UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------------
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------------
For the transition period from ________ to _________
Commission file name 1-8142
ENGELHARD CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-1586002
------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization Number)
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(732) 205-5000
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(Registrant's telephone number including area code)
Not Applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if change since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at July 31, 1998
- --------------------- -----------------------------
$1 par value 144,508,254
1
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1998 1997 1998 1997
----------- -------- ---------- ----------
Net sales ....................... $1,074,512 $896,723 $2,045,065 $1,780,935
Cost of sales ................... 902,723 742,205 1,724,321 1,484,681
----------- -------- ---------- ----------
Gross profit ............... 171,789 154,518 320,744 296,254
Selling, administrative and other
expenses ...................... 86,267 76,956 165,008 153,931
----------- -------- --------- ---------
Earnings from operations ... 85,522 77,562 155,736 142,323
Equity in earnings (losses) of
affiliates .................... 3,068 (868) 7,473 484
Gain on sale of investment ...... - - - 305
Net interest expense ............ (15,158) (13,613) (27,484) (26,280)
----------- -------- --------- ---------
Earnings before income taxes 73,432 63,081 135,725 116,832
Income tax expense .............. 22,543 18,924 41,667 35,049
----------- -------- --------- ---------
Net earnings ............... $ 50,889 $ 44,157 $ 94,058 $ 81,783
=========== ======== ========= =========
Basic earnings per share ........ $ 0.35 $ 0.31 $ 0.65 $ 0.57
=========== ======== ========= =========
Diluted earnings per share ...... $ 0.35 $ 0.30 $ 0.65 $ 0.56
=========== ======== ========= =========
Cash dividends paid per share ... $ 0.10 $ 0.09 $ 0.20 $ 0.18
=========== ======== ========= =========
Average number of shares
outstanding - Basic ........... 144,578 144,229 144,536 144,126
=========== ======== ========= =========
Average number of shares
outstanding - Diluted ......... 146,414 145,930 145,777 145,886
=========== ======== ========= =========
See the Accompanying Notes to the Condensed Consolidated Financial Statements
2
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
June 30, December 31,
1998 1997
---------- ------------
Cash .................................. $ 44,333 $ 28,765
Receivables ........................... 374,598 323,330
Committed metal positions ............. 549,321 502,494
Inventories ........................... 366,985 356,403
Other current assets .................. 60,728 44,180
---------- ------------
Total current assets ............. 1,395,965 1,255,172
Investments ........................... 149,854 160,082
Property, plant and equipment, net .... 884,566 788,178
Intangible assets, net ................ 364,132 214,929
Other noncurrent assets ............... 151,263 167,962
---------- ------------
Total assets ..................... $2,945,780 $2,586,323
========== ============
Short-term borrowings ................. $ 390,784 $ 249,368
Accounts payable ...................... 224,537 180,499
Hedged metal obligations .............. 569,536 572,266
Other current liabilities ............. 258,066 238,003
---------- ------------
Total current liabilities ........ 1,442,923 1,240,136
Long-term debt ........................ 501,635 373,574
Other noncurrent liabilities .......... 171,152 187,353
Shareholders' equity .................. 830,070 785,260
---------- ------------
Total liabilities and
shareholders' equity ........ $2,945,780 $2,586,323
========== ============
See the Accompanying Notes to the Condensed Consolidated Financial Statements
3
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Six Months Ended
June 30,
------------------------
1998 1997
---------- ----------
Cash flows from operating activities
Net earnings ........................................ $ 94,058 $ 81,783
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, depletion and amortization ......... 45,888 42,996
Equity results, net of dividends ................. (5,711) 2,953
Net change in assets and liabilities
Metal related ............................... 1,998 124,026
All other ................................... (45,065) (43,294)
---------- ----------
Net cash provided by operating activities ........ 91,168 208,464
---------- ----------
Cash flows from investing activities
Capital expenditures, net ........................... (59,497) (46,464)
Acquisitions and investments, net ................... (244,177) (24,227)
Other ............................................... 924 5,040
---------- ----------
Net cash used in investing activities ............ (302,750) (65,651)
---------- ----------
Cash flows from financing activities
Net change in short-term borrowings ................. 141,122 (16,755)
Net change in hedged metal obligations .............. (2,730) (104,612)
Proceeds from issuance of long-term debt ............ 119,855 876
Repayment of long-term debt ......................... - (1,730)
Purchase of treasury stock .......................... (6,903) -
Stock bonus and option plan transactions ............ 6,333 6,759
Dividends paid ...................................... (28,927) (25,958)
---------- ----------
Net cash provided by (used in) financing
activities ..................................... 228,750 (141,420)
Effect of exchange rate changes on cash ............... (1,600) (829)
---------- ----------
Net change in cash ............................... 15,568 564
Cash at beginning of year ........................ 28,765 39,683
---------- ----------
Cash at end of period ............................ $ 44,333 $ 40,247
========== ==========
See the Accompanying Notes to the Condensed Consolidated Financial Statements
4
ENGELHARD CORPORATION
BUSINESS SEGMENT INFORMATION
(Thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------------
1998 1997 1998 1997
----------- -------- ----------- -----------
Net Sales
Catalysts and Chemicals ........ $ 258,351 $232,783 $ 490,529 $ 454,611
Pigments and Additives ......... 159,481 153,426 301,929 294,494
Engineered Materials and
Industrial Commodities
Management ................. 656,680 510,514 1,252,607 1,031,830
----------- -------- ----------- -----------
$1,074,512 $896,723 $2,045,065 $1,780,935
=========== ======== =========== ===========
Operating Earnings
Catalysts and Chemicals ........ $ 45,143 $ 37,776 $ 83,267 $ 72,867
Pigments and Additives ......... 29,775 32,698 53,597 56,141
Engineered Materials and
Industrial Commodities
Management ................. 20,032 11,266 37,260 25,000
----------- -------- ----------- -----------
94,950 81,740 174,124 154,008
Equity in earnings (losses)
of affiliates ................. 3,068 (868) 7,473 484
Interest and other expenses, net (24,586) (17,791) (45,872) (37,660)
----------- -------- ----------- -----------
Earnings before income taxes $ 73,432 $ 63,081 $ 135,725 $ 116,832
=========== ======== =========== ===========
Income tax expense .............. 22,543 18,924 41,667 35,049
----------- -------- ----------- -----------
Net earnings ............... $ 50,889 $ 44,157 $ 94,058 $ 81,783
=========== ======== =========== ===========
Basic earnings per share ........ $ 0.35 $ 0.31 $ 0.65 $ 0.57
=========== ======== =========== ===========
Diluted earnings per share ...... $ 0.35 $ 0.30 $ 0.65 $ 0.56
=========== ======== =========== ===========
Cash dividends paid per share ... $ 0.10 $ 0.09 $ 0.20 $ 0.18
=========== ======== =========== ===========
Average number of shares
outstanding - Basic ........... 144,578 144,229 144,536 144,126
=========== ======== =========== ===========
Average number of shares
outstanding - Diluted ......... 146,414 145,930 145,777 145,886
=========== ======== =========== ===========
See the Accompanying Notes to the Condensed Consolidated Financial Statements
5
Notes to the Condensed Consolidated Financial Statements
- --------------------------------------------------------
Note 1 - Basis of Presentation
- ------------------------------
The unaudited condensed consolidated financial statements of Engelhard
Corporation and subsidiaries (the "Company") contain all adjustments which, in
the opinion of management, are necessary for a fair statement of the results for
the interim periods presented. The financial statement results for interim
periods are not necessarily indicative of financial results for the full year.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1997 Annual
Report to Shareholders.
