SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission file number: 0-10546
LAWSON PRODUCTS, INC.
---------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 36-2229304
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1666 East Touhy Avenue, Des Plaines, Illinois 60018
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(Address of principal executive offices)
Registrant's telephone number, including area code: (847) 827-9666
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
-----------------------------
(Title of class)
Indicate by check mark whether the Registrant (l) 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
As of March 1, 1999, 10,648,822 shares of Common Stock were outstanding.
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates on March 1, 1999 was approximately $120,745,000.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) 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 following documents are incorporated into this Form 10-K by reference:
Proxy Statement for Annual Meeting of Stockholders to be held on May 11, 1999
Part III
PART I
Item 1. Business.
---------
Lawson Products, Inc. was incorporated in Illinois in 1952 and
reincorporated in Delaware in 1982.
Products
- --------
The Company is a distributor of approximately 66,000
expendable maintenance, repair and replacement products. In addition, the
Company distributes 12,000 production components (mostly fasteners) to the
O.E.M. marketplace. It manufactures approximately 1,000 of these items. These
products may be divided into three broad categories: Fasteners, Fittings and
Related Parts, such as screws, nuts, rivets and other fasteners; Industrial
Supplies, such as hoses and hose fittings, lubricants, cleansers, adhesives and
other chemicals, as well as files, drills, welding products and other shop
supplies; and Automotive and Equipment Maintenance Parts, such as primary
wiring, connectors and other electrical supplies, exhaust and other automotive
parts. The Company estimates that these categories of products accounted for the
indicated percentages of its total consolidated net sales for 1998, 1997 and
1996 respectively:
Percentage of
Consolidated
Net Sales
-----------------------
1998 1997 1996
---- ---- ----
Fasteners, Fittings and Related Parts................. 45% 46% 45%
Industrial Supplies................................... 51 49 50
Automotive and Equipment Maintenance Parts............ 4 5 5
-- ----- -----
100% 100% 100%
All of the Company's maintenance and repair products are
manufactured by others and must meet the Company's specifications. Approximately
90% of the Company's products are sold under the Company label. Substantially
all maintenance and repair items which the Company distributes are purchased by
the Company in bulk and subsequently repackaged in smaller quantities. The
Company regularly uses a large number of suppliers but has no long-term or fixed
price contracts with any of them. Most maintenance and repair items which the
Company distributes are purchased from several sources, and the Company believes
that the loss of any single supplier would not significantly affect its
operations. No single supplier accounted for more than 4.6% of the Company's
purchases in 1998.
Production components sold to the O.E.M. marketplace may be
manufactured to customers' specification or purchased from other sources.
Marketing
- ---------
The Company's principal markets are as follows:
Heavy Duty Equipment Maintenance. Customers in this market
include operators of trucks, buses, agricultural implements, construction and
road building equipment, mining, logging and drilling equipment and other
off-the-road equipment. The Company estimates that approximately 35% of 1998
sales were made to customers in this market.
In-Plant and Building Maintenance. This market includes plants
engaged in a broad range of manufacturing and processing activities, as well as
institutions such as hospitals, universities, school districts and government
units. The Company estimates that approximately 42% of 1998 sales were made to
customers in this market.
Passenger Car Maintenance. Customers in this market include
automobile service center chains, independent garages, automobile dealers, car
rental agencies and other fleet operators. The Company estimates that
approximately 12% of 1998 sales were made to customers in this market.
Original Equipment Manufacturers. This market includes plants
engaged in a broad range of manufacturing and processing activities. The Company
estimates that approximately 11% of 1998 sales were made to customers in this
market.
The Company has approximately 216,000 customers, the largest
of which accounted for less than one percent of net sales during 1998. Sales are
made through a force of approximately 1,850 independent sales representatives of
which 84 serve the O.E.M. marketplace. Included in this group are 224 district
and zone managers, each of whom, in addition to his own sales activities, acts
in an advisory capacity to other sales representatives in a designated area. The
Company employs 43 regional managers to coordinate regional marketing efforts.
Most sales representatives, including district and zone managers, are
compensated on a commission basis and are responsible for repayment of
commissions on their respective uncollectible accounts. In addition to the sales
representatives and district, zone and regional managers discussed above, the
Company has approximately 1,110 employees.
The Company's products are sold in all 50 states, Mexico,
Puerto Rico, the District of Columbia, Canada and England. The Company believes
that an important factor in its success is its ability to service customers
promptly. During the past five years, more than 99.5% of all items were shipped
to the customer within 24 hours after an order was received by the Company. This
rapid delivery is facilitated by computer controlled order entry and inventory
control systems in each general distribution center. In addition, the receipt of
customer orders at Lawson distribution facilities has been accelerated by
portable facsimile transmission equipment and personal computer systems used by
sales representatives. Customer orders are delivered by common carriers.
The Company is required to carry significant amounts of
inventory in order to meet its high standards of rapid processing of customer
orders. The Company funds its working capital requirements internally.
