of Start Date $100,000
Third Anniversary
of Start Date $50,000
Fourth Anniversary
of Start Date $50,000.
</TABLE>
(b) STOCK GRANT. Promptly following execution and delivery of
this Agreement and completion of all applicable registration and
listing requirements, and upon Executive's payment to the Parent of the
$.01 per share par value thereof, the Parent shall issue to the
Executive 12,500 shares of Stock. Unless registered pursuant to
applicable federal and state securities laws, such Stock shall bear a
customary legend restricting transferability.
(c) LOAN. Pursuant to a separate note and security agreement
Company will lend the Executive an amount equal to his additional 1996
Federal and State income taxes incurred by reason of the Stock grant
described in subsection 6(b), or such lesser amount as the Executive
shall elect. Such note shall bear interest, with annual compounding, at
the applicable Federal Mid-Term Rate set forth pursuant to Section
1274(d)(1) for the month of the loan and shall provide for repayment in
three equal installments on December 31, 1997, 1998 and 1999. The
proceeds of such loan shall be disbursed to Executive not later than
the time or times that Executive shall make the applicable tax payments
provided that the Executive has furnished to the Company, reasonably in
advance, information sufficient for the Company to calculate the amount
of the loan.
(d) STOCK OPTIONS. Pursuant to separate stock option grant
letters and, as applicable, the terms of the Company's Stock Option
Plan, the Company shall grant the Executive options with respect to
37,500 shares of Stock. One-half of these options shall be exercisable
at $3.00 per share and one-half at $6.00 (which was the fair market
value at the date of grant, November 24, 1996 by the Committee, subject
to approval of the Board (which was obtained November 26, 1996, subject
to entering into this Agreement)). These options shall become
exercisable in 33 1/3% installments on the first, second and third
anniversaries of the Start Date, provided that the Executive is still
employed on each of such respective dates and provided further that no
option shall be exercisable in any year to the extent that by reason of
such exercise any portion of the compensation payable to the Executive
would fail to be deductible by the Company or Parent by reason of
Section 162(m) of the Internal
4
<PAGE> 5
Revenue Code of 1986. The options shall also be fully vested, and, at
the election of the Parent, settled for cash in connection with a Sale
of the Parent or Company, in a manner similar to that specified in one
or more recently executed agreements of other senior executives of the
Company.
(e) ADDITIONAL STOCK OPTIONS. Pursuant to separate stock
option grant letters and, as applicable, the terms of the Company's
Stock Option Plan, the Company shall grant the Executive options with
respect to 50,000 shares of Stock, exercisable at $5.75 (which was the
fair market value at the date of grant, November 26, 1996).
(i) These options shall become exercisable in 33 1/3%
installments on January 1, 1998, January 1, 1999 and January
1, 2000, provided that:
(A) The Executive is still employed on each
of such respective dates, and
(B) Either
(1) The Company's Earnings for the
Contract Year immediately preceding such
date is at least 80% of the Target Earnings
for such Contract Year indicated on the
Schedule, or
(2). The total of the Company's
Earnings for the Contract Year immediately
preceding such date and the Company's
Earnings for the Contract Year containing
such date is at least 80% of total of the
Target Earnings for such two Contract Years
indicated on the Schedule.
(ii) Notwithstanding the above, the options shall
also be fully vested
(A) On the seventh anniversary of the Start
date if the Executive is employed on such date, or
(B) in connection with a Sale of the Parent
or Company, (and also, at the election of Parent,
cashed out) in a manner similar to that specified in
one or more recently executed agreements of other
senior executives of the Company.
7. TERMINATION. The Executive's employment hereunder may be terminated
by the Company or the Executive, as applicable, without any breach of this
Agreement only under the following circumstances:
(a) DEATH. The Executive's employment hereunder shall
terminate upon his death.
(b) DISABILITY. If the Company determines in good faith that
the Disability of the Executive has occurred during the Term of
Employment, the Company may
5
<PAGE> 6
give the Executive written notice in accordance with Section 13(b) of
its intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive, provided
that within the 30 days after such receipt, the Executive shall not
have returned to full-time performance of his duties. The Executive
shall continue to receive his Annual Base Salary and Benefits until the
date of termination.
(c) CAUSE. The Company may terminate the Executive's
employment hereunder for Cause.
(d) WITHOUT CAUSE. The Company may terminate the Executive's
employment hereunder without Cause upon 30 days notice.
(e) GOOD REASON. The Executive may terminate his employment
hereunder for Good Reason upon 30 days notice.
(f) NOTICE OF TERMINATION. Any termination of the Executive's
employment hereunder by the Company (or by the Executive pursuant to
subsection (e)) shall be communicated by a notice of termination to the
Executive (or to the Company, as appropriate). For purposes of this
Agreement, a "notice of termination" shall mean a written notice which
(i) indicates the specific termination provision in the Agreement
relied upon, (ii) sets forth in reasonable detail any facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision indicated and (iii)
specifies the effective date of the termination.
8. SEVERANCE BENEFITS.
(a) TERMINATION WITHOUT CAUSE: If the Executive's employment
shall terminate without Cause (pursuant to Section 7(d)) or with Good
Reason (pursuant to Section 7(e)), then, if the Executive agrees to
comply with the provisions of paragraph (ii),
(i) the Company shall continue to pay the Executive
his Annual Base Salary under the payment schedule otherwise in
effect and pay the Executive's COBRA premium, until the
earlier of
(A)
(I) if the termination occurs
within six months following a Hostile Sale
of the Parent or Company, the second
anniversary of such termination, or
(II) if the termination occurs
under any other circumstances, the first
anniversary of such termination, and
(B) the date Executive commences other paid
employment with a regular work schedule of at least
35 hours per week;
(ii) such payments shall be made provided that the
Executive agrees in writing
6
<PAGE> 7
(A) to a general release of the Parent, the
Company and affiliates in the form used generally by
the Company in the case of the termination of
employment of senior executives,
(B) actively to seek other paid employment,
and
(C) that he shall not, so long as he is
receiving payments pursuant to Section 8(a)(i),
without the prior written consent of the Board,
directly or indirectly engage in, or have any
interest in, or manage or operate any person, firm,
corporation, partnership or business (whether as
director, officer, employee, agent, representative,
partner, security-holder, consultant or otherwise)
that engages in the business of providing soft alloy
aluminum extrusions or vinyl extrusions, and which
directly compete with the Company in any of its
markets; PROVIDED, HOWEVER, that Executive shall be
permitted to acquire stock in such a corporation
provided such stock is publicly traded and the stock
so acquired is not more than one percent of the
outstanding shares of such corporation.
(b) TERMINATION BY DISABILITY: If the Executive's employment
is terminated by reason of the Executive's Disability, the Executive or
his estate shall continue to receive his Annual Base Salary until the
date Executive's employment terminates.
9. REPRESENTATIONS OF EXECUTIVE.
(a) The Executive represents that he is under no contractual
or other legal constraint which would prevent him from executing this
Agreement or carrying out in full his responsibilities hereunder.
Executive indemnifies the Company from any cost, loss, liability,
damage or expense (including attorney's fees) which it may incur by
reason of any breach of the representation set forth in this Section
9(a).
(b) The Executive also represents, warrants and covenants
that:
(i) he is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act of 1933 (the "Act");
(ii) the purchase of the Stock hereunder by the
Executive will be for his own account;
(iii) the Executive has such knowledge and experience
in financial and business matters that he is capable of
evaluating the merits and risks of purchasing the Stock and
has been provided with comprehensive disclosure regarding all
aspects of the Company's business;
(iv) the Executive is not acquiring Stock with a view
to any distribution thereof in a transaction that would
violate the Act or the securities laws of any State of the
United States or any other applicable jurisdiction; and
10. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of Stock deliverable pursuant to Section 6 or upon the
exercise of an option, or any portion thereof, may be either previously
authorized but unissued shares or issued
7
<PAGE> 8
shares which have then been reacquired by the Parent. Such shares shall be fully
paid and nonassessable. The Parent shall not be required to issue or deliver any
certificate or certificates for shares of Stock granted pursuant to Section 6 or
purchased upon the exercise of an option or portion thereof prior to fulfillment
of all of the following conditions:
(a) The obtaining of approval or other clearance from any
state or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the
exercise of the option as the Committee may from time to time establish
for reasons of administrative convenience.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive
acknowledges that during his employment he will have access to:
(a) confidential or secret plans, programs, documents,
agreements, internal management reports, financial information or other
material relating to the business, services or activities of the
Company, and
(b) trade secrets, market reports, customer investigations,
customer lists and other similar information that is proprietary
information of the Company
(collectively referred to as "Confidential Information"). The Executive
acknowledges that such Confidential Information as is acquired and used by the
Company is a special, valuable and unique asset of the Company. In addition, all
records, files and other materials obtained by the Executive in the course of
his employment with the Company shall remain the property of the Company. The
Executive will not use Confidential Information or property of the Company for
his own benefit or the benefit of any person or entity with which he may be
associated. The Executive will not disclose any Confidential Information to any
person, firm, corporation, association or other entity for any reason or purpose
whatsoever without the prior written consent of the Company. The obligations of
this Section shall not apply to (i) information that enters the public domain
without a breach of this Agreement by the Executive or (ii) information
developed by or known to the Executive independently of disclosure to him by the
Company.
12. BINDING ON SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Parent, the Company, the Executive and their
respective successors, assigns, personnel and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
13. GOVERNING LAW. This Agreement shall be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
New York.
14. CONSENT AND JURISDICTION. Each party hereto irrevocably and
unconditionally
(a) agrees that any suit, action or other legal proceeding
arising out of this Agreement may be brought in the United States
District Court for the Southern District of New York or, if such court
does not have jurisdiction or will not accept jurisdiction, in the
Supreme Court of the State of New York, New York County,
8
<PAGE> 9
(b) consents to the jurisdiction of any such court in any such
suit, action or proceeding, and
(c) waives any objection which such party may have to the
laying of venue of any such, suit, action or proceeding in any such
court.
15. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
16. NOTICES. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Parent or the Company, addressed to:
Theodore C. Rogers
American Industrial Partners
551 Fifth Avenue
Suite 3800
New York, NY 10176
With a copy to:
Jed W. Brickner
Latham & Watkins
885 Third Avenue
Suite 1000
New York, NY 10022
(b) If to the Executive, to him at the address set forth below
under his signature;
or at any other address as any party shall have specified by notice in writing
to the other parties.
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.
18. ENTIRE AGREEMENT. The terms of this Agreement and the other
documents contemplated hereby are intended by the parties to be the final
expression of their agreement with respect to the employment of the Executive by
the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement and
the other documents contemplated hereby shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial, administrative, or other legal proceeding to vary
the terms of this Agreement.
9
<PAGE> 10
19. AMENDMENTS; WAIVERS. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Executive, and
the Chief Executive Officer of the Company. By an instrument in writing
similarly executed, the Executive or the Company may waive compliance by the
other party or parties with any provision of this Agreement that such other
party was or is obligated to comply with or perform; PROVIDED, HOWEVER, that
such waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in exercising
any right, remedy, or power hereunder preclude any other or further exercise of
any other right, remedy, or power provided herein or by law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
EXECUTIVE
/s/ Terry D. Smith
-------------------------------------
Terry D. Smith
3921 Walnut Wood Way
Uniontown, OH 44685
EASCO CORPORATION
By: /s/ Norman E. Wells, Jr.
--------------------------------
Name: Norman E. Wells, Jr.
Title: Chief Executive Officer
EASCO INC.
By: /s/ Donald W. Davis
--------------------------------
Name: Donald W. Davis
Title: Chairman of the Board
10
<PAGE> 1
Exhibit 10.5(e)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated December 20, 1996, is made by and between Easco
Corporation, a Delaware corporation (the "Company") and a direct subsidiary of
Easco, Inc. (the "Parent"), and Joseph M. Byers (the "Executive").
RECITALS:
A. It is the desire of the Company to assure itself of the management
services of the Executive by engaging him as the Vice President -- Sales and
Marketing of the Company.
B. The Executive desires to commit himself to serve the Company on the
terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
(a) "ANNUAL BASE SALARY" is defined in Section 5(a).
(b) "BENEFITS" is defined in Section 5(b).
(c) "BOARD" shall mean the Board of Directors of the Company.
(d) A "BONUS YEAR" shall be a 12-month period beginning on
January 1 of any given year and ending on December 31 of such year,
except that the first Bonus Year shall commence on the Start Date and
shall terminate December 31, 1997.
(e) "CAUSE": For purposes of this Agreement, the Company shall
have "Cause" to terminate the Executive's employment hereunder for
matters arising out of or related to
(i) the Executive's personal dishonesty, inability or
unwillingness to perform duties appropriate to his employment
by the Company or any Subsidiary, willful misconduct, material
conflict of interest or material breach of fiduciary duty owed
to the Company or any Subsidiary,
(ii) any material (as opposed to technical) willful
violation of any law, rule, regulation or final
cease-and-desist order, or
(iii) any material breach by Executive of any
provision of any agreement between the Executive (on the one
hand) and the Company or any Subsidiary or other parties (on
the other hand) which remains uncured for more than ten days
after written notice describing such breach is given to the
Executive by the Company or the Subsidiary.
(f) "COMMITTEE" shall mean the Compensation Committee of the
Board.
<PAGE> 2
(g) "DISABILITY" shall mean the absence of the Executive from
the Executive's duties to the Company on a full-time basis for a total
of 16 weeks during any 12-month period as a result of incapacity due
to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(h) "GOOD REASON" shall mean the Company's failure to vest in
Executive the duties and responsibilities consistent with those set
forth in Section 3 or failure to make any payment to the Executive when
due which, in either case, remains uncured for more than ten days after
written notice describing such breach is given to the Company to the
Executive.
(i) "HOSTILE SALE OF THE PARENT OR COMPANY" shall mean a Sale
of the Parent or Company described in subsection (k)(i) which is not
approved by a majority of the members of the Board of Directors of the
Parent who had such status as of the consummation of the transaction
and also as of the date one year prior thereto. If on the date of such
consummation there are no people satisfying such condition then the
transaction shall be deemed to be a Hostile Sale of the Parent or
Company.
(j) "PERFORMANCE BONUS" is defined in Section 5(c).
(k) "SALE OF THE PARENT OR COMPANY" shall mean
(i) a sale by one or more stockholders in one
transaction or a series of related transactions, of equity
securities representing more than 50% of the aggregate voting
power of shares entitled to vote in the election of directors
of the Parent or the Company, or
(ii) a liquidation, dissolution or other winding up
of the Parent or the Company.
(l) "START DATE" shall mean November 26, 1996.
(m) "STOCK" shall mean the $.01 par value common stock of the
Parent.
(n) "SUBSIDIARY" shall mean any direct or indirect subsidiary
of the Company.
(o) "TERM OF EMPLOYMENT" is defined in Section 2.
2. EMPLOYMENT. The Company shall employ the Executive and the Executive
shall enter the employ of the Company, for the period set forth in this Section
2, in the positions set forth in Section 3 and upon the other terms and
conditions herein provided. The term of employment under this Agreement shall
commence on the Start Date and continue indefinitely until terminated pursuant
to Section 7 (the "Term of Employment").
3. POSITION AND DUTIES. During the Term of Employment, the Executive
shall serve as the Vice President -- Sales and Marketing of the Company and
shall have such duties, functions, responsibilities and authority as are
consistent with the Executive's position as an executive responsible for sales
and marketing at the Company.
2
<PAGE> 3
4. PLACE OF PERFORMANCE. In connection with his employment during the
Term of Employment, the Executive shall be based at the corporate headquarters
of the Company currently located in Girard, Ohio, but subject to relocation at
the mutual agreement of the Company's Chief Executive Officer and the Board.
5. COMPENSATION AND RELATED MATTERS.
(a) ANNUAL BASE SALARY. The Executive shall receive a base
salary ("Annual Base Salary") at a rate of $138,900 per annum, payable
in accordance with the Company's payroll practice for senior
executives.
(b) BENEFITS. During the Term of Employment, the Executive
shall be entitled to such health, dental, life and disability insurance
coverage and other similar benefits as the Company provides to its
senior executive employees generally.
(c) PERFORMANCE BONUS. As additional compensation for services
rendered, for each Bonus Year contained within the Term of Employment,
the Executive shall be eligible to receive a cash Performance Bonus in
an amount ranging from 0% to 150% of his Annual Base Salary, with such
percentage to be determined on the basis of the Company's financial
performance as set forth in a separate document to be approved by the
Committee (the "Schedule"). The Performance Bonus for each Bonus Year
shall be paid no later than 15 days after the amount of such has been
finally determined.
(d) EXPENSES. The Company shall promptly reimburse the
Executive for all reasonable travel and other business expenses
incurred by the Executive in the performance of his duties to the
Company upon submission of proper documentation therefor.
6. SPECIAL INITIAL COMPENSATION
(a) SIGNING BONUS. Company shall pay Executive $200,000 in
cash under the following payment terms:
<TABLE>
<S> <C>
Promptly after Execution
of this Agreement $100,000
First Anniversary
of Start Date $50,000
Second Anniversary
of Start Date $50,000
</TABLE>
3
<PAGE> 4
Executive shall be required to return the following indicated amounts
to the Company upon the termination of his employment
(i) by the Company for Cause or
(ii) by the Executive for any reason other than
Death, Disability or Good Reason
prior to the indicated respective dates.
<TABLE>
<S> <C>
Second Anniversary
of Start Date $100,000
Third Anniversary
of Start Date $50,000
Fourth Anniversary
of Start Date $50,000.
</TABLE>
(b) STOCK GRANT. Promptly following execution and delivery of
this Agreement and completion of all applicable registration and
listing requirements, and upon Executive's payment to the Parent of the
$.01 per share par value thereof, the Parent shall issue to the
Executive 12,500 shares of Stock. Unless registered pursuant to
applicable federal and state securities laws, such Stock shall bear a
customary legend restricting transferability.
(c) LOAN. Pursuant to a separate note and security agreement
Company will lend the Executive an amount equal to his additional 1996
Federal and State income taxes incurred by reason of the Stock grant
described in subsection 6(b), or such lesser amount as the Executive
shall elect. Such note shall bear interest, with annual compounding, at
the applicable Federal Mid-Term Rate set forth pursuant to Section
1274(d)(1) for the month of the loan and shall provide for repayment in
three equal installments on December 31, 1997, 1998 and 1999. The
proceeds of such loan shall be disbursed to Executive not later than
the time or times that Executive shall make the applicable tax payments
provided that the Executive has furnished to the Company, reasonably in
advance, information sufficient for the Company to calculate the amount
of the loan.
(d) STOCK OPTIONS. Pursuant to separate stock option grant
letters and, as applicable, the terms of the Company's Stock Option
Plan, the Company shall grant the Executive options with respect to
37,500 shares of Stock. One-half of these options shall be exercisable
at $3.00 per share and one-half at $6.00 (which was the fair market
value at the date of grant, November 24, 1996 by the Committee, subject
to approval of the Board (which was obtained November 26, 1996, subject
to entering into this Agreement)). These options shall become
exercisable in 33 1/3% installments on the first, second and third
anniversaries of the Start Date, provided that the Executive is still
employed on each of such respective dates and provided further that no
option shall be exercisable in any year to the extent that by reason of
such exercise any portion of the compensation payable to the Executive
would fail to be deductible by the Company or Parent by reason of
Section 162(m) of the Internal Revenue Code of 1986. The options shall
also be fully vested, and, at the election of the
4
<PAGE> 5
Parent, settled for cash in connection with a Sale of the Parent or
Company, in a manner similar to that specified in one or more recently
executed agreements of other senior executives of the Company.
(e) ADDITIONAL STOCK OPTIONS. Pursuant to separate stock
option grant letters and, as applicable, the terms of the Company's
Stock Option Plan, the Company shall grant the Executive options with
respect to 50,000 shares of Stock, exercisable at $5.75 (which was the
fair market value at the date of grant, November 26, 1996).
(i) These options shall become exercisable in 33 1/3%
installments on January 1, 1998, January 1, 1999 and January
1, 2000, provided that:
(A) The Executive is still employed on each
of such respective dates, and
(B) Either
(1) The Company's Earnings for the
Contract Year immediately preceding such
date is at least 80% of the Target Earnings
for such Contract Year indicated on the
Schedule, or
(2). The total of the Company's
Earnings for the Contract Year immediately
preceding such date and the Company's
Earnings for the Contract Year containing
such date is at least 80% of total of the
Target Earnings for such two Contract Years
indicated on the Schedule.