Note 2 - Acquisition
- --------------------
On May 1, 1998, the Company acquired the chemical catalysts businesses of
Mallinckrodt, Inc. ("Mallinckrodt businesses") for approximately $210 million in
cash. The Company initially financed the acquisition with a combination of
commercial paper and bank borrowings. The purchase price exceeded the
preliminary assessments of the fair value of net assets acquired by
approximately $100 million, which is being amortized on a straight-line basis
over 40 years. The results of the Mallinckrodt businesses are included in the
accompanying financial statements from the date of acquisition: For the second
quarter and six months of 1998, the acquisition increased net sales by $23.2
million, operating earnings by $6.3 million and net earnings per share by $.02.
The increase in net earnings per share includes the impact of higher interest
expense related to the acquisition. Management anticipates modest levels of
profitability from the Mallinckrodt businesses for the remainder of 1998.
The following summarized unaudited pro forma financial information assumes
the acquisition had occurred on January 1 of each year:
Pro Forma Information (in millions, except per share data):
Six Months Ended
June 30,
-----------------------
1998 1997
---- ----
Net sales .......................... $2,074.3 $1,823.6
Net earnings ....................... 95.2 81.6
Basic earnings per share ........... .66 .57
Diluted earnings per share ......... .65 .56
The above amounts include the Mallinckrodt businesses actual results for
the first six months of 1997 and actual results for the first four months of
1998 prior to the acquisition, and actual results for the two months in 1998
postacquisition. The pro forma amounts are based upon certain assumptions and
estimates, and do not reflect any benefit from economies which might be achieved
from combined operations. The pro forma results do not necessarily represent
results which would have occurred if the acquisition had taken place on the
basis assumed above, nor are they indicative of the results of future combined
operations.
6
Note 3 - Inventories
- --------------------
Inventories consist of the following (in thousands):
June 30, 1998 December 31, 1997
------------- -----------------
Raw materials ........................... $ 86,638 $ 99,150
Work in process ......................... 46,742 31,903
Finished goods .......................... 200,113 191,890
Precious metals ......................... 33,492 33,460
------------- -----------------
Total inventories ....................... $ 366,985 $ 356,403
============= =================
The amount of inventory acquired from the Mallinckrodt businesses was
$16.3 million.
Note 4 - Other Matters
- ----------------------
With respect to the fraud involving base metal inventory held in
third-party warehouses in Japan described in the paragraph entitled "Subsequent
Event" in Engelhard's Form 10-K for the year ended December 31, 1997, the
Company: is continuing to pursue recovery of its losses from its insurance
carriers and various third parties; recorded a related receivable in the first
quarter of 1998; and commenced litigation against certain of these third parties
in the second quarter of 1998. This matter did not have a material effect on
earnings in the first six months of 1998.
Note 5 - Comprehensive Income
- -----------------------------
In accordance with Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income", comprehensive income is summarized as follows
(in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1998 1997 1998 1997
-------- --------- -------- --------
Net earnings ........................ $50,889 $44,157 $94,058 $81,783
Other comprehensive income (loss):
Foreign currency translation
adjustment ..................... 1,211 (20,650) (19,752) (45,252)
-------- --------- -------- --------
Comprehensive income ................ $52,100 $23,507 $74,306 $36,531
======== ========= ======== ========
7
No provision has been made for U.S. or additional foreign taxes on the
undistributed earnings of foreign subsidiaries because such earnings are
expected to be reinvested indefinitely in the subsidiaries' operations.
Management's Discussion and Analysis of
Item 2. Financial Condition and Results of Operations
- ------- ---------------------------------------------
Results of Operations
---------------------
Comparison of the Second Quarter of 1998
with the Second Quarter of 1997
- ----------------------------------------
Net earnings increased 15% to $50.9 million in the second quarter of 1998
from $44.2 million in the same period of 1997. See "Note 2 - Acquisition" of the
Notes to the Condensed Consolidated Financial Statements for the impact of the
acquisition of the Mallinckrodt businesses. The effective tax rate was 30.7% in
the second quarter of 1998 compared with 30.0% for the same period last year.
The higher effective rate was primarily due to a shift in the geographic mix of
earnings and a changing product slate.
Earnings before income taxes for the second quarter of 1998 increased 16%
to $73.4 million from $63.1 million for the same period of 1997. Operating
earnings for the second quarter of 1998 increased 16%. The Catalysts and
Chemicals segment and the Engineered Materials and Industrial Commodities
Management segment reported higher earnings which more than offset the lower
results of the Pigments and Additives segment.
The Company's share of earnings from affiliates was $3.1 million for the
second quarter of 1998 compared with a loss of $0.9 million for the same period
of 1997. The increase was largely attributable to the increased earnings of
Engelhard-CLAL, a precious metal fabrication joint venture, increased earnings
of N.E. Chemcat, a Japanese affiliate, and the absence of losses from
Engelhard/ICC, which has been restructured. Management anticipates modest levels
of profitability from its affiliates for the remainder of 1998 compared to
losses incurred last year.
Higher net interest expense was primarily due to the acquisition of the
Mallinckrodt businesses.
Net sales for the second quarter of 1998 increased 20% to $1.1 billion from
$896.7 million for the same period of 1997 with higher sales in all business
segments.
Catalysts and Chemicals
- -----------------------
Operating earnings increased 20% to $45.1 million in the second quarter of
1998 from $37.8 million in the same period of 1997. Net sales for the second
quarter of 1998 increased 11% to $258.4 million from $232.8 million in the same
period of 1997. See "Note 2 - Acquisition" of the Notes to the Condensed
Consolidated Financial Statements for the impact of the acquisition of the
Mallinckrodt businesses.
8
The Environmental Technologies Group had higher earnings largely due to
increased volumes in Europe and a favorable product mix globally. In the
Petroleum Catalysts Group, earnings improved primarily from increased sales
volume and prices and a decline in operating costs for fluid catalytic cracking
catalysts. The Chemical Catalysts Group had higher earnings due to the addition
of two months of strong results from the acquisition of the Mallinckrodt
businesses. Excluding the results of the Mallinckrodt businesses, the Chemical
Catalysts Group's earnings would have declined, due primarily to a continuing
weaker demand in the chemical industry and the timing associated with large,
periodic customer orders.