Distribution and Manufacturing Facilities
- -----------------------------------------
Substantially all of the Company's maintenance products are
stocked in and distributed from each of its seven general distribution centers
in; Addison, Illinois; Reno, Nevada; Farmers Branch, Texas; Norcross, Georgia;
Fairfield, New Jersey; Mississauga, Ontario, Canada and Bradley Stoke (Bristol)
England. Chemical products are distributed from a facility in Vernon Hills,
Illinois and welding products are distributed from a facility in Charlotte,
North Carolina. Production components are stocked in and distributed from six
centers located in Decatur, Alabama; Conway, Arkansas; Cairo, Georgia; Burr
Ridge, Illinois; Tupelo, Mississippi; and Memphis, Tennessee. Production
components are manufactured in Decatur, Alabama. In the opinion of the Company,
all existing facilities are in good condition and are well maintained. All are
being used substantially to capacity on a single shift basis, except the
manufacturing facility in Decatur, Alabama which operates three shifts and the
inbound facility in Des Plaines, Illinois, which operates two shifts. Further
expansion of warehousing capacity may require new warehouses, some of which may
be located in new geographical areas.
Canadian Operations
- -------------------
Canadian operations are conducted at the Company's 40,000
square foot general distribution center in Mississauga, Ontario, a suburb of
Toronto. These operations constituted less than 3% of the Company's net sales
during 1998.
United Kingdom Operations
- -------------------------
Operations in the United Kingdom are conducted under the name
of Lawson Products Limited from a 19,000 square foot general distribution center
in Bradley Stoke (Bristol) England. These operations constituted approximately
1% of the Company's net sales during 1998.
Mexican Operations
- ------------------
Operations in Mexico are conducted under the name of Lawson
Products de Mexico S.A. de C.V. from a 10,000 square foot facility in
Guadalajara, Mexico. These operations constituted less than 1% of the Company's
net sales during 1998.
Competition
- -----------
The Company encounters intense competition from several
national distributors and manufacturers and a large number of regional and local
distributors. Due to the nature of its business and the absence of reliable
trade statistics, the Company cannot estimate its position in relation to its
competitors. However, the Company recognizes that some competitors may have
greater financial and personnel resources, handle more extensive lines of
merchandise, operate larger facilities and price some merchandise more
competitively than the Company. Although the Company believes that the prices of
its products are competitive, it endeavors to meet competition primarily through
the quality of its product line, its response time and its delivery systems.
Item 2. Properties.
----------
The Company owns two facilities located in Des Plaines,
Illinois, (152,600 and 27,000 square feet, respectively). These buildings
contain the Company's main administrative activities and an inbound warehouse
facility that principally supports the Addison, Illinois facility and other
distribution facilities to a lesser degree. Additional administrative, warehouse
and distribution facilities owned by the Company are located in Addison,
Illinois (90,000 square feet); Fairfield, New Jersey (61,000 square feet); Reno,
Nevada (97,000 square feet); Norcross, Georgia (61,300 square feet); Farmers
Branch, Texas (54,500 square feet); and Mississauga, Ontario, Canada (40,000
square feet). Chemical products are distributed from a 105,400 square foot owned
facility in Vernon Hills, Illinois and welding products are distributed from a
40,000 square foot owned facility located in Charlotte, North Carolina.
Administrative, warehouse and distribution facilities in Bradley Stoke (Bristol)
England (19,000 square feet) are leased by the Company. Administrative and
distribution facilities in Guadalajara, Mexico (10,000 square feet) are leased
by the Company. Production components are distributed from facilities leased in
Conway, Arkansas (6,500 sq. ft.) Burr Ridge, Illinois (24,000 sq. ft.) Tupelo,
Mississippi, (10,000 sq. ft.) and Memphis, Tennessee, (40,000 sq. ft.). The
Company owns a 54,000 square foot facility in Decatur, Alabama which
manufacturers and distributes production components. From time to time, the
Company leases additional warehouse space near its present facilities. See Item
1, "Business - Distribution Facilities" for further information regarding the
Company's properties.
The Company is constructing a new warehouse in Georgia and has
estimated the cost of land and buildings at $4 million. The Norcross, Georgia
facility will be sold in conjunction with occupancy of the new facility.
Item 3. Legal Proceedings.
-----------------
There is no material pending litigation to which the Company,
or any of its subsidiaries, is a party or to which any of their property is
subject.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matter was submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this Report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
The Company's Common Stock is traded on the NASDAQ National
Market System under the symbol of "LAWS." The approximate number of stockholders
of record at December 31, 1998 was 1,052. The following table sets forth the
high and low closing sale prices as reported on the NASDAQ National Market
System during the last two years. The table also indicates the cash dividends
paid by the Company during such periods.
1998 1997
----------------------------------- ---------------------
Cash Cash
High Low Dividends High Low Dividends
---- --- --------- ---- --- ---------
First Quarter $31 1/4 $24 1/2 $.14 $22 5/8 $21 1/8 $.13
Second Quarter 28 1/4 25 1/4 .14 27 1/8 22 1/8 .13
Third Quarter 27 1/4 20 9/16 .14 30 1/8 25 3/8 .13
Fourth Quarter 24 3/4 21 1/2 .14 31 1/2 27 5/16 .14
Item 6. Selected Financial Data.
-----------------------
The following selected financial data should be read in conjunction
with the Financial Statements of the Company and notes thereto included
elsewhere in this Report. The income statement data and balance sheet data is
for and as of the end of each of the years in the five-year period ended
December 31, 1998, are derived from the audited Financial Statements of the
Company.