(ii) Notwithstanding the above, the options shall
also be fully vested
(A) On the seventh anniversary of the Start
date if the Executive is employed on such date, or
(B) in connection with a Sale of the Parent
or Company, (and also, at the election of Parent,
cashed out) in a manner similar to that specified in
one or more recently executed agreements of other
senior executives of the Company.
7. TERMINATION. The Executive's employment hereunder may be terminated
by the Company or the Executive, as applicable, without any breach of this
Agreement only under the following circumstances:
(a) DEATH. The Executive's employment hereunder shall
terminate upon his death.
(b) DISABILITY. If the Company determines in good faith that
the Disability of the Executive has occurred during the Term of
Employment, the Company may give the Executive written notice in
accordance with Section 13(b) of its intention to terminate
5
<PAGE> 6
the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive, provided that within the 30
days after such receipt, the Executive shall not have returned to
full-time performance of his duties. The Executive shall continue to
receive his Annual Base Salary and Benefits until the date of
termination.
(c) CAUSE. The Company may terminate the Executive's
employment hereunder for Cause.
(d) WITHOUT CAUSE. The Company may terminate the Executive's
employment hereunder without Cause upon 30 days notice.
(e) GOOD REASON. The Executive may terminate his employment
hereunder for Good Reason upon 30 days notice.
(f) NOTICE OF TERMINATION. Any termination of the Executive's
employment hereunder by the Company (or by the Executive pursuant to
subsection (e)) shall be communicated by a notice of termination to the
Executive (or to the Company, as appropriate). For purposes of this
Agreement, a "notice of termination" shall mean a written notice which
(i) indicates the specific termination provision in the Agreement
relied upon, (ii) sets forth in reasonable detail any facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision indicated and (iii)
specifies the effective date of the termination.
8. SEVERANCE BENEFITS.
(a) TERMINATION WITHOUT CAUSE: If the Executive's employment
shall terminate without Cause (pursuant to Section 7(d)) or with Good
Reason (pursuant to Section 7(e)), then, if the Executive agrees to
comply with the provisions of paragraph (ii),
(i) the Company shall continue to pay the Executive
his Annual Base Salary under the payment schedule otherwise in
effect and pay the Executive's COBRA premium, until the
earlier of
(A)
(I) if the termination occurs
within six months following a Hostile Sale
of the Parent or Company, the second
anniversary of such termination, or
(II) if the termination occurs
under any other circumstances, the first
anniversary of such termination, and
(B) the date Executive commences other paid
employment with a regular work schedule of at least
35 hours per week;
(ii) such payments shall be made provided that the
Executive agrees in writing
6
<PAGE> 7
(A) to a general release of the Parent, the
Company and affiliates in the form used generally by
the Company in the case of the termination of
employment of senior executives,
(B) actively to seek other paid employment,
and
(C) that he shall not, so long as he is
receiving payments pursuant to Section 8(a)(i),
without the prior written consent of the Board,
directly or indirectly engage in, or have any
interest in, or manage or operate any person, firm,
corporation, partnership or business (whether as
director, officer, employee, agent, representative,
partner, security-holder, consultant or otherwise)
that engages in the business of providing soft alloy
aluminum extrusions or vinyl extrusions, and which
directly compete with the Company in any of its
markets; PROVIDED, HOWEVER, that Executive shall be
permitted to acquire stock in such a corporation
provided such stock is publicly traded and the stock
so acquired is not more than one percent of the
outstanding shares of such corporation.
(b) TERMINATION BY DISABILITY: If the Executive's employment
is terminated by reason of the Executive's Disability, the Executive or
his estate shall continue to receive his Annual Base Salary until the
date Executive's employment terminates.
9. REPRESENTATIONS OF EXECUTIVE.
(a) The Executive represents that he is under no contractual
or other legal constraint which would prevent him from executing this
Agreement or carrying out in full his responsibilities hereunder.
Executive indemnifies the Company from any cost, loss, liability,
damage or expense (including attorney's fees) which it may incur by
reason of any breach of the representation set forth in this Section
9(a).
(b) The Executive also represents, warrants and covenants
that:
(i) he is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act of 1933 (the "Act");
(ii) the purchase of the Stock hereunder by the
Executive will be for his own account;
(iii) the Executive has such knowledge and experience
in financial and business matters that he is capable of
evaluating the merits and risks of purchasing the Stock and
has been provided with comprehensive disclosure regarding all
aspects of the Company's business;
(iv) the Executive is not acquiring Stock with a view
to any distribution thereof in a transaction that would
violate the Act or the securities laws of any State of the
United States or any other applicable jurisdiction; and
10. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of Stock deliverable pursuant to Section 6 or upon the
exercise of an option, or any portion thereof, may be either previously
authorized but unissued shares or issued
7
<PAGE> 8
shares which have then been reacquired by the Parent. Such shares shall be fully
paid and nonassessable. The Parent shall not be required to issue or deliver any
certificate or certificates for shares of Stock granted pursuant to Section 6 or
purchased upon the exercise of an option or portion thereof prior to fulfillment
of all of the following conditions:
(a) The obtaining of approval or other clearance from any
state or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the
exercise of the option as the Committee may from time to time establish
for reasons of administrative convenience.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive
acknowledges that during his employment he will have access to:
(a) confidential or secret plans, programs, documents,
agreements, internal management reports, financial information or other
material relating to the business, services or activities of the
Company, and
(b) trade secrets, market reports, customer investigations,
customer lists and other similar information that is proprietary
information of the Company
(collectively referred to as "Confidential Information"). The Executive
acknowledges that such Confidential Information as is acquired and used by the
Company is a special, valuable and unique asset of the Company. In addition, all
records, files and other materials obtained by the Executive in the course of
his employment with the Company shall remain the property of the Company. The
Executive will not use Confidential Information or property of the Company for
his own benefit or the benefit of any person or entity with which he may be
associated. The Executive will not disclose any Confidential Information to any
person, firm, corporation, association or other entity for any reason or purpose
whatsoever without the prior written consent of the Company. The obligations of
this Section shall not apply to (i) information that enters the public domain
without a breach of this Agreement by the Executive or (ii) information
developed by or known to the Executive independently of disclosure to him by the
Company.
12. BINDING ON SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Parent, the Company, the Executive and their
respective successors, assigns, personnel and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
13. GOVERNING LAW. This Agreement shall be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
New York.
14. CONSENT AND JURISDICTION. Each party hereto irrevocably and
unconditionally
(a) agrees that any suit, action or other legal proceeding
arising out of this Agreement may be brought in the United States
District Court for the Southern District of New York or, if such court
does not have jurisdiction or will not accept jurisdiction, in the
Supreme Court of the State of New York, New York County,
8
<PAGE> 9
(b) consents to the jurisdiction of any such court in any such
suit, action or proceeding, and
(c) waives any objection which such party may have to the
laying of venue of any such, suit, action or proceeding in any such
court.
15. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
16. NOTICES. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Parent or the Company, addressed to:
Theodore C. Rogers
American Industrial Partners
551 Fifth Avenue
Suite 3800
New York, NY 10176
With a copy to:
Jed W. Brickner
Latham & Watkins
885 Third Avenue
Suite 1000
New York, NY 10022
(b) If to the Executive, to him at the address set forth below
under his signature;
or at any other address as any party shall have specified by notice in writing
to the other parties.
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.
18. ENTIRE AGREEMENT. The terms of this Agreement and the other
documents contemplated hereby are intended by the parties to be the final
expression of their agreement with respect to the employment of the Executive by
the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement and
the other documents contemplated hereby shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial, administrative, or other legal proceeding to vary
the terms of this Agreement.
9
<PAGE> 10
19. AMENDMENTS; WAIVERS. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Executive, and
the Chief Executive Officer of the Company. By an instrument in writing
similarly executed, the Executive or the Company may waive compliance by the
other party or parties with any provision of this Agreement that such other
party was or is obligated to comply with or perform; PROVIDED, HOWEVER, that
such waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in exercising
any right, remedy, or power hereunder preclude any other or further exercise of
any other right, remedy, or power provided herein or by law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
EXECUTIVE
/s/ Joseph M. Byers
----------------------------------
Joseph M. Byers
7521 Woodsprince Lane
Hudson, Ohio 44236
EASCO CORPORATION
By: /s/ Norman E. Wells, Jr.
------------------------------
Name: Norman E. Wells, Jr.
Title: Chief Executive Officer
EASCO INC.
By: /s/ Donald W. Davis
------------------------------
Name: Donald W. Davis
Title: Chairman of the Board
10
<PAGE> 1
Exhibit 10.5(f)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated December 20, 1996, is made by and between Easco
Corporation, a Delaware corporation (the "Company") and a direct subsidiary of
Easco, Inc. (the "Parent"), and James R. McKeithan (the "Executive").
RECITALS:
A. It is the desire of the Company to assure itself of the management
services of the Executive by engaging him as the Vice President -- Operations of
the Company.
B. The Executive desires to commit himself to serve the Company on the
terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
(a) "ANNUAL BASE SALARY" is defined in Section 5(a).
(b) "BENEFITS" is defined in Section 5(b).
(c) "BOARD" shall mean the Board of Directors of the Company.
(d) A "BONUS YEAR" shall be a 12-month period beginning on
January 1 of any given year and ending on December 31 of such year,
except that the first Bonus Year shall commence on the Start Date and
shall terminate December 31, 1997.
(e) "CAUSE": For purposes of this Agreement, the Company shall
have "Cause" to terminate the Executive's employment hereunder for
matters arising out of or related to
(i) the Executive's personal dishonesty, inability or
unwillingness to perform duties appropriate to his employment
by the Company or any Subsidiary, willful misconduct, material
conflict of interest or material breach of fiduciary duty owed
to the Company or any Subsidiary,
(ii) any material (as opposed to technical) willful
violation of any law, rule, regulation or final
cease-and-desist order, or
(iii) any material breach by Executive of any
provision of any agreement between the Executive (on the one
hand) and the Company or any Subsidiary or other parties (on
the other hand) which remains uncured for more than ten days
after written notice describing such breach is given to the
Executive by the Company or the Subsidiary.
(f) "COMMITTEE" shall mean the Compensation Committee of the
Board.
<PAGE> 2
(g) "DISABILITY" shall mean the absence of the Executive from
the Executive's duties to the Company on a full-time basis for a total
of 16 weeks during any 12- month period as a result of incapacity due
to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(h) "GOOD REASON" shall mean the Company's failure to vest in
Executive the duties and responsibilities consistent with those set
forth in Section 3 or failure to make any payment to the Executive when
due which, in either case, remains uncured for more than ten days after
written notice describing such breach is given to the Company to the
Executive.
(i) "HOSTILE SALE OF THE PARENT OR COMPANY" shall mean a Sale
of the Parent or Company described in subsection (k)(i) which is not
approved by a majority of the members of the Board of Directors of the
Parent who had such status as of the consummation of the transaction
and also as of the date one year prior thereto. If on the date of such
consummation there are no people satisfying such condition then the
transaction shall be deemed to be a Hostile Sale of the Parent or
Company.
(j) "PERFORMANCE BONUS" is defined in Section 5(c).
(k) "SALE OF THE PARENT OR COMPANY" shall mean
(i) a sale by one or more stockholders in one
transaction or a series of related transactions, of equity
securities representing more than 50% of the aggregate voting
power of shares entitled to vote in the election of directors
of the Parent or the Company, or
(ii) a liquidation, dissolution or other winding up
of the Parent or the Company.
(l) "START DATE" shall mean November 26, 1996.
(m) "STOCK" shall mean the $.01 par value common stock of the
Parent.
(n) "SUBSIDIARY" shall mean any direct or indirect subsidiary
of the Company.
(o) "TERM OF EMPLOYMENT" is defined in Section 2.
2. EMPLOYMENT. The Company shall employ the Executive and the Executive
shall enter the employ of the Company, for the period set forth in this Section
2, in the positions set forth in Section 3 and upon the other terms and
conditions herein provided. The term of employment under this Agreement shall
commence on the Start Date and continue indefinitely until terminated pursuant
to Section 7 (the "Term of Employment").
3. POSITION AND DUTIES. During the Term of Employment, the Executive
shall serve as the Vice President -- Operations of the Company and shall have
such duties, functions, responsibilities and authority as are consistent with
the Executive's position as an executive responsible for operations at the
Company.
2
<PAGE> 3
4. PLACE OF PERFORMANCE. In connection with his employment during the
Term of Employment, the Executive shall be based at the corporate headquarters
of the Company currently located in Girard, Ohio, but subject to relocation at
the mutual agreement of the Company's Chief Executive Officer and the Board.
5. COMPENSATION AND RELATED MATTERS.
(a) ANNUAL BASE SALARY. The Executive shall receive a base
salary ("Annual Base Salary") at a rate of $137,500 per annum, payable
in accordance with the Company's payroll practice for senior
executives.
(b) BENEFITS. During the Term of Employment, the Executive
shall be entitled to such health, dental, life and disability insurance
coverage and other similar benefits as the Company provides to its
senior executive employees generally.
(c) PERFORMANCE BONUS. As additional compensation for services
rendered, for each Bonus Year contained within the Term of Employment,
the Executive shall be eligible to receive a cash Performance Bonus in
an amount ranging from 0% to 150% of his Annual Base Salary, with such
percentage to be determined on the basis of the Company's financial
performance as set forth in a separate document to be approved by the
Committee (the "Schedule"). The Performance Bonus for each Bonus Year
shall be paid no later than 15 days after the amount of such has been
finally determined.
(d) EXPENSES. The Company shall promptly reimburse the
Executive for all reasonable travel and other business expenses
incurred by the Executive in the performance of his duties to the
Company upon submission of proper documentation therefor.
6. SPECIAL INITIAL COMPENSATION
(a) SIGNING BONUS. Company shall pay Executive $240,000 in
cash under the following payment terms:
<TABLE>
<S> <C>
Promptly after Execution
of this Agreement $100,000
First Anniversary
of Start Date $70,000
Second Anniversary
of Start Date $70,000
</TABLE>
3
<PAGE> 4
Executive shall be required to return the following indicated amounts
to the Company upon the termination of his employment
(i) by the Company for Cause or
(ii) by the Executive for any reason other than
Death, Disability or Good Reason
prior to the indicated respective dates.
<TABLE>
<S> <C>
Second Anniversary
of Start Date $100,000
Third Anniversary
of Start Date $70,000
Fourth Anniversary
of Start Date $70,000.
</TABLE>
(b) STOCK GRANT. Promptly following execution and delivery of
this Agreement and completion of all applicable registration and
listing requirements, and upon Executive's payment to the Parent of the
$.01 per share par value thereof, the Parent shall issue to the
Executive 12,500 shares of Stock. Unless registered pursuant to
applicable federal and state securities laws, such Stock shall bear a
customary legend restricting transferability.
(c) LOAN. Pursuant to a separate note and security agreement
Company will lend the Executive an amount equal to his additional 1996
Federal and State income taxes incurred by reason of the Stock grant
described in subsection 6(b), or such lesser amount as the Executive
shall elect. Such note shall bear interest, with annual compounding, at
the applicable Federal Mid-Term Rate set forth pursuant to Section
1274(d)(1) for the month of the loan and shall provide for repayment in
three equal installments on December 31, 1997, 1998 and 1999. The
proceeds of such loan shall be disbursed to Executive not later than
the time or times that Executive shall make the applicable tax payments
provided that the Executive has furnished to the Company, reasonably in
advance, information sufficient for the Company to calculate the amount
of the loan.
(d) STOCK OPTIONS. Pursuant to separate stock option grant
letters and, as applicable, the terms of the Company's Stock Option
Plan, the Company shall grant the Executive options with respect to
37,500 shares of Stock. One-half of these options shall be exercisable
at $3.00 per share and one-half at $6.00 (which was the fair market
value at the date of grant, November 24, 1996 by the Committee, subject
to approval of the Board (which was obtained November 26, 1996, subject
to entering into this Agreement)). These options shall become
exercisable in 33 1/3% installments on the first, second and third
anniversaries of the Start Date, provided that the Executive is still
employed on each of such respective dates and provided further that no
option shall be exercisable in any year to the extent that by reason of
such exercise any portion of the compensation payable to the Executive
would fail to be deductible by the Company or Parent by reason of
Section 162(m) of the Internal Revenue Code of 1986. The options shall
also be fully vested, and, at the election of the
4
<PAGE> 5
Parent, settled for cash in connection with a Sale of the Parent or
Company, in a manner similar to that specified in one or more recently
executed agreements of other senior executives of the Company.
(e) ADDITIONAL STOCK OPTIONS. Pursuant to separate stock
option grant letters and, as applicable, the terms of the Company's
Stock Option Plan, the Company shall grant the Executive options with
respect to 50,000 shares of Stock, exercisable at $5.75 (which was the
fair market value at the date of grant, November 26, 1996).
(i) These options shall become exercisable in 33 1/3%
installments on January 1, 1998, January 1, 1999 and January
1, 2000, provided that:
(A) The Executive is still employed on each
of such respective dates, and
(B) Either
(1) The Company's Earnings for the
Contract Year immediately preceding such
date is at least 80% of the Target Earnings
for such Contract Year indicated on the
Schedule, or
(2). The total of the Company's
Earnings for the Contract Year immediately
preceding such date and the Company's
Earnings for the Contract Year containing
such date is at least 80% of total of the
Target Earnings for such two Contract Years
indicated on the Schedule.
(ii) Notwithstanding the above, the options shall
also be fully vested
(A) On the seventh anniversary of the Start
date if the Executive is employed on such date, or
(B) in connection with a Sale of the Parent
or Company, (and also, at the election of Parent,
cashed out) in a manner similar to that specified in
one or more recently executed agreements of other
senior executives of the Company.
7. TERMINATION. The Executive's employment hereunder may be terminated
by the Company or the Executive, as applicable, without any breach of this
Agreement only under the following circumstances:
(a) DEATH. The Executive's employment hereunder shall
terminate upon his death.
(b) DISABILITY. If the Company determines in good faith that
the Disability of the Executive has occurred during the Term of
Employment, the Company may give the Executive written notice in
accordance with Section 13(b) of its intention to terminate
5
<PAGE> 6
the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive, provided that within the 30
days after such receipt, the Executive shall not have returned to
full-time performance of his duties. The Executive shall continue to
receive his Annual Base Salary and Benefits until the date of
termination.
(c) CAUSE. The Company may terminate the Executive's
employment hereunder for Cause.
(d) WITHOUT CAUSE. The Company may terminate the Executive's
employment hereunder without Cause upon 30 days notice.
(e) GOOD REASON. The Executive may terminate his employment
hereunder for Good Reason upon 30 days notice.
(f) NOTICE OF TERMINATION. Any termination of the Executive's
employment hereunder by the Company (or by the Executive pursuant to
subsection (e)) shall be communicated by a notice of termination to the
Executive (or to the Company, as appropriate). For purposes of this
Agreement, a "notice of termination" shall mean a written notice which
(i) indicates the specific termination provision in the Agreement
relied upon, (ii) sets forth in reasonable detail any facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision indicated and (iii)
specifies the effective date of the termination.
8. SEVERANCE BENEFITS.
(a) TERMINATION WITHOUT CAUSE: If the Executive's employment
shall terminate without Cause (pursuant to Section 7(d)) or with Good
Reason (pursuant to Section 7(e)), then, if the Executive agrees to
comply with the provisions of paragraph (ii),
(i) the Company shall continue to pay the Executive
his Annual Base Salary under the payment schedule otherwise in
effect and pay the Executive's COBRA premium, until the
earlier of
(A)
(I) if the termination occurs
within six months following a Hostile Sale
of the Parent or Company, the second
anniversary of such termination, or
(II) if the termination occurs
under any other circumstances, the first
anniversary of such termination, and
(B) the date Executive commences other paid
employment with a regular work schedule of at least
35 hours per week;
(ii) such payments shall be made provided that the
Executive agrees in writing
6
<PAGE> 7
(A) to a general release of the Parent, the
Company and affiliates in the form used generally by
the Company in the case of the termination of
employment of senior executives,
(B) actively to seek other paid employment,
and
(C) that he shall not, so long as he is
receiving payments pursuant to Section 8(a)(i),
without the prior written consent of the Board,
directly or indirectly engage in, or have any
interest in, or manage or operate any person, firm,
corporation, partnership or business (whether as
director, officer, employee, agent, representative,
partner, security-holder, consultant or otherwise)
that engages in the business of providing soft alloy
aluminum extrusions or vinyl extrusions, and which
directly compete with the Company in any of its
markets; PROVIDED, HOWEVER, that Executive shall be
permitted to acquire stock in such a corporation
provided such stock is publicly traded and the stock
so acquired is not more than one percent of the
outstanding shares of such corporation.