Pigments and Additives
- ----------------------
Operating earnings decreased 9% to $29.8 million in the second quarter of
1998 from $32.7 million in 1997. Net sales increased 4% to $159.5 million in
1998 from $153.4 million in 1997.
Lower earnings from specialty pigments and performance additives was
primarily due to lower sales in Asian markets, unfavorable product mix, and
planned inventory reductions. This decrease was partially offset by continued
volume growth of pearlescent pigments, primarily in the U.S. and European
cosmetics markets. Earnings from paper pigments increased due to improved
manufacturing costs, a favorable product mix, and more stabilized pricing.
Engineered Materials and Industrial Commodities Management
- ----------------------------------------------------------
Operating earnings increased 78% to $20.0 million in the second quarter of
1998 from $11.3 million in the same period of 1997. Net sales increased 29%
to $656.7 million in 1998 from $510.5 million in 1997.
The Industrial Commodities Management Group generated higher earnings by
continuing to capitalize on unusual market volatility. The Engineered Materials
Group had higher earnings primarily due to increased refining business in Europe
and increased demand for metal joining products.
Comparison of the First Six Months of
1998 with the First Six Months of 1997
- --------------------------------------
Net earnings for the first six months of 1998 increased 15% to $94.1
million from $81.8 million for the same period in 1997. See "Note 2 -
Acquisition" of the Notes to the Condensed Consolidated Financial Statements for
the impact of the acquisition of the Mallinckrodt businesses. The effective tax
rate was 30.7% compared with 30.0% for the same period last year. The higher
effective rate was primarily due to a shift in the geographic mix of earnings
and a changing product slate.
Earnings before income taxes for the first six months of 1998 increased 16%
to $135.7 million from $116.8 million for the same period in 1997. Operating
earnings for the first six months of 1998 increased 13%. The Catalysts and
Chemicals segment and the Engineered Materials and Industrial Commodities
Management segment reported higher earnings which more than offset the lower
results of the Pigments and Additives segment.
9
The Company's share of earnings from affiliates was $7.5 million for the
first six months of 1998 compared with earnings of $0.5 million in 1997. The
increase was largely attributable to the increased earnings of Engelhard-CLAL, a
precious metal fabrication joint venture, and the absence of losses from
Engelhard/ICC, which has been restructured. Management anticipates modest levels
of profitability from its affiliates for the remainder of 1998.
Higher net interest expense was primarily due to the acquisition of the
Mallinckrodt businesses.
Net sales for the first six months of 1998 increased 15% to $2.0 billion
from $1.8 billion for the same period in 1997 with higher sales in all business
segments.
Catalysts and Chemicals
- -----------------------
Operating earnings increased 14% to $83.3 million in the first six months
of 1998 from $72.9 million in the same period of 1997. Net sales increased 8% to
$490.5 million in 1998 from $454.6 million in 1997. See "Note 2 - Acquisition"
of the Notes to the Condensed Consolidated Financial Statements for the impact
of the acquisition of the Mallinckrodt businesses.
The Environmental Technologies Group had higher earnings largely due to
increased volumes in Europe and a favorable product mix globally. In the
Petroleum Catalysts Group, earnings improved primarily from increased sales
volume and prices, and a decline in operating costs and a favorable product mix
for fluid catalytic cracking catalysts. The Chemical Catalysts Group had higher
earnings primarily due to the addition of two months of strong results from the
the Mallinckrodt businesses. Excluding the results of the Mallinckrodt
businesses, the Chemical Catalysts Group's earnings would have declined, due
primarily to a continuing weaker demand in the chemical industry and the timing
associated with large, periodic customer orders.
Pigments and Additives
- ----------------------
Operating earnings decreased 5% to $53.6 million in the first six months of
1998 from $56.1 million in the same period of 1997. Net sales increased 3% to
$301.9 million in 1998 from $294.5 million in 1997.
Lower earnings from specialty pigments and performance additives was due to
lower sales in Asian markets, an unfavorable product mix, higher manufacturing
costs resulting from the consolidation of facilities following the Floridin
acquisition combined with lower Attapulgite volumes, and planned inventory
reductions. This decrease was partially offset by continued volume growth of
pearlescent pigments, primarily in the U.S. and European cosmetics markets.
Earnings from paper pigments increased due to improved manufacturing costs, a
favorable product mix, and more stabilized pricing.
Engineered Materials and Industrial Commodities Management
- ----------------------------------------------------------
Operating earnings increased 49% to $37.3 million in the first six months
of 1998 from $25.0 million in the same period in 1997. Net sales increased 21%
$1.3 billion in 1998 from $1.0 billion in 1997.
10
The Industrial Commodities Management Group generated higher earnings by
continuing to capitalize on unusual market volatility. The Engineered Materials
Group had higher earnings primarily due to increased refining business in Europe
and increased demand for metal joining products.
Financial Condition and Liquidity
---------------------------------
In June 1998, the Company issued $120 million of 30-year bonds at an
interest rate of 6.95%. The proceeds were used to reduce short-term debt related
to the acquisition of the Mallinckrodt businesses.
At June 30, 1998, the Company's current ratio was 1.0, the same as at
December 31, 1997. The Company's total debt to total capital ratio increased to
52% from 44% at year end, primarily due to the acquisition of the Mallinckrodt
businesses in the second quarter and the timing of investments made in the first
quarter.
The nature of the Industrial Commodities Management business can result in
significant fluctuations in cash flow. Management believes that the Company will
continue to have adequate access to credit and capital markets to meet its needs
for the foreseeable future.
Other Matters
-------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for the Company on
January 1, 2000. The Company will adopt SFAS 133 in the first quarter of 2000.
SFAS 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. For fair-value hedge transactions in which the
Company is hedging changes in an asset's, liability's, or firm commitment's fair
value, changes in the fair value of the derivative instrument will generally be
offset in the income statement by changes in the hedged item's fair value. For
cash-flow hedge transactions, in which the Company is hedging the variability of
cash flows related to a variable-rate asset, liability, or a forecasted
transaction, changes in the fair value of the derivative instrument will be
reported in other comprehensive income. The gains and losses on the derivative
instrument that are reported in other comprehensive income will be reclassified
as earnings in the periods in which earnings are impacted by the variability of
the cash flows of the hedged item. The ineffective portion of all hedges will be
recognized in current-period earnings.
The Company has not yet determined the impact that the adoption of SFAS 133
will have on its earnings, comprehensive income or statement of financial
position.
11
Subsequent Events
-----------------
In July 1998, the Company filed a shelf registration for $300 million. The
net proceeds from offerings under the shelf registration are expected to be used
to retire short-term debt and for general corporate purposes. The Company
currently plans to issue $100 million of bonds under the shelf registration
prior to the end of 1998. The proceeds from the issuance will be used to reduce
short-term borrowings.