1998 1997 1996 1995 1994
------ ------ ------ ------ -----
Net Sales $292,523,475 $278,144,321 $250,289,124 $223,537,182 $213,097,143
Income Before Income Taxes 33,590,229 35,723,277 33,884,637 34,815,029 34,031,074
Net Income 19,474,229 21,350,277 19,994,637 21,120,029 20,524,074
Total Assets 198,982,290 188,974,415 175,161,839 160,613,798 168,130,848
Noncurrent Liabilities 25,246,269 24,577,547 22,065,583 19,292,794 17,084,617
Stockholders' Equity 142,934,735 139,925,387 128,746,212 122,810,577 131,230,469
Return on Equity (percent) 13.5% 16.0% 15.8% 16.9% 14.7%
Per Share of Common Stock:
Basic Net Income $1.77 $1.91 $1.73 $1.75 $1.55
Diluted Net Income 1.76 1.91 1.73 1.75 1.55
Stockholders' Equity* 12.97 12.55 11.13 10.17 9.91
Cash Dividends Declared* .56 .54 .52 .51 .48
Basic Weighted Average
Shares Outstanding 11,023,934 11,153,091 11,563,052 12,072,668 13,237,181
Diluted Weighted Average
Shares Outstanding 11,041,819 11,175,232 11,563,715 12,074,647 13,240,024
* These per share amounts were computed using basic weighted average
shares outstanding for all periods presented.
Item 7. Management's Discussion and Analysis of
Results of Operation and Financial Condition .
----------------------------------------------
RESULTS OF OPERATIONS
Net sales for 1998 and 1997 advanced 5.2% and 11.1%, respectively, over the
immediately preceding years. The sales gains for 1998 and 1997 reflect increased
contribution from substantially all Lawson operations with our specialty
chemical subsidiary spearheading the 1998 increase. Our subsidiary, Assembly
Component Systems, Inc. ("ACS"), the business and assets of which were acquired
in April 1996, contributed significantly to the sales improvement in 1997.
Net income in 1998 declined 8.8% from 1997 to $19,474,229, while diluted net
income per share in 1998 decreased 7.9% to $1.76 from $1.91 in 1997. The decline
in net income from 1997 is primarily due to a $1,520,000 non-recurring charge,
net of taxes, for compensation arrangements related to management personnel
reductions. Costs arising from the realignment of management in Lawson's
domestic sales organization, as well as increased losses from our foreign
operations and a higher effective tax rate also contributed to the decline in
net income. These items more than offset the sales gains and gross profit
improvements in 1998. Excluding the effect of the non-recurring charge, 1998 net
income was approximately $20,994,000 ($1.90 per diluted share), a decline of
1.7% from 1997. Sales gains, partially offset by a decrease in gross margins,
were primarily responsible for the increase in net income in 1997 over 1996. Per
share net income for 1998, 1997 and 1996 was positively affected by the
Company's share repurchases discussed below.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for 1998, 1997 and 1996 were $16,070,908,
$16,979,646 and $24,552,774, respectively. The decline in 1998 resulted
principally from the decrease in net income noted above, and payments made under
deferred compensation and security bonus plans which more than offset the
positive impact from higher operating liabilities, resulting from the
non-recurring charge noted above. The decrease in 1997 was due primarily to
increases in operating assets over 1996 levels, which more than offset the
advance in net income noted above. Current investments and cash flows from
operations have continued to be sufficient to fund operating requirements, cash
dividends and capital improvements. Such internally generated funds are also
expected to finance the Company's future growth.
Capital expenditures for 1998, 1997, and 1996, respectively, were $5,378,660,
$5,894,656 and $4,820,724. Consistent with prior years, capital expenditures
were incurred primarily for new facilities, improvement of existing facilities,
and for the purchase of related equipment. During the first quarter of 1998, the
Company purchased land in Suwanee, Georgia. The Company is constructing a new
Lawson outbound facility on the site. This facility will be used in place of the
Norcross, Georgia, facility which will be sold. The cost of land and buildings
is estimated at $4,000,000. Also, construction was completed relative to the
facilities expansion of the Company's specialty chemical subsidiary, at a cost
of approximately $3,000,000.
During the third quarter of 1998, the Board of Directors authorized the purchase
of up to 500,000 shares of the Company's common stock. No shares have been
purchased relative to this authorization. In 1996, the Board of Directors
authorized the purchase of up to 1,000,000 shares of the Company's common stock,
of which 472,000 shares were purchased for approximately $10,348,000 during
1998, 187,500 shares were purchased for approximately $4,062,000 during 1997 and
292,000 shares were purchased for approximately $6,386,000 in 1996. As of
December 31, 1998, 951,500 shares have been repurchased relative to the 1996
stock repurchase authorization. Also, during 1996, the remaining 86,000 shares
relative to the 1994 authorization of 1,500,000 shares, were purchased for
$2,095,000. Funds to purchase these shares were provided by investments and cash
flows from operations.
IMPACT OF THE YEAR 2000
The Company has developed a plan to modify its information technology to
recognize the Year 2000 Issue. The Year 2000 Issue involves computer programs
being written using two digits rather than four to define the applicable year.
Computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in a system failure or miscalculations causing
disruptions in the processing of normal business transactions.
Based on the Company's assessment of the Year 2000 Issue, it has been determined
that it will be required to modify or replace portions of its software and
certain hardware to insure the proper recognition of dates beyond December 31,
1999. The Company presently believes that with modifications or replacements of
certain existing software and hardware, the Year 2000 Issue can be mitigated.
The Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing, and implementation. The Company has
fully completed its assessment of all systems that could be significantly
impacted by the Year 2000 and is currently converting its critical data
processing systems.
Based on a review of its product line, the Company has determined that the
products it has sold and will continue to sell do not require remediation to be
Year 2000 compliant. Accordingly, the Company does not believe that the Year
2000 presents exposure as it relates to the Company's products.