(b) TERMINATION BY DISABILITY: If the Executive's employment
is terminated by reason of the Executive's Disability, the Executive or
his estate shall continue to receive his Annual Base Salary until the
date Executive's employment terminates.
9. REPRESENTATIONS OF EXECUTIVE.
(a) The Executive represents that he is under no contractual
or other legal constraint which would prevent him from executing this
Agreement or carrying out in full his responsibilities hereunder.
Executive indemnifies the Company from any cost, loss, liability,
damage or expense (including attorney's fees) which it may incur by
reason of any breach of the representation set forth in this Section
9(a).
(b) The Executive also represents, warrants and covenants
that:
(i) he is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act of 1933 (the "Act");
(ii) the purchase of the Stock hereunder by the
Executive will be for his own account;
(iii) the Executive has such knowledge and experience
in financial and business matters that he is capable of
evaluating the merits and risks of purchasing the Stock and
has been provided with comprehensive disclosure regarding all
aspects of the Company's business;
(iv) the Executive is not acquiring Stock with a view
to any distribution thereof in a transaction that would
violate the Act or the securities laws of any State of the
United States or any other applicable jurisdiction; and
10. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of Stock deliverable pursuant to Section 6 or upon the
exercise of an option, or any portion thereof, may be either previously
authorized but unissued shares or issued
7
<PAGE> 8
shares which have then been reacquired by the Parent. Such shares shall be fully
paid and nonassessable. The Parent shall not be required to issue or deliver any
certificate or certificates for shares of Stock granted pursuant to Section 6 or
purchased upon the exercise of an option or portion thereof prior to fulfillment
of all of the following conditions:
(a) The obtaining of approval or other clearance from any
state or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the
exercise of the option as the Committee may from time to time establish
for reasons of administrative convenience.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive
acknowledges that during his employment he will have access to:
(a) confidential or secret plans, programs, documents,
agreements, internal management reports, financial information or other
material relating to the business, services or activities of the
Company, and
(b) trade secrets, market reports, customer investigations,
customer lists and other similar information that is proprietary
information of the Company
(collectively referred to as "Confidential Information"). The Executive
acknowledges that such Confidential Information as is acquired and used by the
Company is a special, valuable and unique asset of the Company. In addition, all
records, files and other materials obtained by the Executive in the course of
his employment with the Company shall remain the property of the Company. The
Executive will not use Confidential Information or property of the Company for
his own benefit or the benefit of any person or entity with which he may be
associated. The Executive will not disclose any Confidential Information to any
person, firm, corporation, association or other entity for any reason or purpose
whatsoever without the prior written consent of the Company. The obligations of
this Section shall not apply to (i) information that enters the public domain
without a breach of this Agreement by the Executive or (ii) information
developed by or known to the Executive independently of disclosure to him by the
Company.
12. BINDING ON SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Parent, the Company, the Executive and their
respective successors, assigns, personnel and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
13. GOVERNING LAW. This Agreement shall be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
New York.
14. CONSENT AND JURISDICTION. Each party hereto irrevocably and
unconditionally
(a) agrees that any suit, action or other legal proceeding
arising out of this Agreement may be brought in the United States
District Court for the Southern District of New York or, if such court
does not have jurisdiction or will not accept jurisdiction, in the
Supreme Court of the State of New York, New York County,
8
<PAGE> 9
(b) consents to the jurisdiction of any such court in any such
suit, action or proceeding, and
(c) waives any objection which such party may have to the
laying of venue of any such, suit, action or proceeding in any such
court.
15. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
16. NOTICES. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Parent or the Company, addressed to:
Theodore C. Rogers
American Industrial Partners
551 Fifth Avenue
Suite 3800
New York, NY 10176
With a copy to:
Jed W. Brickner
Latham & Watkins
885 Third Avenue
Suite 1000
New York, NY 10022
(b) If to the Executive, to him at the address set forth below
under his signature;
or at any other address as any party shall have specified by notice in writing
to the other parties.
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.
18. ENTIRE AGREEMENT. The terms of this Agreement and the other
documents contemplated hereby are intended by the parties to be the final
expression of their agreement with respect to the employment of the Executive by
the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement and
the other documents contemplated hereby shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial, administrative, or other legal proceeding to vary
the terms of this Agreement.
9
<PAGE> 10
19. AMENDMENTS; WAIVERS. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Executive, and
the Chief Executive Officer of the Company. By an instrument in writing
similarly executed, the Executive or the Company may waive compliance by the
other party or parties with any provision of this Agreement that such other
party was or is obligated to comply with or perform; PROVIDED, HOWEVER, that
such waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in exercising
any right, remedy, or power hereunder preclude any other or further exercise of
any other right, remedy, or power provided herein or by law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
EXECUTIVE
/s/ James R. McKeithan
---------------------------------
James R. McKeithan
6885 St. Regis Blvd.
Hudson, Ohio 44236
EASCO CORPORATION
By: /s/ Norman E. Wells, Jr.
-----------------------------
Name: Norman E. Wells, Jr.
Title: Chief Executive Officer
EASCO INC.
By: /s/ Donald W. Davis
-----------------------------
Name: Donald W. Davis
Title: Chairman of the Board
10
<PAGE> 1
Exhibit 10.5(g)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated December 30, 1996, is made by and between Easco
Corporation, a Delaware corporation (the "Company") and a direct subsidiary of
Easco, Inc. (the "Parent"), and Lawrence J. Sax (the "Executive").
RECITALS:
A. It is the desire of the Company to assure itself of the management
services of the Executive by engaging him as the Vice President--Raw Materials
of the Company.
B. The Executive desires to commit himself to serve the Company on the
terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
(a) "ANNUAL BASE SALARY" is defined in Section 5(a).
(b) "BENEFITS" is defined in Section 5(b).
(c) "BOARD" shall mean the Board of Directors of the Company.
(d) A "BONUS YEAR" shall be a 12-month period beginning on
January 1 of any given year and ending on December 31 of such year,
except that the first Bonus Year shall commence on the Start Date and
shall terminate December 31, 1997.
(e) "CAUSE": For purposes of this Agreement, the Company shall
have "Cause" to terminate the Executive's employment hereunder for
matters arising out of or related to
(i) the Executive's personal dishonesty, inability or
unwillingness to perform duties appropriate to his employment
by the Company or any Subsidiary, willful misconduct, material
conflict of interest or material breach of fiduciary duty owed
to the Company or any Subsidiary,
(ii) any material (as opposed to technical) willful
violation of any law, rule, regulation or final
cease-and-desist order, or
(iii) any material breach by Executive of any
provision of any agreement between the Executive (on the one
hand) and the Company or any Subsidiary or other parties (on
the other hand) which remains uncured for more than ten days
after written notice describing such breach is given to the
Executive by the Company or the Subsidiary.
(f) "COMMITTEE" shall mean the Compensation Committee of the
Board.
<PAGE> 2
(g) "DISABILITY" shall mean the absence of the Executive from
the Executive's duties to the Company on a full-time basis for a total
of 16 weeks during any 12-month period as a result of incapacity due
to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(h) "GOOD REASON" shall mean the Company's failure to vest in
Executive the duties and responsibilities consistent with those set
forth in Section 3 or failure to make any payment to the Executive when
due which, in either case, remains uncured for more than ten days after
written notice describing such breach is given to the Company to the
Executive.
(i) "HOSTILE SALE OF THE PARENT OR COMPANY" shall mean a Sale
of the Parent or Company described in subsection (k)(i) which is not
approved by a majority of the members of the Board of Directors of the
Parent who had such status as of the consummation of the transaction
and also as of the date one year prior thereto. If on the date of such
consummation there are no people satisfying such condition then the
transaction shall be deemed to be a Hostile Sale of the Parent or
Company.
(j) "PERFORMANCE BONUS" is defined in Section 5(c).
(k) "SALE OF THE PARENT OR COMPANY" shall mean
(i) a sale by one or more stockholders in one
transaction or a series of related transactions, of equity
securities representing more than 50% of the aggregate voting
power of shares entitled to vote in the election of directors
of the Parent or the Company, or
(ii) a liquidation, dissolution or other winding up
of the Parent or the Company.
(l) "START DATE" shall mean December 30, 1996.
(m) "STOCK" shall mean the $.01 par value common stock of the
Parent.
(n) "SUBSIDIARY" shall mean any direct or indirect subsidiary
of the Company.
(o) "TERM OF EMPLOYMENT" is defined in Section 2.
2. EMPLOYMENT. The Company shall employ the Executive and the Executive
shall enter the employ of the Company, for the period set forth in this Section
2, in the positions set forth in Section 3 and upon the other terms and
conditions herein provided. The term of employment under this Agreement shall
commence on the Start Date and continue indefinitely until terminated pursuant
to Section 7 (the "Term of Employment").
3. POSITION AND DUTIES. During the Term of Employment, the Executive
shall serve as the Vice President--Raw Materials of the Company and shall have
such duties, functions, responsibilities and authority as are consistent with
the Executive's position as an officer with responsibility for raw materials at
the Company.
2
<PAGE> 3
4. PLACE OF PERFORMANCE. In connection with his employment during the
Term of Employment, the Executive shall be based at the corporate headquarters
of the Company currently located in Girard, Ohio, but subject to relocation at
the mutual agreement of the Company's Chief Executive Officer and the Board.
5. COMPENSATION AND RELATED MATTERS.
(a) ANNUAL BASE SALARY. The Executive shall receive a base
salary ("Annual Base Salary") at a rate of $158,000 per annum, payable
in accordance with the Company's payroll practice for senior
executives.
(b) BENEFITS. During the Term of Employment, the Executive
shall be entitled to such health, dental, life and disability insurance
coverage and other similar benefits as the Company provides to its
senior executive employees generally.
(c) PERFORMANCE BONUS. As additional compensation for services
rendered, for each Bonus Year contained within the Term of Employment,
the Executive shall be eligible to receive a cash Performance Bonus in
an amount ranging from 0% to 150% of his Annual Base Salary, with such
percentage to be determined on the basis of the Company's financial
performance as set forth in a separate document to be approved by the
Committee (the "Schedule"). The Performance Bonus for each Bonus Year
shall be paid no later than 15 days after the amount of such has been
finally determined.
(d) EXPENSES. The Company shall promptly reimburse the
Executive for all reasonable travel and other business expenses
incurred by the Executive in the performance of his duties to the
Company upon submission of proper documentation therefor.
6. SPECIAL INITIAL COMPENSATION
(a) SIGNING BONUS. Company shall pay Executive $200,000 in
cash under the following payment terms:
<TABLE>
<S> <C>
Promptly after Execution
of this Agreement $100,000
First Anniversary
of Start Date $50,000
Second Anniversary
of Start Date $50,000
</TABLE>
3
<PAGE> 4
Executive shall be required to return the following indicated amounts
to the Company upon the termination of his employment
(i) by the Company for Cause or
(ii) by the Executive for any reason other than
Death, Disability or Good Reason
prior to the indicated respective dates.
<TABLE>
<S> <C>
Second Anniversary
of Start Date $100,000
Third Anniversary
of Start Date $50,000
Fourth Anniversary
of Start Date $50,000.
</TABLE>
(b) STOCK GRANT. Promptly following execution and delivery of
this Agreement and completion of all applicable registration and
listing requirements, and upon Executive's payment to the Parent of the
$.01 per share par value thereof, the Parent shall issue to the
Executive 12,500 shares of Stock. Unless registered pursuant to
applicable federal and state securities laws, such Stock shall bear a
customary legend restricting transferability.
(c) LOAN. Pursuant to a separate note and security agreement
Company will lend the Executive an amount equal to his additional 1996
Federal and State income taxes incurred by reason of the Stock grant
described in subsection 6(b), or such lesser amount as the Executive
shall elect. Such note shall bear interest, with annual compounding, at
the applicable Federal Mid-Term Rate set forth pursuant to Section
1274(d)(1) for the month of the loan and shall provide for repayment in
three equal installments on December 31, 1997, 1998 and 1999. The
proceeds of such loan shall be disbursed to Executive not later than
the time or times that Executive shall make the applicable tax payments
provided that the Executive has furnished to the Company, reasonably in
advance, information sufficient for the Company to calculate the amount
of the loan.
(d) STOCK OPTIONS. Pursuant to separate stock option grant
letters and, as applicable, the terms of the Company's Stock Option
Plan, the Company shall grant the Executive options with respect to
37,500 shares of Stock. One-half of these options shall be exercisable
at $3.00 per share and one-half at $6.00 (which was the fair market
value at the date of grant, November 24, 1996 by the Committee, subject
to approval of the Board (which was obtained November 26, 1996, subject
to entering into this Agreement)). These options shall become
exercisable in 33 1/3% installments on the first, second and third
anniversaries of the Start Date, provided that the Executive is still
employed on each of such respective dates and provided further that no
option shall be exercisable in any year to the extent that by reason of
such exercise any portion of the compensation payable to the Executive
would fail to be deductible by the Company or Parent by reason of
Section 162(m) of the Internal Revenue Code of 1986. The options shall
also be fully vested, and, at the election of the
4
<PAGE> 5
Parent, settled for cash in connection with a Sale of the Parent or
Company, in a manner similar to that specified in one or more recently
executed agreements of other senior executives of the Company.
(e) ADDITIONAL STOCK OPTIONS. Pursuant to separate stock
option grant letters and, as applicable, the terms of the Company's
Stock Option Plan, the Company shall grant the Executive options with
respect to 50,000 shares of Stock, exercisable at the New York Stock
Exchange closing price of a share of Stock on the Start Date.
(i) These options shall become exercisable in 33 1/3%
installments on January 1, 1998, January 1, 1999 and January
1, 2000, provided that:
(A) The Executive is still employed on each
of such respective dates, and
(B) Either
(1) The Company's Earnings for the
Contract Year immediately preceding such
date is at least 80% of the Target Earnings
for such Contract Year indicated on the
Schedule, or
(2). The total of the Company's
Earnings for the Contract Year immediately
preceding such date and the Company's
Earnings for the Contract Year containing
such date is at least 80% of total of the
Target Earnings for such two Contract Years
indicated on the Schedule.
(ii) Notwithstanding the above, the options shall
also be fully vested
(A) On the seventh anniversary of the Start
date if the Executive is employed on such date, or
(B) in connection with a Sale of the Parent
or Company, (and also, at the election of Parent,
cashed out) in a manner similar to that specified in
one or more recently executed agreements of other
senior executives of the Company.
7. TERMINATION. The Executive's employment hereunder may be terminated
by the Company or the Executive, as applicable, without any breach of this
Agreement only under the following circumstances:
(a) DEATH. The Executive's employment hereunder shall
terminate upon his death.
(b) DISABILITY. If the Company determines in good faith that
the Disability of the Executive has occurred during the Term of
Employment, the Company may give the Executive written notice in
accordance with Section 13(b) of its intention to terminate the
Executive's employment. In such event, the Executive's employment with
the Company
5
<PAGE> 6
shall terminate effective on the 30th day after receipt of such notice
by the Executive, provided that within the 30 days after such receipt,
the Executive shall not have returned to full-time performance of his
duties. The Executive shall continue to receive his Annual Base Salary
and Benefits until the date of termination.
(c) CAUSE. The Company may terminate the Executive's
employment hereunder for Cause.
(d) WITHOUT CAUSE. The Company may terminate the Executive's
employment hereunder without Cause upon 30 days notice.
(e) GOOD REASON. The Executive may terminate his employment
hereunder for Good Reason upon 30 days notice.
(f) NOTICE OF TERMINATION. Any termination of the Executive's
employment hereunder by the Company (or by the Executive pursuant to
subsection (e)) shall be communicated by a notice of termination to the
Executive (or to the Company, as appropriate). For purposes of this
Agreement, a "notice of termination" shall mean a written notice which
(i) indicates the specific termination provision in the Agreement
relied upon, (ii) sets forth in reasonable detail any facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision indicated and (iii)
specifies the effective date of the termination.
8. SEVERANCE BENEFITS.
(a) TERMINATION WITHOUT CAUSE: If the Executive's employment
shall terminate without Cause (pursuant to Section 7(d)) or with Good
Reason (pursuant to Section 7(e)), then, if the Executive agrees to
comply with the provisions of paragraph (ii),
(i) the Company shall continue to pay the Executive
his Annual Base Salary under the payment schedule otherwise in
effect and pay the Executive's COBRA premium, until the
earlier of
(A)
(I) if the termination occurs
within six months following a Hostile Sale
of the Parent or Company, the second
anniversary of such termination, or
(II) if the termination occurs
under any other circumstances, the first
anniversary of such termination, and
(B) the date Executive commences other paid
employment with a regular work schedule of at least
35 hours per week;
(ii) such payments shall be made provided that the
Executive agrees in writing
(A) to a general release of the Parent, the
Company and affiliates in the form used generally by
the Company in the case of the termination of
employment of senior executives,
6
<PAGE> 7
(B) actively to seek other paid employment,
and
(C) that he shall not, so long as he is
receiving payments pursuant to Section 8(a)(i),
without the prior written consent of the Board,
directly or indirectly engage in, or have any
interest in, or manage or operate any person, firm,
corporation, partnership or business (whether as
director, officer, employee, agent, representative,
partner, security-holder, consultant or otherwise)
that engages in the business of providing soft alloy
aluminum extrusions or vinyl extrusions, and which
directly compete with the Company in any of its
markets; PROVIDED, HOWEVER, that Executive shall be
permitted to acquire stock in such a corporation
provided such stock is publicly traded and the stock
so acquired is not more than one percent of the
outstanding shares of such corporation.
(b) TERMINATION BY DISABILITY: If the Executive's employment
is terminated by reason of the Executive's Disability, the Executive or
his estate shall continue to receive his Annual Base Salary until the
date Executive's employment terminates.
9. REPRESENTATIONS OF EXECUTIVE.
(a) The Executive represents that he is under no contractual
or other legal constraint which would prevent him from executing this
Agreement or carrying out in full his responsibilities hereunder.
Executive indemnifies the Company from any cost, loss, liability,
damage or expense (including attorney's fees) which it may incur by
reason of any breach of the representation set forth in this Section
9(a).
(b) The Executive also represents, warrants and covenants
that:
(i) he is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act of 1933 (the "Act");
(ii) the purchase of the Stock hereunder by the
Executive will be for his own account;
(iii) the Executive has such knowledge and experience
in financial and business matters that he is capable of
evaluating the merits and risks of purchasing the Stock and
has been provided with comprehensive disclosure regarding all
aspects of the Company's business;
(iv) the Executive is not acquiring Stock with a view
to any distribution thereof in a transaction that would
violate the Act or the securities laws of any State of the
United States or any other applicable jurisdiction; and
10. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of Stock deliverable pursuant to Section 6 or upon the
exercise of an option, or any portion thereof, may be either previously
authorized but unissued shares or issued shares which have then been reacquired
by the Parent. Such shares shall be fully paid and nonassessable. The Parent
shall not be required to issue or deliver any certificate or certificates for
shares of Stock granted pursuant to Section 6 or purchased upon the exercise of
an option or portion thereof prior to fulfillment of all of the following
conditions:
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<PAGE> 8
(a) The obtaining of approval or other clearance from any
state or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the
exercise of the option as the Committee may from time to time establish
for reasons of administrative convenience.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive
acknowledges that during his employment he will have access to:
(a) confidential or secret plans, programs, documents,
agreements, internal management reports, financial information or other
material relating to the business, services or activities of the
Company, and
(b) trade secrets, market reports, customer investigations,
customer lists and other similar information that is proprietary
information of the Company
(collectively referred to as "Confidential Information"). The Executive
acknowledges that such Confidential Information as is acquired and used by the
Company is a special, valuable and unique asset of the Company. In addition, all
records, files and other materials obtained by the Executive in the course of
his employment with the Company shall remain the property of the Company. The
Executive will not use Confidential Information or property of the Company for
his own benefit or the benefit of any person or entity with which he may be
associated. The Executive will not disclose any Confidential Information to any
person, firm, corporation, association or other entity for any reason or purpose
whatsoever without the prior written consent of the Company. The obligations of
this Section shall not apply to (i) information that enters the public domain
without a breach of this Agreement by the Executive or (ii) information
developed by or known to the Executive independently of disclosure to him by the
Company.