The Company and certain of its present and former officers have agreed to a
Stipulation of Settlement ("Stipulation") of a class action filed in November
1995 which alleged misstatements and omissions in connection with press releases
issued in 1995 concerning the Company's PremAir(TM) Catalyst Systems. In the
settlement, which remains subject to Court approval, in exchange for the
dismissal of the complaint against all defendants, the Company will pay no more
than $7.2 million of a maximum settlement amount of $21.5 million. The balance
of the settlement amount will be paid by insurance carried by the Company for
such purposes. Because the final settlement amount will depend on the number of
eligible shares of the Company's common stock for which claims are submitted,
the amounts to be paid by the Company and the insurer could be less (but in no
event more) than the above-stated amounts. This matter did not have any impact
on earnings in the first six months of 1998 and, if resolved in accordance with
the Stipulation, will not have a material adverse effect on the operating
results of the Company in future periods.
Forward-looking Statements
--------------------------
This document contains forward-looking statements. Investors should be
aware of factors that could cause Engelhard's actual results to vary materially
from those projected in the forward-looking statements. These factors include,
but are not limited to, global economic trends; competitive pricing or product
development activities; markets, alliances, and geographic expansions developing
differently than anticipated; government legislation and/or regulation
(particularly on environmental issues); and technology, manufacturing and legal
issues.
12
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K Pages
- ------- -------------------------------- -----
(a)(10) Material Contracts.
(a) Change in Control Agreement. 15-27
(b) Amendment to Key Employees Deferred Compensation Plan, 28-29
effective August 6, 1998.
(c) Amendment to Supplemental Retirement Program of 30-38
Engelhard Corporation, effective June 11, 1998.
(12) Computation of the Ratio of Earnings to Fixed Charges. 39-40
(b) There were no reports on Form 8-K filed during the quarter
ended June 30, 1998.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENGELHARD CORPORATION
-----------------------------
(Registrant)
Date August 13, 1998 /s/ Orin R. Smith
--------------------- -----------------------------
Orin R. Smith
Chairman and Chief
Executive Officer
Date August 13, 1998 /s/ Thomas P. Fitzpatrick
--------------------- -----------------------------
Thomas P. Fitzpatrick
Senior Vice President and
Chief Financial Officer
Date August 13, 1998 /s/ David C. Wajsgras
---------------------- -----------------------------
David C. Wajsgras
Controller
14
EXHIBIT 10(a)
CHANGE IN CONTROL AGREEMENT
---------------------------
15
CHANGE IN CONTROL AGREEMENT
Agreement, made this ___ day of ____, 1998, by and between ENGELHARD
CORPORATION, a Delaware corporation (the "Company"), and ________________ (the
"Executive").
WHEREAS, the Executive is a key employee of the Company; and
WHEREAS, the Board of Directors of the Company (the "Board") considers the
maintenance of a sound management to be essential to protecting and enhancing
the best interests of the Company and its stockholders and recognizes that the
possibility of a change in control raises uncertainty and questions among key
employees and may result in the departure or distraction of such key employees
to the detriment of the Company and its stockholders; and
WHEREAS, the Board wishes to assure that it will have the continued
dedication of the Executive and the availability of his advice and counsel,
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company; and
WHEREAS, the Executive is willing to continue to serve the Company taking
into account the provisions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and the respective
covenants and agreements of the parties herein contained, the parties agree as
follows:
1. Potential Change in Control; Change in Control. Benefits shall be
provided hereunder only in the event there shall have occurred a "Potential
Change in Control" or "Change in Control," as such terms are defined below, and
the Executive's employment by the Company shall thereafter have terminated in
accordance with Section 2 below within the period beginning on the date of the
"Potential Change in Control" or "Change in Control" and ending on the third
anniversary of the date on which a "Change in Control" occurs (the "Protection
Period"); provided, however, that if the Protection Period begins by reason of a
"Potential Change in Control," and the Board determines in good faith that a
"Change in Control" is unlikely to occur, such Protection Period shall end on
the date of adoption of a resolution by the Board to that effect. If any
Protection Period terminates without the Executive's employment having
terminated, any "Potential Change in Control" or "Change in Control" subsequent
to such termination shall give rise to a new Protection Period. No benefits
shall be paid under this Agreement if the Executive's employment terminates
outside of a Protection Period.
(i) For purposes of this Agreement, a "Potential Change in Control"
shall be deemed to have occurred if:
(A) the Company enters into an agreement the consummation of
which, or the approval by shareholders of which, would constitute
a Change in Control;
(B) proxies for the election of directors are solicited by
anyone other than the Company;
16
(C) any Person (as defined below) publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control; or
(D) any other event occurs which is deemed to be a Potential
Change in Control by the Board and the Board adopts a resolution
to the effect that a Potential Change in Control has occurred.
(ii) For purposes of this Agreement, a "Change in Control" shall mean:
(A) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person"), of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of
either (1) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (2) the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change in Control: (i) any acquisition directly from
the Company (other than by exercise of a conversion privilege);
(ii) any acquisition by the Company or any of its subsidiaries;
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its
subsidiaries; (iv) any acquisition by any corporation with
respect to which, following such acquisition, more than 60% of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such acquisition in substantially
the same proportions as their ownership, immediately prior to
such acquisition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be; or (v)
any acquisition by a Person owning more than 25% of the
Outstanding Company Common Stock on the date hereof;
(B) during any period of two consecutive years, individuals
who, as of the beginning of such period, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the beginning of
such period whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
17
(C) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation, do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
such reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be; or
(D) approval by the shareholders of the Company of (1) a
complete liquidation or dissolution of the Company or (2) a sale
or other disposition of all or substantially all of the assets of
the Company, other than to a corporation with respect to which
following such sale or other disposition, more than 60% of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be.
2. Termination Following Change in Control. The Executive shall be entitled
to the benefits provided in Section 3 hereof upon any termination of his
employment with the Company within a Protection Period, except a termination of
employment (a) because of his death, (b) because of a "Disability," (c) by the
Company for "Cause," or (d) by the Executive other than for "Good Reason."
(i) Disability. The Executive's employment shall be deemed to have
terminated because of a "Disability" if the Executive applies for and is
determined to be eligible to receive disability benefits under the
Company's Long-Term Disability Plan.
(ii) Cause. Termination of the Executive's employment by the Company
for "Cause" shall mean termination by reason of the Executive's willful
engagement in conduct which involves dishonesty or moral turpitude in
connection with his employment and which is demonstrably and materially
injurious to the financial condition or reputation of the Company. An act
or omission shall he deemed "willful" only if done, or omitted to be done,
in bad faith and without reasonable belief that it was in the best interest
of the Company. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have
18
been delivered to the Executive a written notice of termination from the
Compensation Committee (the "Committee") after reasonable notice to the
Executive and an opportunity for him, together with his counsel, to be
heard before the Committee, finding that, in the good faith opinion of such
Committee, he was guilty of conduct set forth above in the first sentence
of this subsection (ii) and specifying the particulars in detail.