The Company has contacted all of its suppliers and has gathered information
about their Year 2000 compliance status. To date, the Company is not aware of
any supplier with a Year 2000 issue that would have a material impact on the
operations of the Company. However, the Company does not have the means to
ensure that third parties will be Year 2000 ready. The inability of third
parties to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by third parties is
not determinable.
The Company will utilize both internal and external resources to reprogram, or
replace, test, and implement the software and operating equipment for Year 2000
modifications. This project remains on schedule, including testing and
implementation. The Company presently believes all phases of the conversion will
be completed by the second quarter of 1999 at a total cost of approximately
$500,000, of which $375,000 of expense has been incurred as of December 31,
1998. These costs are primarily for modifying code and testing computer software
programs. This project is not expected to have a significant effect on
operations.
If the Company is unsuccessful in its remediation efforts or if the remediation
efforts of its key suppliers or customers are unsuccessful, there may be a
material adverse impact on the Company's results of operations and financial
position. If the Year 2000 Issue project is unsuccessful, the worst case
scenario is that the Company will be unable to distribute its products. As the
Company cannot predict the magnitude or time length of Year 2000 business
interruptions, the Company is unable to estimate the financial impact of Year
2000 issues. The Company does not currently have a contingency plan although one
is under development.
Although the project is not yet complete, the management of the Company believes
it has an effective program in place to resolve the Year 2000 Issue in a timely
manner. The Company is committed to providing the necessary resources, including
additional funding and manpower, as required, until such time that all phases of
the Year 2000 project are completed.
IMPACT OF INFLATION AND CHANGING PRICES
The Company has continued to pass most increases in product costs on to its
customers and, accordingly, gross margins have not been materially impacted. The
impact from inflation has been more significant on the Company's fixed and
semi-variable operating expenses, primarily wages and benefits, although to a
lesser degree in recent years due to moderate inflation levels.
Although the Company expects that future costs of replacing warehouse and
distribution facilities will rise due to inflation, such higher costs are not
anticipated to have a material effect on future earnings.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company, through its foreign subsidiaries, distributes products in the
United Kingdom, Canada and Mexico. As a result, the Company is from time to time
exposed to market risk relating to the impact of foreign currency exchange
rates; however, this exposure is minimal.
In addition, the Company maintains a portfolio of marketable securities, the
majority of which are debt securities. As a result, the Company is exposed to
market risk relating to interest rate movements; however, a hypothetical 10%
adverse movement in interest rates would have no material impact on net income
of the Company.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
The following information is presented in this report:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Income for the Years ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Changes in Stockholders' Equity for
the Years ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the Years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
Schedule II
Report of Independent Auditors
To the Shareholders and Board of Directors
Lawson Products, Inc.
We have audited the accompanying consolidated balance sheets of Lawson Products,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and related schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lawson Products,
Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/Ernst & Young LLP
Chicago, Illinois
February 26, 1999
LAWSON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------------------
1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 13,871,720 $ 10,247,568
Marketable securities 13,815,692 11,637,521
Accounts receivable, less allowance for doubtful accounts
(1998-$1,450,067; 1997-$1,423,902) 35,255,226 33,714,165
Inventories 46,670,162 41,788,322
Miscellaneous receivables 2,894,636 2,972,544
Prepaid expenses 4,638,406 2,788,143
Deferred income taxes 1,256,000 836,000
----------------- -----------------
Total Current Assets 118,401,842 103,984,263
----------------- -----------------
Property, plant and equipment, at cost, less allowances for
depreciation and amortization
(1998-$32,450,023; 1997-$27,862,855) 41,142,497 40,963,035
----------------- -----------------
Other assets:
Marketable securities 11,019,945 21,713,267
Investments in real estate 4,053,664 3,730,664
Cash value of life insurance 12,876,120 12,054,380
Deferred income taxes 6,747,000 4,447,000
Other 4,741,222 2,081,806
----------------- -----------------
39,437,951 44,027,117
----------------- -----------------
$ 198,982,290 $ 188,974,415
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 5,112,982 $ 4,928,689
Accrued expenses and other liabilities 22,405,504 17,901,997
Income taxes 3,282,800 1,640,795
----------------- -----------------
Total Current Liabilities 30,801,286 24,471,481
----------------- -----------------
Non-current liabilities and deferred credits:
Accrued liability under security bonus plans 15,314,813 14,000,016
Deferred compensation and other liabilities 9,931,456 10,577,531
----------------- -----------------
25,246,269 24,577,547
----------------- -----------------
Stockholders' equity:
Preferred Stock, $1 par value:
Authorized-500,000 shares
Issued and outstanding-None -- --
Common Stock, $1 par value:
Authorized-35,000,000 shares
Issued-1998-10,663,822 shares; 1997-11,135,233 shares 10,663,822 11,135,233
Capital in excess of par value 749,320 769,738
Retained earnings 132,208,664 128,708,111
----------------- -----------------
143,621,806 140,613,082
Foreign currency translation adjustment (1,355,071) (1,250,695)
Unrealized gain on marketable securities 668,000 563,000
----------------- -----------------
Accumulated other comprehensive income (687,071) (687,695)
----------------- ------------------
142,934,735 139,925,387
----------------- -----------------
$ 198,982,290 $ 188,974,415
================= =================
See notes to consolidated financial statements
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
---------------------------------------------------------
1998 1997 1996
---- ---- ----
Net sales $ 292,523,475 $ 278,144,321 $ 250,289,124
Cost of goods sold 99,554,363 95,985,602 81,116,518
---------------- --------------- ---------------
Gross profit 192,969,112 182,158,719 169,172,606
Selling, general and administrative expenses 158,433,648 147,235,497 136,265,322
Non-recurring charge 2,621,124 - -
Provision for doubtful accounts 983,367 1,028,221 859,326
---------------- --------------- ---------------
Operating Income 30,930,973 33,895,001 32,047,958
---------------- --------------- ---------------
Interest and dividend income 1,458,548 1,285,809 1,499,993
Interest expense (47,957) (31,280) (25,596)
Other income - net 1,248,665 573,747 362,282
---------------- --------------- ---------------
2,659,256 1,828,276 1,836,679
Income Before Income Taxes 33,590,229 35,723,277 33,884,637
---------------- --------------- ---------------
Federal and state income taxes (benefit):
Current 16,034,000 15,306,000 14,610,000
Deferred (1,918,000) (933,000) (720,000)
---------------- -------------- --------------
14,116,000 14,373,000 13,890,000
---------------- --------------- ---------------
Net Income $ 19,474,229 $ 21,350,277 $ 19,994,637
================ =============== ==============
Net Income Per share of Common Stock
Basic $ 1.77 $ 1.91 $ 1.73
================ =============== ===============
Diluted $ 1.76 $ 1.91 $ 1.73
================ =============== ===============
See notes to consolidated financial statements
Lawson Products, Inc.