12. BINDING ON SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Parent, the Company, the Executive and their
respective successors, assigns, personnel and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
13. GOVERNING LAW. This Agreement shall be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
New York.
14. CONSENT AND JURISDICTION. Each party hereto irrevocably and
unconditionally
(a) agrees that any suit, action or other legal proceeding
arising out of this Agreement may be brought in the United States
District Court for the Southern District of New York or, if such court
does not have jurisdiction or will not accept jurisdiction, in the
Supreme Court of the State of New York, New York County,
(b) consents to the jurisdiction of any such court in any such
suit, action or proceeding, and
(c) waives any objection which such party may have to the
laying of venue of any such, suit, action or proceeding in any such
court.
8
<PAGE> 9
15. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
16. NOTICES. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Parent or the Company, addressed to:
Theodore C. Rogers
American Industrial Partners
551 Fifth Avenue
Suite 3800
New York, NY 10176
With a copy to:
Jed W. Brickner
Latham & Watkins
885 Third Avenue
Suite 1000
New York, NY 10022
(b) If to the Executive, to him at the address set forth below
under his signature;
or at any other address as any party shall have specified by notice in writing
to the other parties.
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.
18. ENTIRE AGREEMENT. The terms of this Agreement and the other
documents contemplated hereby are intended by the parties to be the final
expression of their agreement with respect to the employment of the Executive by
the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement and
the other documents contemplated hereby shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial, administrative, or other legal proceeding to vary
the terms of this Agreement.
9
<PAGE> 10
19. AMENDMENTS; WAIVERS. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Executive, and
the Chief Executive Officer of the Company. By an instrument in writing
similarly executed, the Executive or the Company may waive compliance by the
other party or parties with any provision of this Agreement that such other
party was or is obligated to comply with or perform; PROVIDED, HOWEVER, that
such waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in exercising
any right, remedy, or power hereunder preclude any other or further exercise of
any other right, remedy, or power provided herein or by law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
EXECUTIVE
/s/ Lawrence J. Sax
------------------------------------
Lawrence J. Sax
[Address]
EASCO CORPORATION
By: /s/ Norman E. Wells, Jr.
--------------------------------
Name: Norman E. Wells, Jr.
Title: Chief Executive Officer
EASCO INC.
By: /s/ Donald W. Davis
--------------------------------
Name: Donald W. Davis
Title: Chairman of the Board
10
<PAGE> 1
Exhibit 10.9
RESOLUTION OF
THE BOARD OF DIRECTORS OF
EASCO CORPORATION
WHEREAS, Easco Corporation (the "Company") wishes to amend certain
provisions of the Easco Corporation Retirement Plan for Corporate Vice
Presidents and Other Selected Executives (the "Plan") pertaining to early
retirement so as to enhance early retirement benefits for participants in the
Plan who retire after attaining age 50 with age and service totaling at least
80.
RESOLVED, that the Plan is hereby amended as follows:
1. Section 2.2 is amended to read as follows (new language is
underlined):
2.2 "Average Annual Compensation" means the average of an Eligible
Employee's Applicable Compensation for the three consecutive years out of the
five years prior to retirement (10 YEARS PRIOR TO RETIREMENT IN THE CASE OF RULE
OF 80 RETIREMENT) which produces the highest amounts.
2. Section 2.7 is amended to read as follows (new language is
underlined):
2.7 "EARLY RETIREMENT DATE" means the EARLIER OF (I) the date on which
an Eligible Employee has attained age 55 and completed at least 5 Years of
Service or (II) THE DATE ON WHICH AN ELIGIBLE EMPLOYEE HAS ATTAINED AGE 50 WITH
THE TOTAL OF THE ELIGIBLE EMPLOYEE'S AGE AND YEARS OF SERVICE EQUALING AT LEAST
80.
3. The following new Section 2.14 is added to the Plan and current
Section 2.14 is redesignated Section 2.15:
2.14 "RULE OF 80 RETIREMENT" means retirement on an Early
Retirement Date described in section 2.7(ii).
4. Section 4.1 is amended in its entirety to read as follows (new
language is underlined):
4.1 QUALIFICATION AND AMOUNT. An Eligible Employee who has attained
his Early Retirement Date may retire on any day prior to his Normal
Retirement Date. An Eligible Employee who retires, or whose Early Retirement
Benefit begins, after attaining age 62 shall be entitled to an annual Early
Retirement Benefit (when expressed as a benefit payable for a term certain of 60
months and for the life of the Eligible Employee
<PAGE> 2
Exhibit 10.9
thereafter) equal to 50% of his Average Annual Compensation. An Eligible
Employee who retires, or whose Early Retirement Benefit begins, before attaining
age 62 AND BEFORE QUALIFYING FOR RULE OF 80 RETIREMENT shall be entitled to an
annual Early Retirement Benefit (when expressed as a benefit payable for a term
certain of 60 months and for the life of the Eligible Employee thereafter),
equal to a percentage of his Average Annual Compensation determined from the
following chart.
<TABLE>
Eligible Employee's Age Percentage of
at Retirement Annual Compensation
------------- -------------------
<S> <C>
55 32.5%
56 35
57 37.5
58 40
59 42.5
60 45
61 47.5
</TABLE>
AN ELIGIBLE EMPLOYEE WHO RETIRES, OR WHOSE EARLY RETIREMENT BENEFIT
BEGINS BEFORE ATTAINING AGE 62 BUT AFTER QUALIFYING FOR RULE OF 80 RETIREMENT
SHALL BE ENTITLED TO AN ANNUAL EARLY RETIREMENT BENEFIT (WHEN EXPRESSED AS A
BENEFIT PAYABLE FOR A TERM CERTAIN OF 60 MONTHS AND FOR THE LIFE OF THE ELIGIBLE
EMPLOYEE THEREAFTER), EQUAL TO 32.5% OF HIS AVERAGE ANNUAL COMPENSATION, OR, IF
THE ELIGIBLE EMPLOYEE IS AGE 56 OR OLDER AT RETIREMENT OR WHEN HIS EARLY
RETIREMENT BENEFIT BEGINS, THE PERCENTAGE OF HIS AVERAGE ANNUAL COMPENSATION
DETERMINED BY THE ABOVE CHART. An Eligible Employee's Early Retirement Benefit
shall be payable by the Employer with which the Eligible Employee was employed
when he retired.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of Easco
Corporation hereby approves and adopts the proposed amendment to the Plan, and
the proper officers of the Corporation are authorized and directed to take such
actions as they consider necessary or desirable for purposes of implementing the
amendment herein adopted.
<PAGE> 1
Exhibit 10.13
GENERAL RELEASE AND SEVERANCE AGREEMENT
---------------------------------------
This General Release and Severance Agreement (hereafter "Agreement") is hereby
entered into between Michael M. Hagerty ("Executive"), and Easco, Inc., a
Delaware corporation ("Parent"), Easco Corporation, a Delaware corporation
("Company"), and Dolton Aluminum Company, Inc., a Wisconsin corporation
("Dolton") (collectively the "Employers").
WHEREAS, Executive is, or prior to the execution of this Agreement has
been, an employee of Parent, Company and Dolton and a Director of each;
WHEREAS, Executive and Employers now desire to terminate this
employment and directorship relationship and fully and finally to resolve all
matters between them;
THEREFORE, in exchange for the good and valuable consideration set
forth herein, the adequacy of which is specifically acknowledged, Executive and
Employers ("the parties") hereby agree as follows:
1. TERMINATION OF EMPLOYMENT AND DIRECTORSHIP. Executive hereby
irrevocably agrees to resign his employment with each Employer, and his
positions as Director of each Employer, effective November 26, 1996 (the
"Effective Date of Resignation"); PROVIDED, HOWEVER, that Executive agrees and
acknowledges that his status as an officer and Director of each Employer has
been terminated prior to the execution of this Agreement, as previously agreed
by the parties.
2. SALARY AND BENEFIT CONTINUATION. Employers shall continue to pay
Executive his base salary at the rate of $235,000 per annum for thirteen months
from the Effective Date of Resignation (such period the "Continuation Period").
During the Continuation Period Employers shall also continue to provide at their
expense coverage for Executive and his family under Employers' health and
insurance plans then in effect for their senior executives and provide Executive
with the continued use, without charge, of his Employer-provided automobile,
together with automobile insurance coverage in scope and amount equal to that in
force on the Effective Date of Resignation.
3. ACCRUED VACATION PAY. On the Closing, Employers will pay Executive
for his accrued but unused vacation the sum of $7,231.
4. ADDITIONAL BENEFITS. Employers shall pay or cause to be paid to
Executive (or, to the extent permitted by law, to an Individual Retirement
Account designated by him) all of his benefits accrued under Employers' employee
benefit plans as of Effective Date of Resignation. Except as provided in Section
2 hereof, all other compensation, benefits or perquisites shall cease upon the
Effective Date of Resignation.
<PAGE> 2
5. OUTPLACEMENT. Employers shall provide Executive with outplacement
services with a mutually agreeable nationally known outplacement firm from
January 1, 1997 until the earlier of (a) December 31, 1997 or (b) the date the
Executive obtains other full-time employment. In lieu of such outplacement
services, Executive may elect in writing, no later than January 8, 1997, to
receive cash payments, equal in amount and timing, to the payments that the
Companies would otherwise have made to obtain such services.
6. PARENT STOCK OPTIONS. On the Closing Employers shall pay Executive
the amount of $282,607.32 in exchange for Executive's surrender for cancellation
all options he holds with respect to the stock of Parent.
7. SALE AND PURCHASE OF SHARES; REPAYMENT OF LOAN SECURED BY STOCK.
Executive owns an aggregate of 53,474 shares of common stock $.01 par value of
Parent (collectively, the "Stock"). At the Closing (as defined in Section 26
below), Executive shall sell, transfer and deliver the Stock to Parent and
Parent shall purchase the Stock and pay to Executive therefor an amount equal to
(a) $401,055.00, minus
(b) the amount then outstanding (including accrued interest)
on his note made payable to Extrusion Holdings, Inc., in the original
principal amount of $213,880.00 dated December 21, 1993 (the "Note" the
outstanding principal balance on which, assuming that all payments
thereon were current, was, as of September 30, 1996, $160,950.00, with
interest accruing thereafter at the rate of $26.825 per day),
whereupon Employers shall return to Executive the Note, marked "cancelled."
8. RESIDUAL DUTIES. The parties agree and intend that any and all
duties of loyalty, fidelity, and confidentiality running from Executive to each
Employer and arising out of the common law as a consequence of the parties'
employment relationship shall continue in full force and effect between the
parties until the Effective Date of Resignation; PROVIDED, HOWEVER, that neither
this paragraph nor any other portion of this Agreement shall be interpreted to
diminish any residual duties or obligations of Executive to each Employer that
may arise or continue in effect under the common law after Executive's Effective
Date of Resignation.
9. INSURANCE BENEFITS. Executive shall have the opportunity to elect
COBRA continuation health care coverage for a period beginning no earlier than
the Effective Date of Resignation, and continuing for so long as otherwise
required by law. If Executive is entitled to elect COBRA, Employers shall,
pursuant to Section 2 hereof, pay Executive's COBRA premium for the Continuation
Period, which period shall count toward Executive's COBRA entitlement. Executive
recognizes and understands that obtaining group coverage through Executive's
spouse's employment may adversely affect COBRA eligibility. To the extent
permitted under the terms of applicable employee benefit plans, Employers have
paid and will continue to pay, for periods up to and including the Effective
Date of Resignation, any life and disability insurance premiums pertaining to
Executive which would be necessary
2
<PAGE> 3
to maintain such coverage for Executive as Employers provide to otherwise
similarly-situated employees. However, Employers make no representation that
such coverage will be available to Executive for periods while he is or has not
been actively employed. To the extent provided by the terms of the applicable
employee benefit plans, Executive will be offered the opportunity to convert his
group benefits to individual coverage at non-group rates.
10. RELEASE OF CLAIMS BY EMPLOYERS. Employers agree, for Employers,
their affiliates, successors and assigns, hereby forever to release, discharge,
and covenant not to sue Executive, from any and all claims, debts, demands,
accounts, judgments, rights, causes of action, equitable relief, damages, costs,
charges, complaints, obligations, promises, agreements, controversies, suits,
expenses, compensation, responsibility and liability of every kind and character
whatsoever (including attorneys' fees and costs), whether in law or equity,
known or unknown, asserted or unasserted, suspected or unsuspected
(collectively, "Claims"), which Employers have or may have had against Executive
based on any events or circumstances arising or occurring on or prior to the
Effective Date of Resignation including without limitation any and all claims
arising out of Executive's employment with Employers or the termination thereof
PROVIDED, HOWEVER, notwithstanding anything to the contrary set forth herein,
that this Release shall not extend to (a) any Claim which relates to or arises
from any criminal activity of Executive, and (b) any obligation assumed under
this Agreement by any party hereto.
11. NO OTHER PAYMENTS. Executive understands and agrees that Employers
shall make no other payments to Executive, and shall have no other obligations
to Executive except as described in this Agreement.
12. CONSULTATION AFTER EFFECTIVE DATE OF RESIGNATION. Executive agrees
that for 30 days following his Effective Date of Resignation he will continue to
make himself available for reasonable part-time consultation with Employers and
Employers' agents and employees regarding his prior work for Employers. Such
consultation shall include Executive's making himself reasonably available for
interviews by Employers' counsel, depositions, and/or court appearances upon
Employers' request, in Ohio or elsewhere in the continental United States.
Executive will not perform any services for Employers except as explicitly and
specifically authorized by the Employer in question, and will not enter the
premises of any Employer or communicate with government agencies, labor unions,
adverse parties in actual or potential litigation, suppliers, service providers,
customers, or employees of any Employer regarding any Employer's business or
Executive's employment status without the express written authorization of the
applicable Employer. Employers agree that they will reimburse Executive for
reasonable expenses, such as telephone, travel, lodging, and meal expenses,
incurred by Executive at Employers' request or with Employers' approval,
consistent with Employers' generally applicable policies for employee expenses.
Executive agrees that he will notify Employers of all pertinent facts if he is
contacted by any government agency with reference to any Employer's business, or
by any person contemplating or maintaining any claim or legal action against any
Employer, or by any agent or attorney of such person.
3
<PAGE> 4
13. TRADING IN STOCK OF PARENT. Until the date three months from the
Effective Date of Resignation, Executive shall comply with Employers' policy
relating to trading in the stock of Parent. Employers acknowledge that the
purchase and sale of stock provided for in this Agreement does not contravene
such policy.
14. NEUTRAL REFERENCE. Employers agree that they will provide a neutral
reference regarding Executive and Executive's employment, which reference may
consist of confirmation of employment, dates thereof, salary levels, and job
title, in response to inquiries directed to an Employer's President or Human
Resources Director.
15. GENERAL RELEASE OF CLAIMS BY EXECUTIVE. Executive agrees for
Executive, Executive's spouse and child or children (if any), Executive's heirs,
beneficiaries, devisees, executors, administrators, attorneys, personal
representatives, successors and assigns, hereby forever to release, discharge,
and covenant not to sue any Employer, any Employer's past, present, or future
parent, affiliated, related, and/or subsidiary entities, and all of their past
and present directors, shareholders, officers, general or limited partners,
employees, agents, and attorneys, and agents and representatives of such
entities, and employee benefit plans in which Executive is or has been a
participant by virtue of his employment with any Employer, from any and all
claims, debts, demands, accounts, judgments, rights, causes of action, equitable
relief, damages, costs, charges, complaints, obligations, promises, agreements,
controversies, suits, expenses, compensation, responsibility and liability of
every kind and character whatsoever (including attorneys' fees and costs),
whether in law or equity, known or unknown, asserted or unasserted, suspected or
unsuspected, which Executive has or may have had against such entities based on
any events or circumstances arising or occurring on or prior to the Effective
Date of Resignation (or, with respect to claims of disparagement, arising or
occurring on or prior to the date this Agreement is executed), arising directly
or indirectly out of, relating to, or in any other way involving in any manner
whatsoever, (a) Executive's employment with any Employer or the termination
thereof or (b) the Executive's status at any time as a holder of any securities
of any Employer, and any and all claims arising under federal, state, or local
laws relating to employment, or securities, including without limitation claims
of wrongful discharge, breach of express or implied contract, fraud,
misrepresentation, defamation, or liability in tort, claims of any kind that may
be brought in any court or administrative agency, any claims arising under Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act,
the Americans with Disabilities Act, the Fair Labor Standards Act, the Employee
Retirement Income Security Act, the Family and Medical Leave Act, the Securities
Act of 1933, the Securities Exchange Act of 1934, and similar state or local
statutes, ordinances, and regulations, PROVIDED, HOWEVER, notwithstanding
anything to the contrary set forth herein, that this General Release shall not
extend to (x) benefit claims under employee pension benefit plans in which
Executive is a participant by virtue of his employment with any Employer or to
benefit claims under employee welfare benefit plans for occurrences (e.g.,
medical care, death, or onset of disability) arising after the execution of this
Agreement by Executive, and (y) any obligation assumed under this Agreement by
any party hereto.
4
<PAGE> 5
16. RELEASE OF AGE DISCRIMINATION CLAIMS; PERIODS FOR REVIEW AND
RECONSIDERATION.
a. Executive understands that this Agreement includes a
release of claims arising under the Age Discrimination in Employment Act (ADEA).
Executive understands and warrants that he has been given a period of twenty-one
(21) days to review and consider this Agreement. Executive is hereby advised to
consult with an attorney prior to executing the Agreement. By his signature
below, Executive warrants that he has had the opportunity to do so and to be
fully and fairly advised by that legal counsel as to the terms of the Agreement.
Executive further warrants that he understands that he may use as much or all of
his 21-day period as he wishes before signing, and warrants that he has done so.
b. Executive further warrants that he understands that he has
seven (7) days after signing this Agreement to revoke the Agreement by notice in
writing to Theodore C. Rogers, American Industrial Partners, 551 Fifth Avenue,
Suite 3800, New York, N.Y. 10176. This Agreement shall be binding, effective,
and enforceable upon both parties upon the expiration of this seven-day
revocation period without Mr. Rogers having received such revocation, but not
before such time.
17. TRADE SECRETS.
a. Executive shall maintain in confidence and shall not
directly, indirectly or otherwise, use, disseminate, disclose or publish, or use
for his benefit or the benefit of any person, firm, corporation or other entity
any confidential or proprietary information or trade secrets of or relating to
any Employer (or which any Employer has a right to use), including, without
limitation, confidential or proprietary information with respect to any
Employer's operations, processes, products, inventions, business practices,
finances, principals, vendors, suppliers, customers, potential customers,
marketing methods, costs, prices, contractual relationships, regulatory status,
compensation paid to employees or other terms of employment, or deliver to any
person, firm, corporation or other entity any document, record, notebook,
computer program or similar repository of or containing any such confidential or
proprietary information or trade secrets. The parties hereby stipulate and agree
that as between them the foregoing matters are important, material and
confidential proprietary information and trade secrets and affect the successful
conduct of the businesses of Employers (and any successor or assignee of any
Employer).
b. Executive acknowledges that he has delivered to Employers
all correspondence, drawings, manuals, letters, notes, notebooks, reports,
programs, plans, proposals, financial documents, or any other documents
concerning any Employer's customers, business plans, marketing strategies,
products or processes and/or which contain proprietary information or trade
secrets.