(iii) Without Cause. The Company may terminate the employment of the
Executive without Cause during a Protection Period only by giving the
Executive written notice of termination to that effect. In that event, the
Executive's employment shall terminate on the last day of the month in
which such notice is given (or such later date as may be specified in such
notice), and the benefits set forth in Section 3 hereof shall be provided
to the Executive.
(iv) Good Reason. Termination of employment by the Executive for "Good
Reason" shall mean termination:
(A) within a Protection Period, if there has occurred a
reduction by the Company in the Executive's base salary in effect
immediately before the beginning of the Protection Period or as
increased from time to time thereafter;
(B) within a Protection Period, and without the Executive's
written consent, if the Company has required the Executive to be
relocated anywhere in excess of thirty-five (35) miles from his
office location immediately before the beginning of the
Protection Period, except for required travel on the business of
the Company to an extent substantially consistent with the
Executive's business travel obligations immediately before the
beginning of the Protection Period;
(C) within a Protection Period, if there has occurred a
failure by the Company to maintain plans providing benefits at
least as beneficial as those provided by any benefit or
compensation plan (including, without limitation, any incentive
compensation plan, bonus plan or program, retirement, pension or
savings plan, stock option plan, restricted stock plan, life
insurance plan, health and dental plan and disability plan) in
which the Executive is participating immediately before the
beginning of the Protection Period, or if the Company has taken
any action which would adversely affect the Executive
participation in or reduce the Executive's benefits under any of
such plans or deprive the Executive of any material fringe
benefit enjoyed by him immediately before the beginning of the
Protection Period, or if the Company has failed to provide the
Executive with the number of paid vacation days to which he would
be entitled in accordance with the normal vacations policy of the
Company as in effect immediately before the beginning of the
Protection Period; provided, however, that a reduction in
benefits under the Company's tax-qualified retirement, pension or
savings plans or its life insurance plan, health and dental plan,
disability plans or other insurance plans which reduction applies
equally to all participants in the plans and has a de minimis
effect on the Executive shall not constitute "Good Reason" for
termination by the Executive;
19
(D) within a Protection Period, if the Company has reduced
in any manner which the Executive considers important the
Executive's title, job authorities or responsibilities
immediately before the beginning of the Protection Period;
(E) within a Protection Period, if the Company has failed to
obtain the assumption of the obligations contained in this
Agreement by any successor as contemplated in Section 8(c)
hereof; or
(F) within a Protection Period, if there occurs any
purported termination of the Executive's employment by the
Company which is not effected pursuant to a written notice of
termination as described in subsection (ii) or (iii) above.
The Executive shall exercise his right to terminate his employment for Good
Reason by giving the Company a written notice of termination specifying in
reasonable detail the circumstances constituting such Good Reason. In that
event, the Executive's employment shall terminate on the last day of the month
in which such notice is given.
A termination of employment by the Executive within a Protection Period
shall be for Good Reason if one of the occurrences specified in this subsection
(iv) shall have occurred, notwithstanding that the Executive may have other
reasons for terminating employment, including employment by another employer
which the Executive desires to accept. For purposes of this subsection (iv), any
good faith determination of "Good Reason" made by the Executive shall be
conclusive.
3. Benefits Upon Termination Within Protection Period. If, within a
Protection Period, the Executive's employment by the Company shall be terminated
(a) by the Company other than for Cause or because of a Disability, or (b) by
the Executive for Good Reason, the Executive shall be entitled to the benefits
provided for below:
(i) The Company shall pay to the Executive through the date of the
Executive's termination of employment salary at the rate then in effect,
together with salary in lieu of vacation accrued to the date on which his
employment terminates, in accordance with the standard payroll practices of
the Company;
(ii) The Company shall pay to the Executive an amount in cash equal to
the product of (A) the cash value of the total incentive pool under the
Company's Incentive Compensation Plan (the "Incentive Plan") for the
Executive for the calendar year that includes the date of the Change in
Control, determined based on the Executive's annual base salary in effect
at the time of the Change in Control, the Executive's "Pool Development
Factors" (i.e., cash bonus factor, equity pool factor and stock options
factor) under the Incentive Plan for the year that includes the date of the
Change in Control, and the highest "Performance Multiplier" attributable
solely to Company performance under the Incentive Plan for each Pool
Development Factor in respect of any of the 3 calendar years immediately
preceding the calendar year that includes the date of the Change in
Control, multiplied by (B) a fraction, the numerator of which is the number
of days elapsed in the calendar year through the date of termination of the
Executive's employment, and the denominator of which is 365; and such
20
payment shall be made in a lump sum within 10 business days after the date
of such termination of employment;
(iii) The Company shall pay to the Executive an amount in cash equal
to two times the sum of (A) his highest annual salary in effect during any
of the 36 months immediately preceding his date of termination of
employment, and (B) the cash value of the total incentive pool under the
Incentive Plan for the Executive for the calendar year that includes the
date of the Change in Control, determined based on the Executive's annual
base salary in effect at the time of the Change in Control, the Executive's
"Pool Development Factors" (i.e., cash bonus factor, equity pool factor and
stock options factor) under the Incentive Plan for the year that includes
the date of the Change in Control, and the highest "Performance Multiplier"
attributable solely to Company performance under the Incentive Plan for
each Pool Development Factor in respect of any of the 3 calendar years
immediately preceding the calendar year that includes the date of the
Change in Control; and such payment shall be made in a lump sum within 10
business days after the date of such termination of employment;
(iv) The Company shall continue to cover the Executive and his
dependents under, or provide the Executive and his dependents with
insurance coverage no less favorable than, the Company's life, disability,
health, dental or other emp1oyee welfare benefit plans or programs (as in
effect on the day immediately preceding the Protection Period or, at the
option of the Executive, on the date of termination of his employment) for
a period equal to the lesser of (x) two years following the date of
termination or (y) until the Executive is provided by another employer with
benefits substantially comparable to the benefits provided by such plans or
programs; and
(v) Following the Executive's termination of employment, the Company
shall treat the Executive as if he had continued participation and benefit
accruals under the Company's Supplemental Retirement Program or a successor
plan (as in effect on the date immediately preceding the Protection Period)
for two years following the date of termination, or the Company shall
provide an equivalent benefit outside such plan with the result that an
additional two years of age and service shall be granted to the Executive.
4. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plans, practices, policies or programs provided by the
Company or any of its subsidiaries and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any stock option or other agreements with the Company or any of its
subsidiaries. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, practice, policy or program of the
Company or any of its subsidiaries at or subsequent to the date of termination
of the Executive's employment shall be payable in accordance with such plan,
practice, policy or program.