Consolidated Statements of
Changes in Stockholders' Equity
Common Capital Accumulated
Stock, in excess of Other
$1 par par Retained Comprehensive Comprehensive
value value Earnings Income Income
-------- ------------ ---------- -------------- -------------
Balance at January 1, 1996 $ 11,686,614 $ 493,783 $ 111,320,907 $ (690,727) $
Net income 19,994,637 19,994,637
Other comprehensive income,
net of tax: 38,000 38,000
Unrealized gain on
marketable securities
Adjustment for foreign 341,238 341,238
currency translation
Other comprehensive income 379,238
for the year
Comprehensive income for the 20,373,875
year
Cash dividends declared (5,994,808)
Stock issued under employee 2,850 34,718
stock plans
Purchase and retirement of (378,000) (16,493) (8,086,507)
common stock
Balance at December 31, 1996 11,311,464 512,008 117,234,229 (311,489)
Net income 21,350,277 21,350,277
Other comprehensive income,
net of tax: 55,000 55,000
Unrealized gain on
marketable securities
Adjustment for foreign (431,206) (431,206)
currency translation
Other comprehensive income (376,206)
for the year
Comprehensive income for the 20,974,071
year
Cash dividends declared (6,010,507)
Stock issued under employee 11,269 266,217
stock plans
Purchase and retirement of (187,500) (8,487) (3,865,888)
common stock
Balance at December 31, 1997 11,135,233 769,738 128,708,111 (687,695)
Net income 19,474,229 19,474,229
Other comprehensive income,
net of tax: 105,000 105,000
Unrealized gain on
marketable securities
Adjustment for foreign (104,376) (104,376)
currency translation
Other comprehensive income 624
for the year
Comprehensive income for the $19,474,853
year
Cash dividends declared (6,130,363)
Stock issued under employee 589 12,738
stock plans
Purchase and retirement of (472,000) (33,156) (9,843,313)
common stock
Balance at December 31, 1998 $ 10,663,822 $ 749,320 $ 132,208,664 $ (687,071)
============= =========== ============== ================
See notes to consolidated financial statements
LAWSON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
---------------------------------------------------------
1998 1997 1996
---- ---- ----
Operating activities:
Net income $ 19,474,229 $ 21,350,277 $ 19,994,637
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,498,385 5,019,437 4,014,251
Provision for allowance for doubtful accounts 983,367 1,028,221 859,326
Deferred income taxes (1,918,000) (933,000) (720,000)
Deferred compensation and security bonus plans 4,190,541 4,214,100 3,734,727
Payments under deferred compensation
and security bonus plans (3,414,210) (1,604,352) (1,068,542)
Losses from sale of property, plant and equipment 627 108,079 274,717
Income from investments in real estate (763,000) (506,000) (232,500)
Changes in operating assets and liabilities
(Exclusive of effect of acquisition):
Accounts receivable (2,524,428) (4,416,319) (864,397)
Inventories (4,881,840) (4,741,208) (3,965,081)
Prepaid expenses and other assets (6,121,144) (2,224,583) (2,265,095)
Accounts payable and accrued expenses 4,753,798 886,109 2,751,842
Income taxes payable 1,642,005 (852,139) 1,531,104
Other (849,422) (348,976) 507,785
----------------- --------------- ---------------
Net Cash Provided by Operating Activities 16,070,908 16,979,646 24,552,774
---------------- --------------- ---------------
Investing activities:
Additions to property, plant and equipment (5,378,660) (5,894,656) (4,820,724)
Purchases of marketable securities (196,265,030) (143,028,547) (367,665,946)
Proceeds from sale of marketable securities 204,848,618 137,301,088 376,705,975
Proceeds from sale of property, plant
and equipment 1,000 2,308 94,421
Proceeds from life insurance policies 438,819 - 130,000
Acquisition of Automatic Screw Machine
Products, net of cash acquired of $240,545 - - (10,506,472)
Other 440,000 80,000 80,000
---------------- --------------- ---------------
Net Cash Provided by (Used In)
Investing Activities 4,084,747 (11,539,807) (5,982,746)
---------------- --------------- ----------------
Financing Activities:
Purchases of common stock (10,348,469) (4,061,875) (8,481,000)
Proceeds from exercise of stock options 13,327 277,486 37,568
Dividends paid (6,196,361) (5,923,040) (6,043,577)
----------------- --------------- ----------------
Net Cash Used in Financing Activities (16,531,503) (9,707,429) (14,487,009)
----------------- --------------- ----------------
Increase (Decrease) in Cash and
Cash Equivalents 3,624,152 (4,267,590) 4,083,019
Cash and Cash Equivalents at Beginning of Year 10,247,568 14,515,158 10,432,139
---------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 13,871,720 $ 10,247,568 $ 14,515,158
================ =============== ===============
See notes to consolidated financial statements
LAWSON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-DESCRIPTION OF BUSINESS
Lawson Products, Inc. and subsidiaries principally are distributors of
expendable parts and supplies for maintenance, repair and operation of
equipment. The Company has six operating units with which it conducts its
business, however these units have been aggegrated into one reportable segment.