18. CONFIDENTIALITY. Executive agrees not to disclose the terms or
existence of this Agreement to any person, agency, institution, company, or
other entity unless Employers agree to such disclosure in advance and in
writing, provided that Executive may, without such permission, disclose that
Executive resigned from his employment and make such
5
<PAGE> 6
disclosures as are required by courts or government agencies or appropriate
jurisdiction or otherwise by law, including disclosures to taxing agencies, and
disclose the terms of this agreement to his attorney(s), accountant(s), tax
advisor(s), and other professional service provider(s), as reasonably necessary,
and to his spouse and immediate family. However, to the extent Executive
discloses information about the terms of his Agreement, Executive agrees to
instruct such person(s) that the terms of this Agreement are strictly
confidential and are not to be revealed to anyone else except as required by
law, and Executive guarantees that such person(s) shall make no further
disclosure of such information and accepts responsibility for any such
disclosure as such person(s) may make as though the disclosure were made
directly by Executive. Executive further represents and warrants that he has not
violated the confidentiality of this Agreement by disclosing its terms,
existence, or negotiation prior to its being signed or becoming effective.
Employers agree that they will respect the confidentiality of this Agreement by
not disclosing its terms, existence, or negotiation to any person not employed
by Employers or one of their present or future parents, subsidiaries, or
affiliates, provided that Employers may disclose such information to any bona
fide potential purchaser of all or any part of any Employer's business and may
disclose that Executive resigned from his employment and make such disclosures
as are required by courts or government agencies of appropriate jurisdiction or
otherwise by law, including disclosures to taxing agencies, and disclose the
terms of this agreement to their attorney(s), accountant(s), tax advisor(s), or
other professional service provider(s), as reasonably necessary. In the event
any inquiry regarding the existence, terms, or negotiation of this Agreement is
made by any outside person, Executive and Employers (or others to whom
disclosure has been made) shall limit their response, either verbatim or in
substance, to the statement that the matter has been resolved by mutual
agreement or to the satisfaction of the parties. The obligations of each the
parties pursuant to the provisions of this Section 18 shall continue in force
until the earlier of (a) the tenth anniversary of the Effective Date of
Resignation or (b) the filing of a copy of this Agreement with, or the
disclosure of the material terms of this Agreement to, the Securities and
Exchange Commission.
19. NON-DISPARAGEMENT. Each of the parties agrees that it will not
disparage or denigrate to any person any aspect of his or its past relationship
with the other, nor the character of the other or the other's agents,
representatives, products, or operating methods, whether past, present, or
future, and whether or not based on or with reference to their past
relationship; PROVIDED, HOWEVER, that this paragraph shall have no application
to any evidence or testimony requested of either party hereto by any court or
government agency. In the event any government agency or any of Employers'
present or future labor unions, adverse parties in actual or potential
litigation, suppliers, service providers, employees or customers initiate
communications with Executive, Executive agrees that he will inform any such
persons, consistent with this paragraph, of his change in status and direct such
persons to an appropriate office or current employee of Employers.
20. CONDITION ON CERTAIN OBLIGATIONS OF THE EMPLOYERS. Executive agrees
that Employers are likely to suffer adverse financial and/or employee relations
consequences in the event either of the above confidentiality or
non-disparagement provisions is breached and that Executive's agreement to each
is a material portion of the consideration received by the Employers hereunder.
Executive therefore agrees that in the event Executive commits such
6
<PAGE> 7
breach, Employers shall have all rights and remedies under law or equity
including, without limitation, the right upon discovery of such breach to obtain
an injunction against any further breaches. This paragraph is not intended to
limit any other remedies, in damages or otherwise, that may be available to
Employers for such breach.
21. TAXES. To the extent any taxes may be due on the payments to
Executive provided in this Agreement beyond any withheld by Employers, Executive
agrees to pay them himself and to indemnify and hold Employers and other
entities released by Executive herein harmless for any tax claims or penalties
resulting from such payments. Executive further agrees to provide any and all
information pertaining to Executive upon request as reasonably necessary for
Employers and other entities released herein to comply with applicable tax laws.
22. NO ADMISSION. Executive understands and agrees that Employers have
admitted no liability or obligation to provide the consideration contemplated
herein, and that Employers have entered into this Agreement solely for the
purpose of avoiding possible controversy.
23. SEVERABILITY. Except as otherwise specified below, should any
portion of this Agreement be found void or unenforceable for any reason by a
court of competent jurisdiction, the court should attempt to limit or otherwise
modify such provision so as to make it enforceable, and if such portion cannot
be modified to be enforceable, the unenforceable portion shall be deemed severed
from the remaining portions of this Agreement, which shall otherwise remain in
full force and effect. If any portion of this Agreement is so found to be void
or unenforceable for any reason in regard to any one or more persons, entities,
or subject matters, such portion shall remain in full force and effect with
respect to all other persons, entities, and subject matters. This paragraph
shall not operate, however, to sever either party's obligation to provide the
binding release to all entities intended to be released hereunder. In the event
Executive should in the future contend that Executive's release of claims is for
any reason void, imperfect, or incomplete, Executive may not pursue any claim
against any Employer (or any other party intended to be released herein) to
establish the invalidity of the release or premised (in whole or in part) on the
invalidity of the release before or without repaying to Employers the full
amount of such cash payments he has received, less the reasonable value of
services actually provided pursuant to this Agreement, and applicable statutes
of limitations shall be deemed to run in regard to Executive's claims without
regard to the parties' entry into this Agreement. The preceding sentence shall
not operate to limit the scope or effect of Executive's covenant not to sue.
24. CONDITIONS OF VALIDITY. This Agreement shall not be deemed valid,
binding or effective unless and until (1) both parties have signed, (2)
Executive's signature is notarized, and (3) both parties have executed the
Agreement within a single thirty (30) day period.
7
<PAGE> 8
25. UNDERSTANDING AND AUTHORITY. The parties understand and agree that
all terms of this Agreement are contractual and are not a mere recital, and
represent and warrant that they are competent to covenant and agree as herein
provided.
26. CLOSING AND PAYMENTS HEREUNDER.
(a) All payments to be made by any one or more of the
Employers hereunder pursuant to the provisions of Sections 3, 6 and 7
shall be by wire transfer to Executive's bank account (the name and
number of which have been furnished to Employers) at 11:00 A.M. Eastern
Time on December 19, 1996 (the "Closing").
(b) All salary continuation and other payments to be made
hereunder shall be made in accordance with the Employers' payroll
schedule now in effect for its Executives or as otherwise provided in
this Agreement.
27. INDEMNIFICATION. To the extent that Employers may do so
without any material cost to any of them, then, for the entire period from the
Effective Date of Resignation until at least six years thereafter (a) Executive
shall receive the benefit of whatever indemnification protection is afforded
generally to the directors and officers of each of the Employers, including the
benefit of those provisions of Parent's certificate of incorporation, by-laws
and Employers' applicable charter documents with respect to indemnification and
exculpation from liability, and (b) to the extent that same is permitted under
the terms of such policies, the Employers shall cover Executive under any
officers or directors liability insurance policies that the Employers generally
provide for its own directors and officers.
Executive understands, agrees and represents that the covenants made
herein and the releases herein executed may affect rights and liabilities of
substantial extent and agrees that the covenants and releases provided herein
are in Executive's best interest. Executive represents and warrants that in
negotiating and executing this Agreement Executive has had an adequate
opportunity to consult with competent legal counsel of his choosing concerning
the meaning and effect of each term and provision hereof, and that there are no
representations, promises, or agreements between any Employer and Executive
other than those expressly set forth in writing herein.
The parties have carefully read this Agreement in its entirety; fully
understand and agree to its terms and provisions; and intend and agree that it
is final and binding on all parties.
IN WITNESS WHEREOF, and intending to be legally bound, the parties have
executed the foregoing on the dates shown below.
/s/ Michael M. Hagerty December 11, 1996
- ----------------------------
8
<PAGE> 9
City/County of Cuyahoga
State of Ohio
The foregoing instrument was signed and acknowledged before me by
Michael M. Hagerty this 11th day of December, 1996.
/s/ Mary Ann Natran
-------------------
Notary Public
My Commission Expires: November 30, 1997
EASCO, INC.
EASCO CORPORATION
DOLTON ALUMINUM COMPANY, INC.
- -----------------------------
By: /s/ Frank L. Rich December 18, 1996
-----------------------------------
Title: Executive Vice President, Administration
9
<PAGE> 1
Exhibit 12.1
<TABLE>
<CAPTION>
EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(ALL AMOUNTS EXCEPT RATIOS AARE SHOWN IN THOUSANDS)
FIXED CHARGE COVERAGE RATIO
Year Ended December 31,
1992 (A) 1993 1994 1995 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes and
extraordinary (loss) .................. $ 5,270 $11,165 $14,319 $ 20,051 ($26,481)
Add fixed charges ..................... 8,116 7,326 9,313 10,889 10,339
------------------------------------------------------------------
$ 13,386 $18,491 $23,632 $ 30,940 ($16,142)
------------------------------------------------------------------
Fixed Charges
- -------------
Interest .............................. $ 5,350 $ 4,679 $ 7,531 $ 9,044 $ 8,449
Amortization of debt issuance costs ... 1,523 1,523 762 571 572
Interest factor in rents .............. 1,243 1,124 1,020 1,274 1,318
------------------------------------------------------------------
$ 8,116 $ 7,326 $ 9,313 $ 10,889 $ 10,339
------------------------------------------------------------------
Ratio of earnings to fixed charges .... 1.6 2.5 2.5 2.8 - -
==================================================================
Deficiency of earnings to fixed charges .......................... ($26,481)
=========
Rent Expense
- ------------
Total .......................... 3,734 3,375 3,064 3,826 3,958
x 1/3 ....................... 33.3% 33.3% 33.3% 33.3% 33.3%
---------------------------------------------------------------
1,243 1,124 1,020 1,274 1,318
===============================================================
</TABLE>
Notes:
(A) The amounts shown for the year 1992 are pro forma for the May 1992
acquisition of the Company as if that transaction occurred on
January 1, 1992.
<PAGE> 1
Exhibit 13.1
LOGO
================================================================================
- --------------------------------------------------------------------------------
1996 Annual Report
<PAGE> 2
EASCO, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
(Amounts in millions, except per share data and percentages)
<S> <C> <C> <C>
OPERATING DATA
Net sales................................................................. $333.0 $339.7 $267.6
Operating profit (loss)................................................... (17.5) 29.4 22.6
Adjusted EBITDA(1)........................................................ 19.3 37.6 29.8
Income (loss) before income tax provision (benefit) and extraordinary
item.................................................................... (26.5) 20.1 14.3
Net income (loss)......................................................... (22.3) 11.7 4.9
Net income (loss) per share............................................... $(2.17) $ 1.22 $ 0.59
BALANCE SHEET DATA
Working capital........................................................... $ 41.0 $ 40.3 $ 25.9
Total assets.............................................................. 230.5 258.5 203.2
Total long-term debt...................................................... 85.0 85.0 85.0
Stockholders' equity...................................................... 63.0 85.1 42.3
OTHER DATA
Pounds shipped............................................................ 319.9 303.3 268.1
Net debt to total capital(2).............................................. 48.5% 45.5% 60.0%
<FN>
(1) Adjusted EBITDA represents operating profit (loss) plus reorganization
expense and other non-cash charges including depreciation, amortization and
impairment charges.
(2) Net debt equals long-term debt (net of current maturities) less cash and
equivalents.
</TABLE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights.................................................. 1
Easco at a Glance..................................................... 2
Letter to Stockholders................................................ 3
Selected Financial and Operating Data................................. 5
Unaudited Quarterly Financial Data.................................... 6
Management's Discussion and Analysis.................................. 7
Independent Auditor's Report.......................................... 12
Consolidated Financial Statements..................................... 13
Notes to Consolidated Financial Statements............................ 16
Directors and Officers................................................ 23
Stockholder Information............................................... 24
</TABLE>
1
<PAGE> 3
EASCO AT A GLANCE
Easco is the largest independent extruder of soft alloy aluminum products
in the United States. Easco's nearly 2,000 employees serve 2,600 customers from
13 facilities in 5 states -- Connecticut, Illinois, Indiana, Ohio and North
Carolina. Easco's products include standard and custom profiles, conduit, drawn
tubing, and vinyl extrusions and are used in a wide array of applications. Total
aluminum sales by weight in 1996 are shown in the percentages below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Primary
Market Customers Principal End Products and Applications
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BUILDING & Manufacturers, New and replacement windows and storm doors, wall partitions,
CONSTRUCTION assemblers and structural beams, patio enclosures, bleacher seats, road signs,
contractors skylights, and curtain wall.
PIE CHART
27%
- ----------------------------------------------------------------------------------------------------------------
TRANSPORTATION Original equipment Components used in truck trailers, truck bodies, recreational
manufacturers vehicles, railcars, step vans, van conversions, automobiles,
PIE CHART emergency vehicles, and livestock trailers.
31%
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTION Distributors and Building and construction and transportation products,
service centers and a variety of general industrial applications.
PIE CHART
19%
- ----------------------------------------------------------------------------------------------------------------
ELECTRICAL/OTHER Manufacturers, Coaxial cable for telecommunications and cable television
distributors and applications, electrical conduit, heat sinks, and connectors.
PIE CHART contractors
15%
- ----------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES Manufacturers and Components for boats, sports and exercise equipment, swimming
assemblers pools, lawn and patio furniture, greenhouses, and health care
PIE CHART equipment.
8%
</TABLE>
2
<PAGE> 4
TO OUR STOCKHOLDERS,
There can be no question that 1996 was a disappointing year for Easco.
Although progress was made on several fronts during the year, ground was lost in
other key areas. The negatives clearly outweighed the positives as indicated by
the operating results for the year.
Prior to discussing the events of the past year, as well as our plans for
1997 and beyond, it is appropriate to qualify my remarks somewhat. First, my
tenure with Easco has just passed the four month mark. Although short, it has
been an intense and exciting beginning to what I believe is a tremendous
opportunity for the Company and its stockholders. These sentiments are echoed by
every member of Easco's new executive team, all of whom I have had the
opportunity to work with in the past. We share the same strategic focus and
management style, and we firmly believe that Easco possesses several strategic
advantages upon which we can capitalize for the benefit of our customers,
stockholders and employees. My optimism stems from the fact that our business as
a whole is fundamentally sound. Our workforce is knowledgeable, well seasoned
and unafraid of change. For that reason, I believe success is within our
control, provided we focus on the fundamentals. Managing our business through
better "blocking and tackling" in key areas such as manufacturing, raw material
procurement and production scheduling are the keys to this success. Before I
tell you what's ahead for Easco, allow me to discuss some of the more
significant factors contributing to the Company's 1996 results.
First and foremost, the performance of the Dolton, Illinois and Kokomo,
Indiana facilities, which were acquired approximately two years ago, fell
significantly short of management's expectations. These acquisitions allowed
Easco to expand its presence in key transportation and distribution markets.
While the strategy was sound, the Company has experienced difficulties in
assimilating these facilities for several reasons. While some improvements in
quality were achieved through process changes in Dolton's melting operation,
benefits from these changes resulted in reduced casting capacity. This, in turn,
led to higher cost billet purchases on the open market. In addition, inefficient
operations increased manufacturing costs at both facilities. The problems at
Dolton were further magnified by reduced industry-wide demand for commercial
trailers, a key end-use market for that facility, and by the bankruptcy of a
major truck trailer customer. We have addressed some of Dolton's operating
issues through facility and workforce rationalizations implemented in late 1996.
In addition, we will be installing state-of-the-art casting technology at Dolton
which is scheduled to be commissioned by mid-year. We believe these actions,
combined with efforts to enhance significantly our manufacturing process
capability and control at each of these plants, can restore their
competitiveness. However, we do not underestimate the task before us. Most
importantly, we recognize that a high level of commitment on the part of the
workforce at both locations is a prerequisite to success. To that end, meetings
with each and every employee have recently been completed at Dolton, and I
believe they are fully committed to the job at hand.
There were other key factors which negatively impacted earnings in 1996. Our
sales mix was less favorable than in 1995, and we incurred significantly higher
energy costs. In addition, our general and administrative expenses were impacted
by the termination of a retirement plan at a former operating facility.
THE OPPORTUNITIES
Aluminum comprises over 50% of Easco's total product cost and represents
another area where improvement is required. We have already begun to implement
raw material acquisition and mix-management strategies designed to increase the
proportion of lower-cost metal inputs, thereby reducing our dependence on
primary aluminum.
Easco's nine extrusion facilities provide tremendous flexibility to be
responsive to customer needs. However, the balancing of diverse plant
capabilities with equally diverse customer requirements offers an opportunity
for optimization which must be better addressed. To that end, we have re-
evaluated the Company's organizational structure to more effectively match
customer needs with our capabilities. We believe that more extensive interaction
among the Easco facilities can result in a higher level of customer satisfaction
while, at the same time, improving our operating efficiency. Changes are also
being implemented in the way we manage several other significant operating costs
including extrusion dies, energy and transportation.
It is important to note that Easco's shipments grew by 4.8% during 1996,
modestly above the industry growth rate of 3.9% as reported by the Aluminum
Association. It is equally important to note that we are witnessing a period of
marked consolidation in the extrusion industry. This presents an opportunity to
secure further Easco's position as a custom extrusion supplier since our
flexibility and attention to detail will provide an even greater advantage over
larger, integrated
3
<PAGE> 5
producers in meeting our customers' unique demands. For that reason, customer
satisfaction will be of paramount importance, and we intend to direct our
efforts accordingly. In addition, we believe that a number of our service center
customers will be restocking during 1997, providing an opportunity to further
penetrate the distribution market with a more effective depot stocking effort.
Finally, to support the planned manufacturing and customer service enhancements,
it will be necessary to upgrade our management information and decision support
systems.
THE AGENDA
For 1997 and beyond, realizing the full measure of Easco's earning power
will require:
- - SIGNIFICANT OPERATING IMPROVEMENT
- - INCREASED FOCUS ON CUSTOMER SATISFACTION
- - BETTER COST CONTROL
- - IMPROVED RAW MATERIAL STRATEGY
- - OPTIMIZED SALES MIX MANAGEMENT
- - ENHANCED INFORMATION SYSTEMS
Clearly, our agenda is full, but we intend to implement no "quick-fixes."
While 1997 will be a rebuilding year for Easco, patience must be the watchword.
Systems and processes must be systematically re-engineered if we are to build a
Company capable of maximizing long-term growth. Although technology is a key
part of the program, our capital requirements are by no means overwhelming. We
believe that new and sustaining capital of approximately $20 million over the
next two years will fund the required improvements to restore our
competitiveness and provide capacity for profitable growth as well. Moreover,
based on Easco's demonstrated cash flows, these expenditures can be funded
primarily from operations.
On behalf of all Easco employees, I wish to thank all of our stockholders
for their patience and continued support, which we are confident will be
rewarded in the days ahead.
/s/ Norman E. Wells, Jr.
Norman E. Wells, Jr.
President and Chief Executive Officer
March 25, 1997
The above statements concerning the Company's plans, opportunities, strategies
and outlook for 1997 and future periods are forward-looking statements that are
subject to risks and uncertainties that could cause actual results to differ
materially, as described under "Cautionary Statement under the Private
Securities Litigation Reform Act," contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this Annual Report
and in the Company's Annual Report on Form 10-K.
4
<PAGE> 6
EASCO, INC.
SELECTED FINANCIAL AND OPERATING DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992(1)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
(Amounts in millions, except share, per share and per pound data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net sales.................................... $ 333.0 $ 339.7 $ 267.6 $ 211.7 $ 206.9
Gross profit................................. 50.0 61.9 55.0 45.9 39.1
Impairment of long-lived assets.............. 23.3 -- -- -- --
Reorganization charges(2).................... 3.5 -- 1.2 0.8 --
Income (loss) before extraordinary loss(3)... (22.3) 11.7 7.9 6.0 3.0
Net income (loss)............................ (22.3) 11.7 4.9 6.0 3.0
Earnings per common share
Income (loss) before extraordinary loss.... $ (2.17) $ 1.22 $ 0.96 $ 0.62 $ 0.31
Extraordinary loss......................... -- -- 0.37 -- --
---------- --------- --------- --------- ---------
Net income (loss).......................... $ (2.17) $ 1.22 $ 0.59 $ 0.62 $ 0.31
========== ========= ========= ========= =========
Weighted average number of common shares
outstanding................................ 10,261,774 9,544,514 8,282,725 9,667,476 9,694,900
BALANCE SHEET DATA:
Total assets................................. $ 230.5 $ 258.5 $ 203.2 $ 184.4 $ 182.7
Total debt................................... 85.0 85.0 85.0 57.8 65.0
Stockholders' equity......................... 63.0 85.1 42.3 57.5 51.8
Cash dividends per share..................... $ 0.04 $ 0.02 -- -- --
OTHER DATA:
Adjusted EBITDA(4)........................... $ 19.3 $ 37.6 $ 29.8 $ 23.6 $ 17.7
Capital expenditures (net)................... 6.5 13.7 10.1 6.4 4.2
Depreciation of fixed assets................. 7.6 6.2 4.5 3.9 3.8
Pounds shipped............................... 319.9 303.3 268.1 223.6 198.1
Average market price of aluminum per
pound(5)................................... $ 0.720 $ 0.864 $ 0.720 $ 0.538 $ 0.580
</TABLE>
- ---------------
1) The amounts presented represent the pro forma combined results of Easco, Inc.