5. Full-Settlement; Legal Expenses. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
21
to the Executive under any of the provisions of this Agreement. The Company
agrees to pay, upon written demand therefor by the Executive, all legal fees and
expenses which the Executive may reasonably incur as a result of any dispute or
contest (regardless of the outcome thereof) by or with the Company or others
regarding the validity or enforceability of, or liability under, any provision
of this Agreement (including as a result of any contest by the Executive about
the amount of any payment hereunder), plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Internal
Revenue Code of 1986, as amended (the "Code"). In any such action brought by the
Executive for damages or to enforce any provisions of this Agreement, he shall
be entitled to seek both legal and equitable relief and remedies, including,
without limitation, specific performance of the Company's obligations hereunder,
in his sole discretion.
6. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution made, or benefit provided (including,
without limitation, the acceleration of any payment, distribution
or benefit), by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required under this Section 6) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code (or
any similar excise tax) or any interest or penalties are incurred
by the Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any Excise Tax, income tax
or employment tax) imposed upon the Gross-Up Payment and any
interest or penalties imposed with respect to such taxes, the
Executive retains from the Gross-Up Payment an amount equal to
the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 6(c), all
determinations required to be made under this Section 6,
including determination of whether a Gross-Up Payment is required
and of the amount of any such Gross-up Payment, shall be made by
Coopers & Lybrand (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and the
Executive within 15 business days of the date of termination of
the Executive's employment, if applicable, or such earlier time
as is requested by the Company, provided that any determination
that an Excise Tax is payable by the Executive shall be made on
the basis of substantial authority. The initial Gross-Up Payment,
if any, as determined pursuant to this Section 6(b), shall be
paid to the Executive within five business days of the receipt of
the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that he has
substantial authority not to report any Excise Tax on his Federal
income tax return. Any determination by the Accounting Firm
22
meeting the requirements of this Section 6(b) shall be binding
upon the Company and the Executive; subject only to payments
pursuant to the following sentence based on a determination that
additional Gross-Up Payments should have been made, consistent
with the calculations required to be made hereunder (the amount
of such additional payments is referred to herein as the
"Gross-Up Underpayment"). In the event that the Company exhausts
its remedies pursuant to Section 6(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Gross-Up
Underpayment that has occurred and any such Gross-Up Underpayment
shall be promptly paid by the Company to or for the benefit of
the Executive. The fees and disbursements of the Accounting Firm
shall be paid by the Company.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but not later
than ten business days after the Executive receives written
notice of such claim and shall apprise the Company of the nature
of such claim and the date on which such Claim is requested to be
paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest such
claim and that it will bear the costs and provide the
indemnification as required by this sentence, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax, income tax or employment tax, including
interest and penalties with respect thereto, imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 6(c), the
Company shall control all proceedings taken in connection with
23
such contest and, at its sole option, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax, income tax or employment tax, including
interest or penalties with respect thereto, imposed with respect
to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension
of the statute of limitations relating to the payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 6(c), the Executive
becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Company's complying
with the requirements of Section 6(c)) promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 6(c), a determination is made that
the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then any
obligation of the Executive to repay such advance shall be
forgiven and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid.
7. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its subsidiaries, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its subsidiaries and which
shall not be or become public knowledge (other than by acts of the Executive or
his representatives in violation of this Agreement). After the date of
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company, communicate or divulge
any such information, knowledge or data to anyone other than the Company and
those designated by it. In no event shall an asserted violation of the
24
provisions of this Section 7 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
8. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of descent
and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives or
successor(s) in interest.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
a11 or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement
in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
9. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Engelhard Corporation
101 Wood Avenue - PO Box 770
Iselin, NJ 08830-0770
If to the Company:
Engelhard Corporation
101 Wood Avenue
Iselin, New Jersey 08830-0770
Attention: Arthur A. Dornbusch, II
25
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of
such provision or any other provision thereof.
(f) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter
hereof but does not supersede or override the provisions of any
stock option, employee benefit or other plan, program, policy or
practice in which Executive is a participant or under which the
Executive is a beneficiary; provided, however, that this
Agreement does supersede various Change in Control Agreements
between the Company and its Executives.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed as of the day and year first above written.
Executive:
/s/ Gary A. Cappeline (3/17/98) /s/ Daniel W. Parker (5/7/98)
- ------------------------------------ -----------------------------------
Name: Gary A. Cappeline Name: Daniel W. Parker
/s/ Arthur A. Dornbusch, II (5/7/98) /s/ Barry W. Perry (5/7/98)
- ------------------------------------ -----------------------------------
Name: Arthur A. Dornbusch, II Name: Barry W. Perry
/s/ Thomas P. Fitzpatrick (3/17/98) /s/ Robert J. Schaffhauser (5/7/98)
- ------------------------------------ -----------------------------------
Name: Thomas P. Fitzpatrick Name: Robert J. Schaffhauser
/s/ Joseph E. Gonnella (5/7/98) /s/ Orin R. Smith (5/7/98)
- ------------------------------------ -----------------------------------
Name: Joseph E. Gonnella Name: Orin R. Smith
26
/s/ John C. Hess (3/17/98) /s/ Michael A. Sperduto (5/7/98)
- ------------------------------ -------------------------------------
Name: John C. Hess Name: Michael A. Sperduto
/s/ James A. Martin (5/7/98) /s/ Edmund A. Stanczak, Jr. (3/17/98)
- ------------------------------ -------------------------------------
Name: James A. Martin Name: Edmund A. Stanczak, Jr.
/s/ Peter B. Martin (3/17/98) /s/ David C. Wajsgras (3/17/98)
- ------------------------------ -------------------------------------
Name: Peter B. Martin Name: David C. Wajsgras
/s/ Ian P. McLean (5/7/98) /s/ David M. Wexler (7/8/98)
- ------------------------------ -------------------------------------
Name: Ian P. McLean Name: David M. Wexler
/s/ Peter R. Rapin (7/8/98)
- ------------------------------
Name: Peter R. Rapin
ENGELHARD CORPORATION
By: /s/ Arthur A. Dornbusch, II
-------------------------------
Name: Arthur A. Dornbusch, II
Title: V.P., General Counsel
& Secretary
Attest:
/s/ Lester Fliegel
- ------------------------------
Name: Lester Fliegel
Title: Assistant Secretary
27
EXHIBIT 10(b)
AMENDMENT TO KEY EMPLOYEES DEFERRED COMPENSATION PLAN
-----------------------------------------------------
28
AMENDMENT TO DEFERRED COMPENSATION PLAN
FOR KEY EMPLOYEES OF ENGELHARD
CORPORATION
The Deferred Compensation Plan for Key Employees of Engelhard Corporation
is amended as follows, effective August 6, 1998.