The Company's principle operations are in the United States, however the Company
does have foreign operations as follows:
YEARS ENDED DECEMBER 31
----------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Revenues:
Canada $6,324 $6,212 $5,323
United Kingdom 2,872 3,018 2,711
Mexico 2,276 1,912 1,382
Long-lived Assets:
Canada 2,273 2,553 2,680
United Kingdom 693 714 608
Mexico 135 220 74
NOTE B-SUMMARY OF MAJOR ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries, each of which is
wholly owned. All inter-company accounts and transactions have been eliminated
in consolidation.
Revenue Recognition: Sales and associated cost of goods sold are recognized
when products are shipped to customers.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Investments in Real Estate: The Company's investments in real estate
representing limited partnership interests are carried on the basis of the
equity method.
Marketable Securities: Marketable equity securities and debt securities are
classified as available-for-sale and are carried at fair value, with the
unrealized gains and losses, net of tax, recorded in stockholders' equity.
Realized gains and losses, declines in value judged to be other-than-temporary,
and interest and dividends are included in investment income. The cost of
securities sold is based on the specific identification method.
Inventories: Inventories (principally finished goods) are stated at the lower
of cost (first-in, first-out method) or market.
Property, Plant and Equipment: Provisions for depreciation and amortization are
computed by the straight-line method for buildings using useful lives of 20 to
30 years and by the double declining balance method for machinery and equipment,
furniture and fixtures and vehicles using useful lives of 4 to 10 years.
Investment Tax Credits: Investment tax credits on assets leased to others (see
Investments in Real Estate) are deferred and amortized over the useful life of
the related asset.
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Stock Options: Stock options are accounted for under Accounting Principles Board
Opinion No. 25, "Accounting For Stock Issued to Employees." Under APB 25, no
compensation expense is recognized because the exercise price of the stock
options granted equals the market price of the underlying stock at the date of
grant.
Foreign Currency Translation: The financial statements of foreign entities have
been translated in accordance with Statement of Financial Accounting Standards
No. 52 and, accordingly, unrealized foreign currency translation adjustments are
reflected as a component of stockholders' equity. Realized foreign currency
transaction gains and losses were not significant for the years ended December
31, 1998, 1997 and 1996.
Income Per Share: Basic EPS is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution from the exercise or conversion of securities
into common stock, such as stock options.
Comprehensive Income: In 1998, the Company adopted FASB Statement No. 130,
"Reporting Comprehensive Income." Statement 130 establishes new rules for the
reporting and displaying of comprehensive income and its components; however,
the adoption of this Statement had no impact on the Company's net income or
equity. Statement 130 requires unrealized gains on the Company's
available-for-sale securities and foreign currency translation adjustments to be
included in accumulated other comprehensive income, which prior to adoption were
reported separately in stockholders' equity. Prior year financial statements
have been reclassified to conform to the requirements of Statement 130.
Reclassifications: Certain amounts have been reclassified in the 1996 and 1997
financial statements to conform with the 1998 presentation.
NOTE C-NON-RECURRING CHARGE
In the fourth quarter of 1998, the Company recorded non-recurring charges of
$2.6 million representing severance and early retirement benefits to five
members of management. At December 31, 1998, no amount had yet been expended.
NOTE D-MARKETABLE SECURITIES
The following is a summary of the Company's investments at December 31 which are
all classified as available-for-sale:
(In thousands) Gross Gross
Unrealized Unrealized Estimated
1998 Cost Gains Losses Fair Value
- -------------------------------- -------------------- ------------------ -------------------- -----------------
Obligations of states and $ 16,723 $ 90 $ 4 $ 16,809
political subdivisions
Foreign government securities 7,007 - - 7,007
Other debt securities 73 - - 73
-------------- ------------ ------------ -------------
Total debt securities 23,803 90 4 23,889
Equity securities 6 947 6 947
-------------- ------------ ------------ -------------
$ 23,809 $ 1,037 $ 10 $ 24,836
========== ======= ===== =========
1997
- -------------------------------- -------------------- ------------------ -------------------- -----------------
Obligations of states and $ 28,343 $ 56 $ 1 $ 28,398
political subdivisions
Foreign government securities 4,092 - - 4,092
Other debt securities 44 - - 44
-------------- ------------ ------------ -------------
Total debt securities 32,479 56 1 32,534
Equity securities 6 817 6 817
-------------- ------------ ------------ -------------
$ 32,485 $ 873 $ 7 $ 33,351
========== ======= ===== =========
The gross realized gains on sales of marketable securities totaled: $52,000,
$52,000 and $128,000 in 1998, 1997 and 1996, respectively, and the gross
realized losses totaled $1,000, $7,000 and $28,000, respectively. The net
adjustment to unrealized holding gains included as a separate component of
stockholders' equity, net of taxes, totaled $105,000, $55,000 and 38,000 in
1998, 1997 and 1996, respectively.