("EI") and its predecessor, Easco Corporation ("Easco"). EI was formed on
February 19, 1992 and on May 16, 1992, EI acquired the stock of Easco. Prior
to May 16, 1992, EI had no substantive operations. Easco's results are
included for the period through May 16, 1992 and EI's results are included
for the balance of the year. Pro forma adjustments are not material.
References to the "Predecessor" are to Easco prior to May 16, 1992.
2) Reorganization charges include an executive reorganization in 1996, a plant
closure and disposal of an extrusion press in 1994, the resignation and
replacement of the Company's former President in 1993 and the repurchase of
Predecessor stock options in 1992.
3) Extraordinary loss on early extinguishment of debt of $3.1 million, net of
federal income tax benefits of $2.0 million in 1994. This loss relates to the
write-off of unamortized debt issuance costs associated with Easco's previous
credit agreement which was paid in full during the first quarter of 1994.
4) Management uses Adjusted EBITDA as an important measure of performance and
ability to service debt. Adjusted EBITDA represents operating profit plus
reorganization expense and non-cash charges including depreciation,
amortization and asset impairment as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994 1993 1992
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Operating profit (loss)...... $(17.5) $29.4 $22.6 $17.4 $ 8.8
Depreciation &
amortization................ 10.0 8.2 6.0 5.4 6.2
Impairment of long-lived
assets...................... 23.3 -- -- -- --
Reorganization charges (2)... 3.5 -- 1.2 0.8 2.7
------ ----- ----- ----- -----
Adjusted EBITDA.............. $ 19.3 $37.6 $29.8 $23.6 $17.7
====== ===== ===== ===== =====
</TABLE>
The 1992 results reflect EI's results of operations for the period February
19, 1992 (date of inception) to December 31, 1992 and results of operations
for the Predecessor for the period of January 1, 1992 to 1992 (EI having had
no substantive activity prior to its acquisition of Easco on May 16, 1992).
Adjusted EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity.
5) Average of monthly average transaction prices for aluminum ingot, as
published by Metals Week.
5
<PAGE> 7
EASCO, INC.
UNAUDITED QUARTERLY FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR 1996
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(2)
- ---------------------------------------------------------------------------------------------------------------
(Amounts in millions, except per share data)
<S> <C> <C> <C> <C>
Pounds shipped................................................. 75.8 86.0 84.0 74.1
Net sales...................................................... $79.9 $89.8 $ 87.7 $ 75.6
Gross profit................................................... 14.8 16.0 12.3 6.9
Net income (loss).............................................. 2.2 2.5 (0.9) (26.1)
Earnings (loss) per share(1)................................... $0.22 $0.25 $(0.09) $(2.54)
===== ===== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR 1995
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pounds shipped................................................. 81.7 76.9 74.8 69.9
Net sales...................................................... $93.3 $87.4 $82.8 $ 76.2
Gross profit................................................... 16.9 17.5 12.0 15.5
Net income..................................................... 3.2 4.6 1.1 2.8
Earnings per share(1).......................................... $0.41 $0.45 $0.10 $ 0.27
===== ===== ===== =====
</TABLE>
(1) Quarterly per share data differ from full year results due to differences in
the weighted number of shares used in the computations.
(2) The following significant pre-tax adjustments were recorded in the fourth
quarter of 1996:
(a) Impairment of property and goodwill related to the Dolton facility: $23.3
million
(b) Termination of a pension plan related to a previously closed facility:
$1.1 million
(c) Reorganization of the executive staff: $3.5 million
6
<PAGE> 8
EASCO, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following table sets forth, for the periods shown, net sales, gross
profit, operating profit (loss), income (loss) before extraordinary loss, net
income (loss), pounds shipped, the calculation of Adjusted EBITDA, gross profit
and Adjusted EBITDA per pound, and the average market price of aluminum per
pound. For the reasons discussed below, management focuses on pounds shipped,
gross profit per pound and Adjusted EBITDA per pound as important measures of
the Company's performance.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
- ---------------------------------------------------------
<CAPTION>
1996 1995 1994
---------------------------------------------------------
(Amounts in millions, except per pound data)
<S> <C> <C> <C>
Net sales..................... $333.0 $339.7 $267.6
Gross profit.................. 50.0 61.9 55.0
Operating profit (loss)....... (17.5) 29.4 22.6
Income (loss) before
extraordinary loss.......... (22.3) 11.7 7.9
Net income (loss)............. (22.3) 11.7 4.9
====== ====== ======
Pounds shipped:
Company-owned material........ 202.7 189.9 168.6
Customer Conversion
Program................... 117.2 113.4 99.5
------ ------ ------
Total pounds shipped.......... 319.9 303.3 268.1
====== ====== ======
Other performance measures:
Operating profit.............. $(17.5) $ 29.4 $ 22.6
Non-cash charges and other:
Depreciation and
amortization............ 10.0 8.2 6.0
Impairment of long-lived
assets.................. 23.3 -- --
Reorganization charges.... 3.5 -- 1.2
------ ------ ------
Adjusted EBITDA............... $ 19.3 $ 37.6 $ 29.8
====== ====== ======
Gross profit per pound........ $0.156 $0.204 $0.205
Adjusted EBITDA per pound..... 0.060 0.124 0.111
Average market price of
aluminum per pound.......... 0.720 0.864 0.720
</TABLE>
Pounds Shipped. Pounds shipped includes the weight of all aluminum and
vinyl extrusions shipped, including shipments to customers under the Company's
Customer Conversion Program (described below). Because aluminum price
fluctuations and the relative prevalence of sales under the Company's Customer
Conversion Program and other aluminum price fluctuation management programs
affect reported net sales but generally have no material effect on the overall
level of profitability, management believes that pounds shipped is the most
important indicator of overall business activity for the Company and the
aluminum extrusion industry as a whole. The Company's volume, measured in pounds
shipped, is a major component of profitability due in part to the Company's
fixed costs.
Performance Measures. Management believes that the Company's ability to
control other variable costs (such as scrap reprocessing costs, delivery costs,
and labor costs relative to productivity) is a significant determinant of
profitability. As a result, in an effort to control variable costs, management
measures variable cost performance levels on a per pound basis. Management
believes the Company's gross profit per pound and Adjusted EBITDA per pound are
the best indicators of the Company's performance.
Aluminum Prices. A substantial portion of the Company's net sales and cost
of products sold reflects the cost of raw materials, principally aluminum.
Changes in aluminum prices are generally passed through to the Company's
customers. As a result, increases and decreases in aluminum prices generally
cause similar increases and decreases in selling prices, reported net sales and
cost of products sold but historically have generally had little impact on the
Company's level of profitability.
Aluminum Price Fluctuation Management Programs. Under its Customer
Conversion Program, the Company's customers supply aluminum directly to the
Company, and the Company converts this aluminum into finished product for an
agreed tolling charge. Accordingly, neither net sales nor cost of products sold
reflect the raw material cost for these sales, and depending upon the degree to
which aluminum is customer-supplied, net sales and cost of products sold will
fluctuate without regard to underlying business activity. This program and other
fixed-spread or hedged fixed-price arrangements with customers were utilized for
approximately 60% of the Company's shipments in 1996. Combined with the
Company's turnover of its aluminum inventory, these programs serve to minimize
the impact of aluminum price changes on the Company.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
Demand for the Company's products is cyclical in nature and subject to
changes in general market conditions that affect demand. The Company's customers
operate primarily in industries (e.g., building and construction and
transportation) that are affected by changes in economic conditions, which in
turn can affect orders for extrusions. The Company and the extrusion industry
generally operate without significant order backlogs. As a result, economic
slowdowns and recessions could adversely affect the extrusion industry
7
<PAGE> 9
EASCO, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
and the Company. The Company's performance may also be affected by other risks
and uncertainties that may cause actual performance to differ materially from
any forward-looking statements, including but not limited to the following: the
Company's level of utilization of its extrusion capacity and the impact of
capacity utilization on costs; the Company's ability to increase its market
share, which may be necessary to maximize capacity utilization, and the costs
associated with any such effects; the highly competitive nature of the extrusion
industry and the relatively greater capitalization and lower levels of
indebtedness of certain competitors, particularly integrated aluminum producers;
developments with respect to contingencies such as environmental matters and
litigation; the impact on variable costs of changes in labor market conditions
and energy and raw materials costs (primarily aluminum); seasonal variations in
the extrusion business which is generally stronger in the second and third
quarters and weaker in the first and fourth quarters; whether and to what extent
the Company's capital expenditures can achieve reductions in variable costs;
whether the Company's new management team will be able to improve operations and
profitability as planned; and the Company's ability to integrate and operate
acquired facilities on a profitable basis. For a further discussion of these and
other factors that could cause future results to differ materially from those
suggested by any forward-looking statements, see "Cautionary Statement" in the
Company's Annual Report on Form 10-K.
During November of 1996, the Company's executive staff was reorganized,
resulting in the appointment of Norman E. Wells, Jr. as the Company's new
President and Chief Executive Officer, as well as appointments of a new
Executive Vice President and Chief Financial Officer and Vice President, Sales
and Marketing. In addition, the positions of Vice President, Manufacturing and
Vice President, Raw Materials were established. The following forward-looking
statement is qualified by the Cautionary Statement set forth above: The new
management team believes that the Company has significant opportunities for
improved performance and needs to redirect its focus to improve product quality
and improve operating efficiency in order to fully realize these opportunities.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
During 1996, pounds shipped increased to 319.9 million from 303.3 million in
1995, an increase of 16.6 million pounds, or 5.5%. This increase in shipments is
due primarily to strong demand during 1996 in the transportation and building
and construction end-use markets served by the Company, offsetting a decline in
the electrical sector. One of the segments of the transportation market that did
not experience increased demand was commercial trailer sales, which declined and
adversely affected results at Dolton. Net sales decreased 2.0% during 1996
compared to 1995, on higher shipments at lower per pound selling prices. The
lower selling prices compared to the prior period reflect declines in the cost
of aluminum ingot and scrap, the Company's principal raw materials.
Gross profit decreased to $50.0 million in 1996 compared to $61.9 million in
1995, a decrease of $11.9 million or 19.2%. Despite higher shipment and capacity
utilization levels, gross profit declined in 1996 principally as a result of
higher manufacturing costs, a less favorable sales product mix and more
competitive pricing in the truck trailer segment of the transportation market.
The higher manufacturing costs compared to the prior year resulted primarily
from a continuation of production difficulties, principally at Dolton, and the
write-off of a bankrupt customer's work-in-process inventory. As a result, gross
profit per pound in 1996 decreased to $0.156 compared to $0.204 per pound in
1995.
Selling, general and administrative expenses increased by $8.1 million or
27.5% to $37.8 million during 1996 compared to 1995. The increase in these
expenses for 1996 is primarily the result of: (i) unusually high bad debt
expense related to a large customer bankruptcy; (ii) increased shipping and
delivery expenses primarily relating to increased volume; (iii) increased
selling expense, including commissions related to increased volume; and (iv)
increased pension expenses, resulting from an obligation incurred in connection
with a plan termination. On a per pound basis, overall selling, general and
administrative expenses increased from $0.097 in 1995 to $0.118 in 1996.
During 1996, a reorganization charge of $3.5 million was incurred primarily
for inducement and separation expenses relating to the turnover of several key
executive personnel. The inducement expenses include stock grants and options as
well as cash bonuses. Because certain of these inducements are forfeitable for a
two-year period after payment in certain circumstances, additional charges
aggregating $1.3 million related to this reorganization may be incurred as these
inducements become vested over the next two years.
Dolton substantially underperformed expectations during 1996 primarily due
to production difficulties and weakness in the truck trailer market. Despite
these factors, the plant is of strategic importance resulting from its
capabilities in markets not otherwise served by the Company. However, due to
present weakness in the truck
8
<PAGE> 10
trailer segment of the transportation market and the additional capital
expenditures that are planned to improve the plant's technology and efficiency,
Dolton is not expected to contribute materially to consolidated cash flow or
earnings in the near term.
During the fourth quarter of 1996, a $23.3 million charge was incurred
reflecting the impairment of long-lived assets at Dolton, based on assessment of
the value of these assets in light of recent and anticipated performance. The
impairment charge reduced property, plant and equipment by $9.7 million and
goodwill by $13.6 million. As a result of these write-offs, annual operating
expenses for 1997 and future periods will be reduced by approximately $1.1
million.
Operating profit (loss) for 1996 decreased by $46.9 million from $29.4
million in 1995 to ($17.5) million in 1996. The lower results for 1996 compared
to 1995 were primarily attributable to the long-lived asset impairment charge,
higher manufacturing costs and reorganization charges and the result of higher
selling, general and administrative expenses, as discussed above.
Interest expense was $9.0 million in 1996 compared to $9.3 million in 1995.
The decrease in interest expense in 1996 is the result of the effect of the
Company's issuance of 2.5 million shares of common stock in an initial public
offering (the "Offering") during April 1995, which reduced indebtedness by
approximately $31.3 million. The Company's interest expense is determined in
part by the level of its revolving credit borrowings, which were not significant
for any period after the Offering, as cash requirements were met primarily from
operations.
The tax benefit for 1996 was $4.2 million on a pre-tax loss of $26.5 million
compared to a tax provision of $8.4 million on pre-tax income of $20.1 million
or 41.9% in 1995. These rates differ from the federal statutory rate of 35%
primarily due to state and local income taxes, non-deductible amortization of
goodwill, and the portion of the impairment of long-lived asset charge related
to goodwill. The differences in the effective tax rates for 1996 compared to
1995, resulted primarily from higher non-deductible amortization and impairment
of goodwill in proportion to pre-tax income or loss.
Due to the decline in operating profit discussed above, including the
special charges for the management reorganization and long-lived asset
impairment, the Company incurred a net loss for the year ended December 31, 1996
of $22.3 million or $2.17 per share, compared to net income of $11.7 million or
$1.22 per share, for the year ended December 31, 1995. Excluding the management
reorganization and long-lived asset impairment charges, net loss would have been
$542,000 and net loss per share would have been $0.04. The per share amounts for
1996 are based on 10,261,774 weighted average shares outstanding while the 1995
per share amounts are based on 9,544,514 weighted average shares outstanding.
The change in the shares outstanding is due primarily to the Offering.
Adjusted EBITDA, which represents operating profit adjusted for
reorganization expense and non-cash items, decreased 48.7%, for the year 1996
from $37.6 million in 1995 to $19.3 million in 1996. The decreases are primarily
due to the operating performance discussed above.
1995 COMPARED TO 1994
During 1995, pounds shipped increased to 303.3 million from 268.1 million in
1994, an increase of 35.2 million pounds, or 13.1%. The increase in shipments
was primarily attributable to the addition of 43.0 million pounds of shipments
from Dolton, offset in part by a 7.8 million pound or 2.9% aggregate decrease in
combined shipments from other Easco facilities. The Company acquired Dolton in
January, 1995 (the Acquisition). This decrease in shipments from the Easco
facilities was principally the result of weaker economic conditions, compared to
the prior year, and reductions by customers in inventory levels resulting in
reduced demand in several key market segments served by the Company,
particularly in the building and construction, recreational vehicle and consumer
durables markets. Net sales increased 26.9% during 1995 compared to 1994. The
rate of increase in sales exceeded the rate of shipment increases largely
because of higher aluminum prices.
Gross profit increased to $61.9 million in 1995 from $55.0 million in 1994,
an increase of $6.9 million or 12.5%. The increase in 1995 compared to 1994 is
principally the result of the addition of gross profit attributable to the
Dolton shipments and higher selling prices relative to raw materials costs,
offset by somewhat higher scrap rates and other production costs. Gross profit
per pound in 1995 decreased slightly to $0.204 compared to $0.205 in 1994.
Selling, general and administrative expenses increased by $1.0 million to
$29.6 million during 1995, a 3.5% increase compared to 1994. The increase in the
1995 expense is primarily the result of the addition of $5.1 million of such
costs at Dolton offset in part by lower salary incentive bonus expense. On a per
pound basis, selling, general and administrative expenses decreased by 8.4% from
$0.107 to $0.098 in 1995.
Operating profit increased from $22.6 million in 1994 to $29.4 million in
1995, a 30.1% increase. The higher operating profit for 1995 compared to 1994
was primarily the result of the addition of
9
<PAGE> 11
EASCO, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
the Dolton shipments and higher selling prices relative to raw materials costs.
Interest expense increased $1.0 million in 1995 compared to 1994 as a result
of: (i) the full year effect in 1995 of the issuance of $85.0 million of 10%
Senior Notes (the "Senior Notes") late in the first quarter of 1994, which
increased total indebtedness as well as interest rates from those that were in
effect under the Company's previous credit agreement, and (ii) higher levels of
debt in the first quarter of 1995 due to the Dolton acquisition borrowings. On
April 21, 1995, the Company repaid all of its indebtedness under its Credit
Agreement with the proceeds of the Offering.
The effective tax rate for 1995 was 41.9% compared to 44.5% for 1994. These
rates differ from the federal statutory rate of 35% primarily due to state and
local income taxes and the non-deductible amortization of goodwill. The
reduction in the effective tax rate for 1995 primarily resulted from lower
non-deductible amortization of goodwill in proportion to pre-tax income.
Income before extraordinary loss for 1995 was $11.7 million compared to $7.9
million for 1994, as the increase in operating profit was partially offset by
increased interest expense and a higher income tax provision.
During 1994, an extraordinary loss on early extinguishment of debt of $3.0
million (net of income tax benefit) was recognized. This loss related to the
write-off of unamortized debt issuance costs associated with the Company's
previous credit agreement, which was paid in full during the first quarter of
1994 with the proceeds of the issuance of the Senior Notes.
Adjusted EBITDA, which represents operating profit adjusted for
reorganization expense and non-cash items, increased 26.2% from $29.8 million in
1994 to $37.6 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically obtained funds from its operations,
supplemented by borrowings under various credit agreements. The Customer
Conversion Program reduces the Company's working capital requirements (inventory
and accounts receivable), since neither the cost of products sold nor the
selling price of the extrusions shipped to these customers includes the value of
the customer-supplied aluminum. As discussed above, changes in aluminum prices
are generally passed through to customers; these aluminum price changes increase
or decrease working capital requirements as the dollar value of inventories and
receivables reflect these changes. Working capital needs are generally higher
during periods of higher aluminum prices and in the second and third quarters
due to some seasonality of the Company's product markets.
Cash Flows From Operating Activities. Net cash flows provided by operations
for the years 1996, 1995 and 1994 were $12.7 million, $8.0 million, and $13.6
million, respectively. The increase in cash flows from operations for 1996 was
primarily from working capital. Total cash provided from working capital changes
in 1996 was $5.7 million compared to a use of cash of $14.4 million in 1995.
This increase in cash provided by working capital primarily resulted from the
combined reduction of $10.3 million in inventory and accounts receivable which
occurred due to lower inventory levels, raw materials prices and selling prices.
Offsetting factors were lower accounts payable due to lower raw materials
purchases and raw materials prices and higher other current assets due to
prepaid items, including income taxes. For the year ended December 31, 1995, net
cash flows from operating activities were $8.0 million compared to $13.6 million
in 1994, despite higher net income plus non-cash charges. This decrease in cash
flow was primarily due to the use of cash to fund working capital, resulting
primarily from increases in inventory levels, higher aluminum prices and lower
accounts payable, accruals and other current liabilities. Other factors reducing
cash flow were lower business activity at the end of 1995, payments of
acquisition related costs and the realization of discounted payment terms on
certain purchases.