1. The first sentence of the last paragraph of Section 5 is replaced with
the following two sentences:
"During the period beginning 3 months before and ending 3 months after the
retirement of an Eligible Employee after reaching age 55, or at any time
later than six months after the retirement of an Eligible Employee after
reaching age 55, the Eligible Employee may, provided consent of the Board
of Directors is obtained before the effective date thereof, make an
election to convert all or part of the Company Common Stock units credited
to his or her bookkeeping account under this paragraph 5 into cash-based
credits in the Eligible Employee's bookkeeping account referred to in
paragraph 4 above. Such election to convert part of the Company Common
Stock units must be made in increments of 5%, but in no event less than
twenty-five percent (25%), of the total Company Common Stock units credited
to his or her bookkeeping account."
29
EXHIBIT 10(c)
AMENDMENT TO SUPPLEMENTAL RETIREMENT PROGRAM OF ENGELHARD CORPORATION
---------------------------------------------------------------------
30
AMENDMENT TO SUPPLEMENTAL
RETIREMENT PROGRAM OF ENGELHARD CORPORATION
The Supplemental Retirement Program of Engelhard Corporation
(the "Program"), as amended and restated effective January 1, 1989, is amended
as follows, effective as of June 11, 1998.
1. Clause (ii) of the last sentence of Section 1 is amended to read as
follows:
"(ii) to assist the Company in attracting and retaining executives who
will make a significant contribution to its business by providing
certain executives with retirement benefits in addition to those
provided under the Pension Plan and, if applicable, the Excess Benefit
Plan."
2. The following is added at the end of Section 2:
"An employee shall be eligible to receive payment under Part C of the
Supplemental Executive Retirement Plan ("Part C") only upon selection
and designation as a "Part C Participant" by the Pension and Employment
Benefit Plans Committee of the Company's Board of Directors (the
"Committee"). The participation of any Part C Participant may be
suspended or terminated by the Committee at any time, but no such
suspension or termination shall operate to reduce any vested benefits
accrued by the Part C Participant under Part C prior to the date of
suspension or termination."
3. The word "for" is substituted for the word "in" in the last line of
Section 3(b)(i).
4. The word "for" is substituted for the word "in" in the last line of
Section 3(c)(i).
5. The following is added at the end of Section 3:
"(d) Part C of Supplemental
Executive Retirement Plan.
--------------------------
A Part C Participant's annual benefit under Part C shall be the amount
determined in (i) below, offset as provided in (ii) below.
(i) The annualized Normal Retirement Benefit, Early Retirement
Benefit or Disability Benefit, as determined under Section
4.1, 4.2 and 6.1, respectively, of the Pension Plan
determined:
(A) as if the benefit formula in Section 4.1 was
2.4% of Average Monthly Pay multiplied by
years of Credited Service (not in excess of
30 years);
(B) without applying the IRC limitations;
31
(C) as if the Part C Participant's Pay for a
Plan Year included Deferred Compensation
which, but for his deferral election, would
have been paid for the Plan Year;
(D) by substituting "Part C Early Retirement
Age" (as defined in Schedule C hereto) for
Early Retirement Age;
(E) by applying the vesting provisions of Section
6 below; and
(F) as if the number of years of Credited
Service of any Part C Participant listed on
Schedule B hereto were equal to the sum of
(x) his actual number of years of Credited
Service as of his Severance From Service
Date, plus (y) the number of years set forth
on Schedule B for such Part C Participant.
(ii) Notwithstanding any other provision of this Part C to the
contrary, the amount of retirement benefit otherwise payable
to or in respect of a Part C Participant under this Part C
shall be reduced by the Actuarial Equivalent of any benefit
payable to or in respect of the same Part C Participant (A)
under any other tax-qualified defined benefit plan to which
contributions have been made by the Company or any of its
Affiliates, or any predecessor thereof, and which benefit is
attributable to a period of service taken into account in
determining Credited Service under this Part C; and (B)
under the Excess Benefit Plan and Parts A and B of the
Supplemental Executive Retirement Plan of the Company. In
addition, the benefit payable under Part C shall be reduced
by 50% of the amount of the Participant's Social Security
benefits which would be payable commencing at age 65
assuming the Participant has no further earnings following
his termination of employment with the Company and its
Affiliates. Such reduction shall be in an amount determined
by converting the benefit payable under the other plans to
or in respect of the Part C Participant to a benefit payable
in the form of an annuity payable for the life of the Part C
Participant commencing at age 65. Such conversion shall be
effectuated by utilizing the actuarial methods, factors and
assumptions in use for the purpose of determining Actuarial
Equivalency under Part C at the date as of which payment of
the retirement benefit under Part C commences. The reduction
so determined shall apply to all benefit payments under Part
C to or in respect of such Part C Participant."
6. Section 4 is amended by adding the following at the end thereof:
"The Committee shall have full discretionary authority and
responsibility to construe the terms of the Excess Benefit Plan and the
Supplemental Executive Retirement Plan and to determine entitlement to
benefits hereunder."
32
7. New Section 6 is added to read as follows, and subsequent paragraphs are
renumbered accordingly:
"6. Part C Vesting
A Part C Participant's benefits under Part C will vest in full upon
the earliest of the following:
(a) the Participant's attainment of his Part C Early Retirement
Age (as defined in Schedule C hereto);
(b) the involuntary termination of the Part C Participant's
employment by the Company not for Cause (as defined in Schedule C
hereto) after the Part C Participant has completed at least 5
years of Vesting Service;
(c) a Change in Control (as defined in Schedule C hereto) of the
Company; or
(d) such other time as determined by the Committee in its
discretion, which determination need not be uniform as to all
Part C Participants.
If a Part C Participant's employment with the Company and its
Affiliates terminates prior to the time his benefits have vested in
full, as set forth above, then (unless otherwise determined by the
Committee in its discretion, which determination need not be uniform as
to all Part C Participants) the Part C Participant's entire benefit
under Part C shall be forfeited."
8. The first clause of Section 5(a) is amended to read as follows: "Except
as provided in Paragraph (b), (c), (e) and (f) of this Section 5,"
9. The first sentence of Section 5(b) is amended by adding "Parts A or B
of" immediately before "Supplemental Executive Retirement Plan" in each place it
appears in such sentence.
10. The following is added at the end of the first sentence of Section
5(b):
"and (iii) benefits under Part C can be paid in a lump sum only
as provided in Section 5(e) below."
11. The first sentence of Section 5(e) is amended by adding the following
at the end thereof ", or in monthly installments payable to the employee (or his
Beneficiary) over a period of up to ten years, commencing as soon as practicable
following his Severance From Service Date."
33
12. The third sentence of Section 5(e) is amended by deleting "in a lump
sum" therefrom. 13. The fourth sentence of Section 5(e) is amended to read as
follows:
"Except as set forth above, the availability of an election under this
Paragraph (e) to an employee shall be subject to the same terms and
conditions as would apply to a lump sum benefit had it been paid under
the Pension Plan, and the amount of the lump sum benefit (or
installment benefit) shall be determined using the same actuarial
assumptions as would be used in determining a lump sum benefit under
the Pension Plan."