In 1996, the Company received equity shares on the conversion of certain mutual
insurance companies, from which the Company held policies, to stock companies.
These shares carry no cost.
The amortized cost and estimated fair value of marketable securities at December
31, 1998, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because the issuers of certain securities
have the right to prepay obligations without prepayment penalties.
Estimated
(In thousands) Cost Fair Value
- ------------------------------------------------------------------- ---------------------- ----------------------
Due in one year or less $ 13,779 $ 13,816
Due after one year through five years 10,024 10,073
--------------- ----------------
Total debt securities 23,803 23,889
Equity securities 6 947
--------------- ----------------
$ 23,809 $ 24,836
============ =============
NOTE E-PROPERTY, PLANT AND EQUIPMENT
The cost of property, plant and equipment consists of:
1998 1997
----------------- -----------
Land $ 6,011,531 $ 6,072,718
Buildings and improvements 38,290,080 34,162,854
Machinery and equipment 22,216,024 19,855,003
Furniture and fixtures 5,014,995 5,053,931
Vehicles 272,829 239,740
Construction in Progress 1,787,061 3,441,644
----------------- -----------------
$ 73,592,520 $ 68,825,890
================= =================
NOTE F-INVESTMENTS IN REAL ESTATE
The Company is a limited partner in two real estate limited partnerships. An
officer and member of the Board of Directors of the Company has a 1.5% interest
and 5.5% interest, respectively, as a general partner in these partnerships,
which interests are subordinated to the Company's interests in distributable
cash.
NOTE G-ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
1998 1997
----------------- -----------
Salaries, commissions and other compensation $ 10,188,449 $ 7,051,691
Accrued and withheld taxes, other than income taxes 2,080,204 2,002,092
Accrued profit sharing contributions 2,443,289 2,337,319
Accrued self-insured health benefits 1,318,356 1,300,000
Cash dividends payable 1,492,935 1,558,933
Other 4,882,271 3,651,962
----------------- -----------------
$ 22,405,504 $ 17,901,997
================= =================
NOTE H-STOCK PLAN
The Company's Incentive Stock Plan, As Amended ("Plan"), provides for the
issuance of shares of Common Stock to officers and key employees pursuant to
stock options, stock appreciation rights, stock purchase agreements and stock
awards. At December 31, 1998, 647,777 shares of Common Stock were available for
issuance under the Plan.
The Plan permits the grant of incentive stock options, subject to certain
limitations, with substantially the same terms as non-qualified stock options.
Stock options are not exercisable within six months from date of grant and may
not be granted at prices less than the fair market value of the shares at the
dates of grant.
Benefits may be granted under the Plan through December 16, 2006.
Additional information with respect to the Plan is summarized as follows:
Average Option
Price Shares
- --------------------------------------------------------------------------------
Outstanding January 1, 1996 $27.06 126,131
Granted 22.57 187,004
Exercised 16.27 (2,850)
- -------------------------------------------------------------------------------
Outstanding December 31, 1996 24.48 310,285
Granted 27.00 1,000
Exercised 24.62 (11,269)
Canceled or expired 27.07 (9,737)
- -------------------------------------------------------------------------------
Outstanding December 31, 1997 24.40 290,279
Granted 26.75 9,000
Exercised 24.19 (889)
Canceled or expired 26.89 (27,500)
- -------------------------------------------------------------------------------
Outstanding December 31, 1998 23.34 270,890
- -------------------------------------------------------------------------------
Exercisable options at
December 31, 1998 $24.97 169,488
December 31, 1997 26.10 149,026
December 31, 1996 27.38 123,281
As of December 31, 1998, the Company had the following outstanding options:
Exercise Price $22.50-$23.25 $27.00-$29.75 $26.75
------------- ------------- ------
Options Outstanding 177,940 83,950 9,000
Weighted Average Exercise Price $22.55 $27.49 $26.75
Weighted Average Remaining Life 7.4 1.5 9.4
Options Exercisable 86,288 83,200 -
Weighted Average Exercise Price $22.54 $27.50 -
Disclosure of pro forma information regarding net income and net income per
share is required by FASB Statement No. 123, "Accounting for Stock-Based
Compensation," and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value of these options was estimated at the date of grant using the
Black-Scholes options pricing model.
The Company's weighted average fair value of options granted and assumptions
used were as follows:
1998 1997 1996
---- ---- ----
Risk-free interest rate 4.97% 5.81% 6.61%
Dividend yield 2.00% 2.00% 2.00%
Stock price volatility factor .18 .19 .21
Weighted-average expected life (years) 8 8 8
Weighted-average fair value of options granted $6.80 $7.77 $7.26
For purposes of pro forma disclosures, the estimated fair value of options
granted is amortized to expense over the option's vesting period. The pro forma
effect on net income is not representative of the pro forma effect on net income
in future years because grants made in 1996 and later years have an increasing
vesting period.