Cash Flows From Investing Activities. On January 18, 1995 the Company
acquired all of the stock of Dolton for $26.4 million including fees and
expenses related to the transaction, with possible additional performance
related consideration of up to $3.3 million payable after three years. The
probability of payment of this additional consideration is remote (see Results
of Operations). The Acquisition, which was accounted for as a purchase, was
financed with cash and borrowings under Easco's Credit Agreement.
Expenditures for property, plant and equipment (net of disposals) were $6.5
million, $13.7 million and $10.1 million for the years ended December 31, 1996,
1995 and 1994, respectively. Beginning in 1994, the Company increased its total
aluminum and vinyl extrusion capacity to accommodate increased customer demands.
In addition, the Company has invested to upgrade operations and address
production difficulties. During 1997, in addition to normal annual maintenance
requirements, the Company intends to continue its capital spending program at a
range of $7.0 million to $9.0 million,
10
<PAGE> 12
including state-of-the-art casting equipment at Dolton scheduled to be installed
by mid-year.
Cash Flows From Financing Activities. On April 12, 1995 the Company
completed the Offering which consisted of the sale of 2.5 million shares by the
Company and an additional 2.1 million shares by certain of the Company's
stockholders. Cash proceeds received from the Offering, after underwriting
discounts and commissions and before deducting other expenses totaling $1.3
million were $32.6 million. As a result of the Offering, stockholders' equity
increased and long-term debt decreased by approximately $31.3 million.
During 1994 the Company prepaid its existing revolving credit facility and
term loan with a portion of the proceeds from the sale of the Senior Notes. The
Senior Notes have no scheduled principal amortization payments until maturity in
2001. The Company is required to make semi-annual payments of interest on the
Senior Notes of $4.25 million. Concurrent with the consummation of the Senior
Note offering, the Company entered into a five-year Credit Agreement with
certain banks. The Company and its lenders amended the Credit Agreement in early
1997 to reduce maximum borrowing capacity from $45.0 million to $30.0 million
subject to available collateral (primarily inventory and accounts receivable)
and to revise certain covenants. The Company believes the reductions are
appropriate to save commitment fees, since the Company has been generating
sufficient cash from operations to meet its working capital and capital
expenditure requirements. Indebtedness under the Credit Agreement is secured by
inventory, accounts receivable and related assets, and the stock of Dolton. The
maximum borrowing availability may be increased to $40.0 million provided
certain financial covenants are met. As of March 28, 1997 there were no
borrowings and $4.0 million of letters of credit outstanding under the Credit
Agreement, and unused availability under the Credit Agreement was approximately
$26.0 million. Interest on borrowings is payable at rates defined in the Credit
Agreement. Currently the rate is determined, at the Company's option, to be
either the prime rate or 1.875% over LIBOR. The effective available rate was
8.63% at March 28, 1997.
The Company believes that it will generate sufficient cash flow from
operations, as supplemented by its available borrowings under its Credit
Agreement, to meet debt service requirements and to meet its short-term and
long-term working capital and capital expenditure requirements although no
assurance can be given that it will be able to do so or that it will be able to
refinance the Senior Notes or the Credit Agreement at maturity. See "Cautionary
Statement" herein and in the Company's Annual Report on Form 10-K for factors
that could cause actual results to differ materially from the forward-looking
statements in this paragraph.
HEDGING ACTIVITIES
The Company entered into agreements with various customers to sell finished
product at set prices throughout 1996, and hedged most of these sales
commitments through offsetting raw material purchases at corresponding delivery
dates. In addition, futures contracts are used to reduce the risks associated
with fluctuations in aluminum prices by matching exposed inventory positions
that are not subject to corresponding sales agreements. As of March 28, 1997,
the Company had no open forward aluminum commodity sales contracts.
STOCKHOLDERS' EQUITY
Stockholders' equity as of December 31, 1996 decreased $22.1 million from
December 31, 1995, primarily as a result of the special charges relating to
asset impairment and the reorganization charge associated with the management
realignment (see Results of Operations).
ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of environmental laws which
continue to be adopted and amended. While the ultimate extent of the Company's
liability for pending or potential fines, penalties, remedial costs, claims and
litigation relating to environmental laws and health and safety matters and
future capital expenditures that may be associated with environmental laws
cannot be determined at this time, management annually assesses the Company's
environmental contingencies, with the assistance of outside environmental
consultants. Based on management's assessment of the exposure, the Company has
recorded a reserve of $9.3 million, at December 31, 1996 representing the
Company's best estimate of costs of remedial action as well as any related legal
and consulting work.
11
<PAGE> 13
LOGO
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Easco, Inc.
We have audited the accompanying consolidated balance sheets of Easco, Inc.
and Subsidiaries (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Easco, Inc. and Subsidiaries as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
February 18, 1997
12
<PAGE> 14
EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents........................................................... $ 13,245 $ 7,670
Receivables, less allowance for doubtful accounts of $2,478 in 1996 and $2,152
in 1995....................................................................... 40,802 45,416
Inventories.................................................................... 27,143 32,859
Other current assets........................................................... 6,592 2,677
-------- --------
Total current assets...................................................... 87,782 88,622
-------- --------
Property, Plant and Equipment, at cost:
Land........................................................................... 3,218 3,218
Buildings...................................................................... 28,458 29,174
Machinery and equipment........................................................ 71,032 75,096
-------- --------
Total..................................................................... 102,708 107,488
Less: accumulated depreciation................................................. (23,047) (16,786)
-------- --------
79,661 90,702
-------- --------
Goodwill, net of accumulated amortization.......................................... 54,754 70,262
Other Assets....................................................................... 8,260 8,930
-------- --------
Total Assets.............................................................. $230,457 $258,516
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accruals and other current liabilities....................... $ 46,806 $ 48,357
-------- --------
Total current liabilities................................................. 46,806 48,357
-------- --------
Long-Term Debt..................................................................... 85,000 85,000
Deferred Income Taxes.............................................................. 13,444 17,069
Other Noncurrent Liabilities....................................................... 22,166 22,976
-------- --------
Total liabilities......................................................... 167,416 173,402
-------- --------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, $.01 par value, authorized 1,000,000 shares; none issued and
outstanding................................................................... -- --
Common Stock, $.01 par value, authorized 40,000,000 shares; 12,414,892 and
12,194,892 shares issued and outstanding...................................... 124 122
Paid-in capital................................................................ 81,373 80,483
Retained earnings.............................................................. 1,534 24,260
Less: Treasury stock: 2,005,222 and 1,951,748 shares........................... (19,990) (19,589)
Stockholder loan.......................................................... -- (162)
-------- --------
Total stockholders' equity................................................... 63,041 85,114
-------- --------
Total Liabilities and Stockholders' Equity................................... $230,457 $258,516
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
13
<PAGE> 15
EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)
<S> <C> <C> <C>
OPERATIONS
Net sales:
Product sales..................................................... $ 273,919 $ 287,387 $ 219,105
Tolling fees...................................................... 59,092 52,316 48,529
--------- --------- ---------
333,011 339,703 267,634
Cost of products sold................................................. 282,967 277,809 212,671
--------- --------- ---------
Gross profit...................................................... 50,044 61,894 54,963
Selling, general and administrative................................... 37,762 29,628 28,628
Amortization of goodwill.............................................. 2,028 1,978 1,516
Management fee........................................................ 900 900 1,050
Impairment of long-lived assets....................................... 23,335 -- --
Reorganization charges................................................ 3,479 -- 1,162
--------- --------- ---------
Operating profit (loss)........................................... (17,460) 29,388 22,607
Interest expense...................................................... 9,021 9,337 8,293
--------- --------- ---------
Income (loss) before income tax and extraordinary loss............ (26,481) 20,051 14,314
Income tax provision (benefit)........................................ (4,163) 8,400 6,368
--------- --------- ---------
Income (loss) before extraordinary loss........................... (22,318) 11,651 7,946
Extraordinary loss on early extinguishment of debt, net of income tax
benefit of $2,049................................................... -- -- 3,073
--------- --------- ---------
Net income (loss)..................................................... $ (22,318) $ 11,651 $ 4,873
========= ========= =========
Earnings (loss) per common share:
Income (loss) before extraordinary loss........................... $ (2.17) $ 1.22 $ 0.96
Extraordinary loss................................................ -- -- 0.37
--------- --------- ---------
Net income (loss)................................................. $ (2.17) $ 1.22 $ 0.59
========= ========= =========
Weighted average number of common shares outstanding.................. 10,261,774 9,544,514 8,282,725
========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK OTHER TOTAL
- --------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY
Balance, December 31,1994...................... $ 97 $49,230 $12,813 $(19,589) $(215) $ 42,336
Net income................................... -- -- 11,651 -- -- 11,651
Cash dividends............................... -- -- (204) -- -- (204)
Initial public offering...................... 25 31,253 -- -- -- 31,278
Stockholder loan............................. -- -- -- -- 53 53
---- ------- ------- -------- ----- --------
Balance, December 31, 1995..................... 122 80,483 24,260 (19,589) (162) 85,114
Net loss..................................... -- -- (22,318) -- -- (22,318)
Cash dividends............................... -- -- (408) -- -- (408)
Stockholder loan............................. -- -- -- -- 162 162
Repurchase of stock.......................... -- -- -- (401) -- (401)
Stock based compensation..................... 2 890 -- -- -- 892
---- ------- ------- -------- ----- --------
Balance, December 31, 1996..................... $124 $81,373 $ 1,534 $(19,990) $ -- $ 63,041
==== ======= ======= ======== ===== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
14
<PAGE> 16
EASCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net income (loss)..................................................... $(22,318) $ 11,651 $ 4,873
Adjustments to reconcile net income to net cash flows from (for)
operating activities:
Depreciation........................................................ 7,624 6,242 4,456
Amortization of goodwill and other.................................. 2,028 1,978 1,516
Amortization of deferred debt issue costs........................... 572 571 762
Loss on fixed asset disposals....................................... 327 -- --
Impairment of long-lived assets..................................... 23,335 -- --
Stock compensation expense.......................................... 890 -- --
Extraordinary loss on early extinguishment of debt.................. -- -- 3,073
Changes in operating assets and liabilities:
(Increase) decrease in receivables................................ 4,614 1,082 (11,424)
(Increase) decrease in inventories................................ 5,716 (12,513) 505
(Increase) decrease in other current assets....................... (2,994) 529 1,133
(Increase) decrease in other assets............................... (202) (58) 1
Increase (decrease) in accounts payable, accruals and other
current liabilities............................................ (1,551) (3,500) 9,231
Increase (decrease) in deferred taxes -- net...................... (4,546) 1,571 479
Increase (decrease) in other noncurrent liabilities............... (810) 480 (1,050)
-------- -------- --------
Net cash flows from operating activities....................... 12,685 8,033 13,555
-------- -------- --------
CASH FLOWS (FOR) INVESTING ACTIVITIES:
Acquisition of Dolton................................................. -- (26,391) --
Property additions -- net............................................. (6,465) (13,713) (10,145)
-------- -------- --------
Net cash flows for investing activities........................ (6,465) (40,104) (10,145)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Decrease in revolving credit loans.................................... -- -- (1,350)
Decrease in term loan................................................. -- -- (56,433)
Proceeds from issuance of Senior Notes................................ -- -- 65,008
Payment of debt issuance costs........................................ -- -- (3,284)
Cash dividends paid................................................... (408) (204) --
Repayment of stockholder loan......................................... 162 53 --
Repurchase of stock................................................... (401) -- --
Issuance of common stock.............................................. 2 31,278 --
-------- -------- --------
Net cash flows from (for) financing activities................. (645) 31,127 3,941
-------- -------- --------
CASH AND EQUIVALENTS:
Net increase (decrease) for the period................................ 5,575 (944) 7,351
Balance, beginning of period.......................................... 7,670 8,614 1,263
-------- -------- --------
Balance, end of period................................................ $ 13,245 $ 7,670 $ 8,614
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Senior Notes for common stock............................. -- -- $ 19,992
========= ========= =========
In-kind dividend of warrants.......................................... -- -- $ 500
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
15
<PAGE> 17
EASCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
The Company is the largest independent extruder of soft alloy aluminum
products in the United States, with shipments of 310.2 million pounds of
aluminum extrusions in 1996, representing a 4.8% increase over 1995 shipments.
The Company operates 22 aluminum extrusion presses and three casting facilities
at thirteen plants in five states, and its products include standard and custom
profiles (shapes of specific lengths and cross-sectional design), conduit and
drawn tubing. The Company also produces vinyl extrusions.
The Company serves approximately 2,600 customers spanning six industry
groups (building and construction, transportation, distribution, consumer
durables, coaxial cable and electrical), and its extrusions are used in a wide
variety of products including door and window frames, truck bodies, truck
trailers, recreational vehicles, automobiles, boats, home appliances, patio
enclosures and furniture, office furniture and equipment, picture frames, sport
and exercise equipment, health care equipment, coaxial cable and electrical
conduit. The Company's vinyl extrusions are used primarily by replacement window
manufacturers.
2. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Easco, Inc.
(EI) and its wholly-owned subsidiary, Easco Corporation (Easco) and its
subsidiary (collectively the Company). All significant intercompany accounts
have been eliminated. The preparation of the consolidated 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.
Revenue Recognition
Revenue is recognized when products are shipped to customers. Included in
net sales are agreed upon tolling fees from casting and extruding
customer-supplied material. Sales returns and allowances are treated as a
reduction to sales and are provided for based on historical experience and
current estimates.
Accounts Receivable
The Company does not generally require collateral or other security to
guarantee trade receivables.
Inventories
Inventories are valued at the lower of cost or market, with cost determined
using the last-in, first-out (LIFO) method. If the first-in, first-out (FIFO)
method had been used, inventories would have been $597,000 and $3.7 million
greater than LIFO at December 31, 1996 and 1995, respectively. Components of
inventory at December 31, 1996 were: raw materials, $3.1 million;
work-in-process, $11.7 million; and finished goods, $12.3 million and at
December 31, 1995 were: raw materials, $9.2 million; work-in-process, $12.1
million; and finished goods, $11.6 million. A reduction in inventory levels in
1996 resulted in a liquidation of LIFO inventory quantities carried at lower
costs than current replacement costs, the effect of which increased cost of
products sold by $757,000.
The Company has entered into agreements with various customers to sell 17.8
million pounds of finished product at set prices throughout 1997, and has hedged
these sales commitments through offsetting raw material purchases at purchase
prices set in advance that correspond to the aluminum costs included in the
customer arrangement, and at corresponding delivery dates. These commitments are
subject to the Company's determination that the creditworthiness of the
customers participating in these programs is satisfactory. In addition, futures
contracts are used to reduce the risks associated with fluctuations in aluminum
prices by matching exposed inventory positions that are not subject to
corresponding sales agreements. At December 31, 1996, the Company was not a
party to any future aluminum commodity sales contracts for 1997 delivery.
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost. The Company computes
depreciation using the straight-line method for financial reporting purposes
based on useful lives of 12 years for machinery and equipment and 20 years for
buildings. Accelerated methods are used for income tax purposes. Major renewals
and betterments are capitalized and ordinary repairs and maintenance are
expensed in the year incurred.
Goodwill
Goodwill is amortized using the straight-line method over a period of 40
years. Accumulated amortization at December 31, 1996
16
<PAGE> 18
and 1995 was $7.0 million and $5.8 million, respectively. The Company assesses
the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through projected undiscounted cash flows (See Note 4).
Deferred Debt Issue Costs
Debt issue costs are amortized using the effective interest rate method over
the terms of the related debt instruments. At December 31, 1996, such costs were
$3.9 million, before accumulated amortization of $1.6 million. Accumulated
amortization at December 31, 1995 was $1.0 million. These costs were incurred in
connection with the issuance of the Senior Notes and the Credit Agreement. These
amounts are classified in the accompanying balance sheets as other assets.
Environmental Remediation Costs
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value.
Earnings Per Share
Earnings per share is computed based upon the weighted average number of
common shares outstanding during the periods presented after consideration of
the dilutive effect of stock options granted. Pursuant to rules of the
Securities and Exchange Commission, all options granted by the Company during
the twelve month period prior to the April 1995 initial public offering (See
Note 7) have been included in the calculation as if they were outstanding for
all periods, using the treasury stock method and average market prices.
Cash Flows
Net cash flows from operating activities reflect cash payments for interest
of $8.5 million in 1996, $9.2 million in 1995, and $5.3 million in 1994 and
income tax payments of $4.3 million in 1996, $5.6 million in 1995 and $3.3
million in 1994.
Cash equivalents represent short-term investments with original maturities
of one month or less when purchased, which approximate fair value.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with the 1996 presentation.
3. ACQUISITION
On January 18, 1995 the Company acquired all of the outstanding stock of
Dolton Aluminum Company, Inc. ("Dolton"), an aluminum extruder, for $26.4
million in cash including fees and expenses related to the transaction (the
"Acquisition"), with possible additional consideration of up to $3.3 million
payable after three years, depending on Dolton's performance during that period.
The Acquisition, which was financed with cash and borrowings under the Credit
Agreement, was accounted for as a purchase. On the date of acquisition the
estimated fair value of assets acquired, including goodwill, was $42.2 million
and liabilities assumed totaled $15.8 million.
Pro forma operating results for the year ended December 31, 1995, reflecting
purchase price accounting adjustments assuming the Acquisition occurred as of
January 1, 1995, do not significantly differ from the historical operating
results. The pro forma operating results for the year ended December 31, 1994,
reflecting pro forma adjustments assuming the Acquisition occurred as of January
1, 1994, are presented below (in thousands, except per share data):
<TABLE>
<S> <C>
Net sales....................................... $316,833
========
Income before extraordinary loss................ $ 9,619
========
Net income...................................... $ 6,546
========
Earnings per share
Income before extraordinary loss................$ 1.25
========
Net income.................................... $ 0.85
========
</TABLE>
In the preceding table the combined historical amounts for net sales were
not affected by pro forma adjustments, while income before extraordinary item
and net income decreased by $4.2 million for the year ended December 31, 1994.
These adjustments were related primarily to the additional interest expense on
debt incurred to complete the Acquisition, income taxes on Dolton's taxable book
income, and adjustments to conform certain accounting procedures to the
Company's methods.
The unaudited pro forma financial data presented above are not necessarily
indicative of the results that would have been achieved had such transactions
been consummated as of the date indicated or that may be achieved in the future.
17
<PAGE> 19
EASCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. UNUSUAL ITEMS
In November, 1996, the Company's executive staff was reorganized resulting
in the turnover of several key executive personnel. In connection with this
reorganization, a charge to earnings of $3.5 million was recognized related to
separation, executive search, inducement expenses and related legal and
professional fees. The inducement expenses include cash bonuses, stock option
grants and common stock grants that are subject to various vesting provisions
ranging from 2 to 7 years. Further, 150,000 common shares were issued with no
vesting provisions. The fair market value of all common shares granted was $1.3
million. The cash expenditures relating to the reorganization totaled $2.0
million.
In 1996, Dolton experienced severe operating difficulties due to changes in
the marketplace, equipment performance, and the related capacity constraints
caused by these conditions. These conditions have reduced the estimated future
cash flows of this business. As a result, in the fourth quarter of 1996, the
Company recognized a pre-tax fixed asset and goodwill impairment charge of $23.3
million. The charge reduced property, plant and equipment by $9.7 million and
goodwill by $13.6 million. The property and goodwill were recognized in
conjunction with the 1995 acquisition of Dolton (see Note 3). In determining the
amount of the impairment charge, the Company developed its best estimate of
operating cash flows over the expected holding period. The Company's projections
assume a short term decline in volume followed by minor volume increases. These
projections, after considering significant one-time expenses, include the impact
of cost reduction programs and future estimated capital expenditures as well.
In 1994, the Company decided to close permanently its Youngstown, Ohio
facility and dispose of an extrusion press. Pursuant to these actions a charge
of $1.2 million was incurred primarily for estimated losses upon disposition of
certain property and equipment and estimated expenses for building maintenance
prior to disposition. Production at this facility was absorbed by existing
operating facilities.
5. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
The major components of the following balance sheet captions at December 31
were (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accounts Payable, Accruals and Other
Current Liabilities:
Trade accounts payable................ $28,629 $31,240
Accrued insurance..................... 2,288 2,225
Accrued payroll....................... 4,528 4,589
Accrued interest...................... 2,485 2,493
Other current liabilities............. 8,876 7,810
------- -------
Total............................... $46,806 $48,357
======= =======
Other Noncurrent Liabilities:
Accrued environmental liabilities..... $ 8,038 $ 8,848
Postretirement benefits other than
pensions............................ 2,799 2,981
Accrued pension liability............. 4,331 4,541
Other noncurrent liabilities.......... 6,998 6,606
------- -------
Total............................... $22,166 $22,976
======= =======
</TABLE>
6. LONG-TERM DEBT
Senior Notes
At December 31, 1996 and 1995, long-term debt consisted of $85.0 million of
Senior Notes.