14. New Paragraph (f) is added to Section 5 to read as follows:
"(f) Notwithstanding any provision of the Excess Benefit Plan
or Supplemental Executive Retirement Plan to the contrary, any
election by an employee to commence early retirement benefits
hereunder at a time after his Severance From Service Date must
be made at least six months in advance of such date."
15. New Paragraph (g) is added to Section 5 to read as follows:
"(g) As a condition to receiving benefits pursuant to Part C,
each Part C Participant shall agree that for a period of five
years following his termination of employment with the Company
and its Affiliates he shall not (on his own behalf, either as
an officer, shareholder, partner, employee or otherwise or on
behalf of any significant competitor of the Company), in any
manner, directly or indirectly, without the express prior
written consent of the Company, or except on behalf of the
Company, engage in any activity, accept employment with,
render any service in any capacity to or have any interest in
(including investment in the equity securities of) any
business or enterprise or other activity (i) which will
conflict with the significant interests of the Company or its
Affiliates or their business, or (ii) which is a significant
competitor of or is in significant competition with the
Company or its Affiliates; provided, however, that a Part C
Participant may acquire or hold (beneficially and of record)
up to, but not more than, 1% of the equity securities of any
such significant competitor or entity without the consent of
the Company if such equity securities are listed on the New
York Stock Exchange or the American Stock Exchange or are
quoted on NASDAQ. If a Part C Participant shall breach such
agreement, then, as liquidated damages for the Part C
Participant's breach, (x) no further benefits shall be payable
to the Part C Participant (or his Beneficiaries) under Part C,
and (y) any benefits previously paid to the Part C Participant
(or his Beneficiaries) under Part C shall be immediately
returned by the Part C Participant (or his Beneficiaries) to
the Company, together with interest at the "applicable federal
rate" (within the meaning of Section 1274(d) of the Code), as
in effect from time to time; provided, however, that this
Paragraph (g) shall not apply to a Part C Participant (or his
Beneficiaries) whose employment with the Company and its
34
Affiliates terminates for any reason following a Change in
Control of the Company."
16. The following sentence is added after the first sentence of Section 10:
"No amendment or termination of the Excess Benefit Plan or the
Supplemental Executive Retirement Plan shall have the effect
of reducing or forfeiting the benefit of any employee which
had accrued and was vested under the terms of the Excess
Benefit Plan or the Supplemental Executive Retirement Plan, as
the case may be, as of the date of such amendment or
termination."
17. The following new sections 12, 13 and 14 are added at the end of the
Program:
"12. Non-Alienation of Benefits
--------------------------
No Participant or Beneficiary shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, or
otherwise encumber in advance any of the benefits payable hereunder.
None of said benefits shall be subject to seizure for the payment of
any debts, judgments, alimony or separate maintenance owed by the
employee or Beneficiary or be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise, except that the Company
may set off any amounts payable hereunder against any amounts owed by
the employee or Beneficiary to the Company.
13. Withholding
-----------
The Company may provide for the withholding from any benefits payable
under the Excess Benefit Plan and the Supplemental Executive Retirement
Plan all Federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
14. Applicable Law
--------------
To the extent not superseded by ERISA or other applicable federal law,
the Excess Benefit Plan and the Supplemental Executive Retirement Plan
shall be construed and interpreted under the laws of the State of New
Jersey."
18. Schedule B attached hereto is added to the Program.
19. Schedule C attached hereto is added to the Program.
35
SCHEDULE B
Name Number of Years
---- ---------------
Orin R. Smith 5
36
SCHEDULE C
The following terms shall have the following meanings for
purposes of Part C.
"Cause" means termination of a Part C Participant's employment
by the Company due to the Part C Participant's willful engagement in conduct
which involves dishonesty or moral turpitude in connection with his employment
and which is demonstrably and materially injurious to the financial condition or
reputation of the Company and its Affiliates.
"Change in Control" means:
(a) the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either (1) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change in
Control: (i) any acquisition directly from the Company (other than by exercise
of a conversion privilege); (ii) any acquisition by the Company or any of its
subsidiaries; (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its subsidiaries; (iv)
any acquisition by any corporation with respect to which, following such
acquisition, more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such acquisition in substantially
the same proportions as their ownership, immediately prior to such acquisition,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or (v) any acquisition by a Person owning more
than 25% of the Outstanding Company Common Stock on the date hereof;
(b) during any period of two consecutive years, individuals who, as of the
beginning of such period, constitute the Company's Board of Directors (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors; provided, however, that any individual becoming a director
subsequent to the beginning of such period whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
37
(c) approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, with respect to which all or substantially all
of the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and outstanding Company Voting Securities
immediately prior to such reorganization, merger or consolidation, do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such reorganization, merger
or consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be; or
(d) approval by the shareholders of the Company of (1) a complete
liquidation or dissolution of the Company or (2) a sale or other disposition of
all or substantially all of the assets of the Company, other than to a
corporation with respect to which following such sale or other disposition, more
than 60% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportions as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
"Part C Early Retirement Age" means a Part C Participant's age when he has
attained at least age 55 and has at least 5 years of Vesting Service.
38
EXHIBIT 12
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
-----------------------------------------------------
39
ENGELHARD CORPORATION
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30, Years Ended December 31,
---------------- --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
Earnings from continuing operations
before provision for income taxes $135,725 $ 85,812 $209,955 $185,312 $157,306 ($4,709)
Add/(deduct)
Portion of rents representative
of the interest factor 2,300 4,600 3,900 4,700 4,800 4,500
Interest on indebtedness 27,484 52,776 45,009 31,326 21,954 13,696
Equity dividends 1,762 3,803 2,515 3,411 3,800 2,600
Equity in (earnings) losses
of affiliates (7,473) 47,833 5,008 (695) (632) (3,443)
--------- -------- -------- --------- --------- --------
Earnings, as adjusted $159,798 $194,824 $266,387 $224,054 $187,228 $12,644
========= ======== ======== ========= ========= ========
Fixed Charges
Portion of rents representative
of the interest factor $2,300 $4,600 $3,900 $4,700 $4,800 $4,500
Interest on indebtedness 27,484 52,776 45,009 31,326 21,954 13,696
Capitalized interest 500 651 875 784 528 -
------- ------- ------- ------- -------- --------
Fixed charges $30,284 $58,027 $49,784 $36,810 $27,282 $18,196
======= ======= ======= ======= ======== ========
Ratio of Earnings to Fixed Charges 5.28 3.36 (a) 5.35 6.09 6.86 - (b)
======= ======= ======= ======= ======== ========
(a) Earnings in 1997 were negatively impacted by special and other charges of $149.6 million for a variety of events.
Without such charges the ratio of earnings to fixed charges would have been 5.94.
(b) Earnings in 1993 were insufficient to cover fixed charges by $5.6 million. Earnings were negatively impacted
by a special charge of $148.0 million for the realignment and consolidation of businesses and environmental
matters. Without such charge the ratio of earnings to fixed charges would have been 8.83.
40