The Senior Notes are general unsecured obligations of Easco and are equal in
right of payment with all of Easco's existing and future senior indebtedness and
are senior in right of payment to all of its future subordinated indebtedness.
The Senior Notes mature on March 15, 2001 and bear interest at the rate of 10%
per annum, payable semi-annually on March 15 and September 15. The Senior Notes
may be redeemed at the option of Easco, in whole or in part on or after March
15, 1998 at specified redemption prices plus accrued and unpaid interest through
the redemption date. In the event of a change of control of Easco, Easco is
required to make an offer to purchase the Senior Notes at a price equal to 101%
of the aggregate principal amount thereof, plus accrued interest and unpaid
interest, to the date of purchase.
The Senior Notes Indenture ("the Indenture") contains various covenants
relating to, among others, restrictions on indebtedness, and other restricted
payments, dividends in excess of $5.0 million plus equity capital contributions
and 50% of net income subsequent to March 18, 1994, asset sales and mergers. At
December 31, 1996 the Company was in compliance with all financial and other
covenants contained in the Indenture.
18
<PAGE> 20
The fair value of the Senior Notes is estimated to be $85.9 million based on
quoted market prices at December 31, 1996.
Bank Credit Agreement
The Amended Credit Agreement provides available borrowings of up to $30.0
million, including letters of credit, with a maturity date of January 31, 2000.
The maximum amount of available borrowings may be increased to $40.0 million
provided the Company meets certain financial covenants. Letters of credit
totaled $4.0 million on December 31, 1996. The Amended Credit Agreement is
secured by substantially all of the Company's inventory, accounts receivable and
related assets. Interest is payable on a quarterly basis at rates defined in the
Amended Credit Agreement for Base Rate or Eurodollar Rate loans at the option of
the Company. The Company is required to pay a commitment fee between .25% to
.50% per annum of the unused commitment and a letter of credit fee equal to
between .875% and 1.875% per annum. Fees within each of these ranges are
determined by the Company's financial leverage ratio. The weighted average
interest rate for the year 1996 was 8.3%. At December 31, 1996 unused
availability under the agreement was $26.0 million.
The Amended Credit Agreement as of year-end contained financial and other
covenants including, among others, restrictions on capital expenditures
indebtedness, dividends and other restricted payments, and asset sales, as well
as provisions requiring maintenance of a minimum level of net worth and
specified fixed coverage charge and consolidated leverage ratios. At December
31, 1996 the Company was in compliance with all financial and other covenants
contained in the Amended Credit Agreement.
In connection with the early extinguishment of debt in 1994 under a previous
bank credit agreement entered into in 1992, Easco recognized an extraordinary
loss of $3.1 million, net of income tax benefit of $2.0 million, resulting from
the write-off of unamortized debt issuance costs. The funds used to satisfy such
obligations were obtained from issuance of the Senior Notes.
7. STOCKHOLDERS' EQUITY
Common Stock Offering
On April 12, 1995 the Company issued 2.5 million shares of common stock in
an initial public offering (the "Offering"). Cash proceeds received by the
Company from the Offering, after underwriting discounts and commissions and
other expenses totaling approximately, $3.7 million, were $31.3 million. As a
result of the Offering, long-term debt decreased and stockholders equity
increased by approximately $31.3 million. Assuming the Offering occurred as of
January 1, 1995, net income for the year ended December 31, 1995 would have
increased approximately $250,000 resulting from a reduction in interest expense
reflecting the application of net proceeds from the Offering to repay
indebtedness under the Credit Agreement.
Preferred And Common Stock Changes
In conjunction with the management reorganization (see Note 4), the Company
granted 150,000 fully vested shares and 70,000 shares which vest over two years,
for par value with a weighted average fair value of $5.84 per share at the grant
date.
At the time of the Offering, all preferred and common stock, share and per
share data were adjusted to reflect: (i) reclassification of all classes of
common stock into one, (ii) the increase in the number of authorized shares of
common stock to 40,000,000 shares, (iii) the 9.6949 for 1 split of the common
stock, (iv) the maintenance of the $.01 par value of the common stock after the
split and (v) the authorization of 1,000,000 shares of preferred stock, all of
which were effective April 11, 1995.
Stock Option Plan
The Company's Stock Option Plan (the "Plan") provides for the granting of a
maximum of 775,592 options to purchase common shares to officers and key
employees of the Company and subsidiaries. In 1996, 665,852 options were granted
under the Plan and 366,159 options were cancelled or redeemed. The options
granted included 200,000 options which become exercisable in three annual
periods depending upon the attainment of specific performance goals, or at seven
years after the date of grant. The remaining options granted become exercisable
over three years. In addition to grants under the Plan, the Company entered into
Stock Option Agreements providing for the granting of 225,000 options in 1996
for the purchase of common shares to four executive officers. These options have
exercise prices ranging from $3.00 per share to $7.25 per share and become
exercisable over three years.
19
<PAGE> 21
EASCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Option activity for the three years ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
OPTION
SHARES SHARES
-------- ------------
<S> <C> <C>
Outstanding at December 31, 1993... 207,800 $ 5.46
Granted.......................... 273,387 9.03
--------- ----------
Outstanding at December 31, 1994... 481,187 5.46-9.03
Granted.......................... 5,017 9.03
Cancelled........................ (84,346) 9.03
--------- ----------
Outstanding at December 31, 1995... 401,858 5.46-9.03
Granted.......................... 890,852 3.00-7.25
Cancelled........................ (227,625) 5.46-9.03
Redeemed......................... (138,534) 7.50
--------- ----------
Outstanding at December 31, 1996... 926,551 $3.00-9.03
========= ==========
</TABLE>
The weighted average grant-date fair value of options granted during the
year was $6.20 per share. At December 31, 1996, the weighted average exercise
price and weighted average remaining contractual life for all options
outstanding were $6.27 per share and 5.7 years, respectively. At December 31,
1996, 1995, and 1994, exercisable options totaled 109,900, 201,547 and 69,266
respectively.
Options outstanding to and exercisable by a stockholder at December 31,
1996, issued in conjunction with the acquisition of Easco in 1992, totaled
191,154 at an option price of $4.87 per share.
In 1996, the Company adopted Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation". As permitted by SFAS No. 123, the Company has not
changed its method of accounting for stock-based compensation. If the Company
had adopted the fair value method of accounting prescribed by SFAS No. 123, the
net loss incurred for 1996 would have increased by $60,000 and net loss per
common share would have increased by $0.01. Had SFAS No. 123 been effective
prior to 1996, net income for 1995 would have decreased by $4,000 and earnings
per common share would have been unaffected.
8. INCOME TAXES
Components of the provision for income taxes are (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Federal -- current................ $ (119) $5,524 $4,624
Federal -- deferred............... (3,942) 1,301 478
State and local................... (102) 1,575 1,266
------ ------ ------
Total......................... $(4,163) $8,400 $6,368
====== ====== ======
</TABLE>
A reconciliation of tax at the statutory federal rate to the tax provision
is shown below (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
U.S. federal income tax at 35% in
1996 and 1995; 34% in 1994...... $(9,270) $7,018 $4,867
Goodwill amortization and
impairment...................... 5,427 643 515
State and local taxes, net of
federal benefit and other....... (320) 739 986
------ ------ ------
Total......................... $(4,163) $8,400 $6,368
====== ====== ======
</TABLE>
The approximate tax effect of each type of temporary difference that gave
rise to the Company's deferred tax assets (liabilities) at December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accrued insurance liability......... $ 1,734 $ 1,678
Tax LIFO reserve in excess of book
reserve........................... (3,450) (3,554)
Other............................... 2,259 1,780
Accrued vacation pay................ 771 675
Bad debt reserve.................... 992 861
------ ------
Total current deferred tax
asset......................... 2,306 1,440
------ ------
Accrued environmental liability..... 3,215 3,753
Postretirement benefits liability... 1,252 1,278
Book and tax difference in fixed
asset basis....................... (19,153) (22,863)
Other............................... 1,242 763
------ ------
Total noncurrent deferred tax
liability..................... (13,444) (17,069)
------ ------
Total........................... $(11,138) $(15,629)
====== ======
</TABLE>
At December 31, 1996, the Company had a tax refund receivable of $2.5
million, and an alternative minimum tax credit carryforward of $110,000.
9. LEASES
The Company has various operating lease commitments through 2004 relating to
warehouse and plant facilities, transportation and other equipment, and office
space. Rental expense for all operating leases was approximately $4.0 million in
1996, $3.8 million in 1995, and $3.1 million in 1994.
20
<PAGE> 22
At December 31, 1996, the Company was obligated to make future minimum lease
payments on noncancellable operating leases as follows (in thousands):
<TABLE>
<S> <C>
1997.............................................. $2,590
1998.............................................. 2,049
1999.............................................. 1,002
2000.............................................. 321
2001.............................................. 256
Later years....................................... 417
------
Total minimum payments.......................... $6,635
======
</TABLE>
10. PENSION PLANS
The Company has various noncontributory defined benefit pension plans, both
single employer and multiple employer, covering substantially all of its
employees. Plans covering salaried employees provide pension benefits that are
based on the employee's highest compensation during three consecutive years out
of five years prior to retirement. Plans covering hourly employees provide
benefits of stated amounts for each year of service. It is the Company's policy
to make annual contributions required by applicable regulations. Plan assets are
invested principally in listed bonds, equity securities, and temporary cash
investments.
Significant assumptions used in the plans' actuarial valuations were:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Discount rate................ 7.50% 7.25% 8.75%
to 7.75%
Long-term rate of investment 8.50% 8.50% 8.50%
return..................... to 9.50% to 9.50% to 9.50%
Salary increase rate......... 5.00% 5.00% 5.00%
</TABLE>
Net periodic pension cost consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned
during the period............. $ 1,174 $ 704 $ 777
Interest cost on projected
benefit obligation............ 2,977 3,116 2,893
Actual return on plan assets.... (4,626) (9,010) 327
Net amortization and deferral... 2,527 6,111 (3,272)
------- ------- -------
Net periodic pension cost....... $ 2,052 $ 921 $ 725
======= ======= =======
</TABLE>
In 1996, the Company terminated a plan related to a previously closed
facility and recognized a pre-tax loss of $1.1 million.
The funded status of such defined benefit pension plans and the amounts
recognized in the consolidated balance sheet at December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Projected benefit
obligation......... $(5,726) $ (36,468) $(7,886) $ (37,224)
Fair value of plan
assets............. 9,349 30,597 12,533 28,063
------- ------- -------
Plan assets in excess
of (less than)
projected benefit
obligation......... 3,623 (5,871) 4,647 (9,161)
Unrecognized net
(gain) loss........ (166) 527 (316) 3,781
Unrecognized prior
service cost....... 429 33 457 21
Minimum liability
adjustments........ -- (383) -- (382)
------- ------- -------
Accrued pension asset
(liability)........ $ 3,886 $ (5,694) $ 4,788 $ (5,741)
======= ======= =======
Vested actuarial
present value of
benefit
obligations........ $(5,271) $ (31,742) $(7,474) $ (31,410)
======= ======= =======
Accumulated benefit
obligation......... $(5,726) $ (32,868) $(7,886) $ (32,730)
======= ========= ======= =========
</TABLE>
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits upon
retirement for substantially all salaried employees through an unfunded defined
benefit plan. The extent of benefits provided is dependent upon the retiree's
years of service, age and retirement date.
Net periodic postretirement benefits cost consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ----
<S> <C> <C> <C>
Service cost-benefits earned during
the period........................ $ 147 $ 94 $124
Interest cost on projected benefit
obligation........................ 242 249 248
Net amortization and deferral....... 10 (9) 16
------ ------ ----
Total............................. $ 399 $ 334 $388
====== ====== ====
</TABLE>
21
<PAGE> 23
EASCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table sets forth the plan's accumulated postretirement benefit
obligation at December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Fully-eligible active plan participants... $1,379 $1,552
Other active participants................. 295 232
Retirees.................................. 1,734 1,886
------ ------
Accumulated postretirement benefit
obligation.............................. 3,408 3,670
Unrecognized net gain or (loss)........... (277) (475)
------ ------
Accrued postretirement benefit
liability............................... $3,131 $3,195
====== ======
</TABLE>
Assumptions used in the plan's actuarial valuation were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ----- -----
<S> <C> <C> <C>
Discount rate.................... 7.75% 7.25% 8.75%
Medical inflation rate........... 9.00% 10.00% 11.00%
</TABLE>
The medical inflation rate is assumed to decrease 1% a year to an ultimate
rate of 5% by the year 2001. If the medical trend assumption was increased by
one percentage point, the liabilities of the plan would increase by $245,000 and
the expense for 1996 would increase by $38,000.
12. CONTINGENCIES
Litigation
Lawsuits and claims are filed from time to time against the Company in the
ordinary course of business. Management of the Company, after reviewing
developments to date with legal counsel, is of the opinion that the outcome of
such matters will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
Environmental Remediation
The Company is subject to a wide variety of environmental laws which
continue to be adopted and amended. While the ultimate extent of the Company's
liability for pending or potential fines, penalties, remedial costs, claims and
litigation relating to environmental laws and health and safety matters and
future capital expenditures that may be associated with environmental laws
cannot be determined at this time, management, with the assistance of outside
environmental consultants, annually assesses the Company's environmental
contingencies. Based on management's assessment of the exposure, the Company has
recorded reserves of $9.3 million and $10.1 million at December 31, 1996 and
1995, respectively, representing the Company's best estimate of costs of
remedial action as well as any related legal and consulting work.
13. RELATED PARTY TRANSACTIONS
The company has entered into a Services Agreement with American Industrial
Partners Management Company, Inc. ("AIPM"), an affiliate of the Company, whereby
AIPM is to provide general management, financial, and other advisory services to
the Company. In return, the Company has paid AIPM $900,000 for both 1996 and
1995, $1.0 million for 1994, and it agrees to pay $900,000 per year through
2000. This agreement provides for future reductions in fees to recognize the
reduced level of management services that AIPM would provide if American
Industrial Partners Capital Fund, L.P.'s ownership interest in the Company is
reduced significantly. Fees paid to AIPM in connection with the Dolton
Acquisition in 1995 and the Senior Note issuance in 1994 totaled $490,000 and
$480,000 respectively. In addition, the Company paid a stockholder consulting
fees of $50,000 in 1994.
22
<PAGE> 24
BOARD OF DIRECTORS
TOM H. BARRETT*
Former Chairman, President and
Chief Executive Officer
Goodyear Tire and Rubber Company
Director, A.O. Smith Corporation,
Rubbermaid, Inc., and Air Products and
Chemicals, Inc.
W. RICHARD BINGHAM*
Member, Audit Committee
Former Managing Director
Lehman Brothers
ROBERT CIZIK*
Chairman of the Board and
Member, Audit Committee
Former Chairman and Chief Executive
Officer, Cooper Industries
NORMAN E. WELLS, JR.
President and Chief Executive Officer
ROBERT J. KLEIN*
Member, Compensation Committee
GENE E. LITTLE
Chairman, Audit Committee
Vice President-Finance
The Timken Company
THEODORE C. ROGERS*
Member, Audit Committee
Former Chairman, President and Chief
Executive Officer, NL Industries, Inc.
SAMUEL H. SMITH, JR.
Member, Audit Committee
LAWRENCE W. WARD, JR.*
Member, Compensation Committee
*Messrs. Barrett, Bingham, Cizik, Klein, Rogers, and Ward are general partners,
limited partners or employees of American Industrial Partners Capital Fund, L.P.
or an affiliate.
EXECUTIVE
OFFICERS
NORMAN E. WELLS, JR.
President and Chief
Executive Officer
TERRY D. SMITH
Executive Vice President and
Chief Financial Officer,
Secretary and Treasurer
JOSEPH M. BYERS
Vice President, Sales
and Marketing
JAMES R. MCKEITHAN
Vice President, Manufacturing
LAWRENCE J. SAX
Vice President, Raw Materials
23
<PAGE> 25
STOCKHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Stockholders of Easco, Inc. will be held at the
Wick-Pollock Inn, 603 Wick Avenue in Youngstown, OH beginning at 10:00 A.M. on
Friday, May 9, 1997.
STOCK EXCHANGE LISTING
Easco, Inc. common stock is listed on the Nasdaq National Market under the
symbol "ESCO." The common stock commenced trading on April 13, 1995.
The following table sets forth, for the calendar quarters indicated, the
reported high and low closing prices for the Company's common stock:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter..... $9 3/8 $7 1/4
Second Quarter.... 9 3/8 7 5/8 $17 $11 3/4
Third Quarter..... 8 3/8 4 3/4 12 1/2 6
Fourth Quarter.... 7 3/4 4 1/2 8 3/4 6 3/4
</TABLE>
Beginning in the third quarter of 1995, Easco, Inc. has paid regular quarterly
dividends on the common stock of $0.01 per share. As of February 15, 1997, there
were 116 holders of record of the Company's common stock.
TRANSFER AGENT AND REGISTRAR
For inquiries related to share certificates, changes of address or other general
correspondence concerning stockholder accounts, please contact:
ChaseMellon Bank
Stock Transfer Administration
450 West 33rd Street
15th Floor
New York, New York 10001
or you may telephone for assistance:
(800) 647-4273
INVESTOR INFORMATION
Investor inquiries should be directed to:
Investor Relations
Easco, Inc.
706 South State Street
Girard, Ohio 44420
Phone: (330) 545-4311
ANNUAL REPORT ON FORM 10-K
Stockholders may obtain a copy of the annual report on Form 10-K as filed with
the Securities and Exchange Commission (excluding Exhibits) free of charge, upon
written request to the Executive Vice President and Chief Financial Officer at
Easco, Inc.'s headquarters.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
127 Public Square
Suite 2500
Cleveland, Ohio 44114
HEADQUARTERS
Easco, Inc.
706 South State Street
Girard, Ohio 44420
Phone: (330) 545-4311
Fax: (330) 545-3119
ALUMINUM EXTRUSION FACILITIES
Berlin, Connecticut
Burlington, North Carolina
Dolton, Illinois
Elkhart, Indiana
Fostoria, Ohio
Girard, Ohio
Kokomo, Indiana
Niles, Ohio
Winton, North Carolina
VINYL EXTRUSION FACILITY
Austintown, Ohio
CASTING FACILITIES
Ahoskie, North Carolina
Dolton, Illinois
Niles, Ohio
DEPOTS
Burlington, North Carolina
Dolton, Illinois
24
<PAGE> 1
Exhibit 15.1
INDEPENDENT AUDITORS' CONSENT
Easco, Inc.
We consent to the incorporation by reference in Registration Statement No.
33-098600 on Form S-8 of our report dated February 18, 1997, incorporated by
reference in this Annual Report on Form 10-K of Easco, Inc. and Subsidiaries for
the year ended December 31, 1996.
Deloitte & Touche LLP
Cleveland, Ohio
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000938145
<NAME> EASCO,INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1,000
<CASH> 13,245
<SECURITIES> 0
<RECEIVABLES> 43,280
<ALLOWANCES> 2,478
<INVENTORY> 27,143
<CURRENT-ASSETS> 87,782
<PP&E> 102,708
<DEPRECIATION> 23,047
<TOTAL-ASSETS> 230,457
<CURRENT-LIABILITIES> 46,806
<BONDS> 85,000
<COMMON> 124
0
0
<OTHER-SE> 62,917
<TOTAL-LIABILITY-AND-EQUITY> 230,457
<SALES> 333,011
<TOTAL-REVENUES> 333,011
<CGS> 282,967
<TOTAL-COSTS> 282,967
<OTHER-EXPENSES> 65,209
<LOSS-PROVISION> 2,295
<INTEREST-EXPENSE> 9,021
<INCOME-PRETAX> (26,481)
<INCOME-TAX> (4,163)
<INCOME-CONTINUING> (22,318)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,318)
<EPS-PRIMARY> (2.17)
<EPS-DILUTED> (2.17)
</TABLE>