The Company's pro forma information consisted of the following:
1998 1997 1996
---- ---- ----
Net income as reported $19,474,229 $21,350,277 $19,994,650
Net income - pro forma 19,123,000 21,010,000 19,779,000
Basic earnings per share - as reported 1.77 1.91 1.73
Diluted earnings per share - as reported 1.76 1.91 1.73
Basic earnings per share - pro forma 1.73 1.88 1.71
Diluted earnings per share - pro forma 1.73 1.88 1.71
NOTE I-PROFIT SHARING AND SECURITY BONUS PLANS
The Company and certain subsidiaries have a profit sharing plan for office and
warehouse personnel. The amounts of the companies' annual contributions are
determined by the respective boards of directors subject to limitations based
upon current operating profits (as defined) or participants' compensation (as
defined).
The Company and its subsidiaries also have in effect security bonus plans for
the benefit of their regional managers and independent sales representatives,
under the terms of which participants are credited with a percentage of their
yearly earnings (as defined). Of the aggregate amounts credited to participants'
accounts, 25% vests after five years and an additional 5% vests each year
thereafter. For financial reporting purposes, amounts are charged to operations
over the vesting period.
Provisions for profit sharing and security bonus plans aggregated $4,845,399,
$4,387,000 and $3,946,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
The Company sponsors a 401(k) defined contribution savings plan. The plan, which
is available to all employees, was provided to give employees a pre-tax
investment vehicle to save for retirement. All contributions to the plan are
made by plan participants.
NOTE J-INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In addition, deferred
income taxes include net operating loss carryforwards of a foreign subsidiary
which do not expire. The valuation allowance has been provided since there is no
assurance that the benefit of the net operating loss carryforwards will be
realized. Significant components of the Company's deferred tax assets and
liabilities as of December 31 are as follows:
Deferred Tax Assets: 1998 1997
----------------- -----------
Compensation and benefits $ 10,850,000 $ 9,399,000
Inventory 1,037,000 642,000
Net operating loss carryforwards of subsidiary 3,877,000 3,270,000
Accounts receivable 446,000 428,000
Other 730,000 -
----------------- -----------------
Total Deferred Tax Assets 16,940,000 13,739,000
Valuation allowance for deferred tax assets (3,877,000) (3,270,000)
----------------- ----------------
Net Deferred Tax Assets 13,063,000 10,469,000
----------------- -----------------
Deferred Tax Liabilities:
Property, plant & equipment 1,318,000 1,489,000
Investments in real estate 3,169,000 3,163,000
Marketable securities 359,000 303,000
Other 214,000 231,000
----------------- -----------------
Total Deferred Tax Liabilities 5,060,000 5,186,000
----------------- -----------------
Total Net Deferred Tax Assets $ 8,003,000 $ 5,283,000
================= =================
Income before income taxes consisted of the following:
1998 1997 1996
---- ---- ----
United States $36,288,309 $37,303,959 $35,969,862
Foreign (2,698,080) (1,580,682) (2,085,225)
----------- ----------- -----------
$33,590,229 $35,723,277 $33,884,637
=========== =========== ===========
The provisions for income taxes for the years ended December 31, consisted of
the following:
1998 1997 1996
---------------- ---------------- -----------
Current:
Federal $ 13,136,000 $ 12,568,000 $ 11,733,000
State 2,898,000 2,738,000 2,877,000
--------------- ---------------- ----------------
16,034,000 15,306,000 14,610,000
Deferred benefit (1,918,000) (933,000) (720,000)
--------------- --------------- ---------------
$ 14,116,000 $ 14,373,000 $ 13,890,000
=============== ================ ================
The reconciliation between the effective income tax rate and the statutory
federal rate is as follows:
1998 1997 1996
---- ---- ----
Statutory federal rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
State income taxes, net of federal income
tax benefit 5.6 5.0 5.5
Non-taxable dividend and interest income (.7) (1.6) (1.1)
Foreign losses 2.7 1.9 2.2
Other items (.6) (.1) (.6)
------ ------- -------
Provision for income taxes 42.0% 40.2% 41.0%
===== ===== =====
Income taxes paid for the years ended December 31, 1998, 1997 and 1996 amounted
to $14,359,000, $16,078,000 and $12,944,000, respectively.
NOTE K-COMMITMENTS
The Company's minimum rental commitments, principally for equipment, under
noncancelable leases in effect at December 31, 1998 amounted to approximately
$3,331,000. Such rentals are payable as follows: 1999-$1,494,000;
2000-$1,142,000; 2001-$475,000 and 2002 and thereafter-$220,000.
Total rental expense for the years ended December 31, 1998, 1997 and 1996
amounted to $1,655,000, $1,647,000 and $1,402,000.
NOTE L - INCOME PER SHARE
The computation of basic and diluted income per share consisted of the
following:
Year ended December 31
(In thousands, except per share data) 1998 1997 1996
---- ---- ----
NUMERATOR:
Net income $ 19,474 $ 21,350 $ 19,995
============= ============= =============
DENOMINATOR:
Denominator for basic income per share - 11,024 11,153 11,563
Weighted average shares
Effect of dilutive securities: 18 22 1
------------- ------------- -------------
Stock option plans
Denominator for diluted income per share - 11,042 11,175 11,564
============= ============= =============
Adjusted weighted average shares
Basic income per share $ 1.77 $ 1.91 $ 1.73
============= ============= =============
Diluted income per share $ 1.76 $ 1.91 $ 1.73
============= ============= =============
NOTE M - SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December 31, 1998
and 1997 are summarized as follows:
Quarter ended
-------------------------------------------------------------------
1998 Mar. 31 Jun. 30 Sept. 30 Dec. 31*
- ---- ------- ------- -------- --------
(In thousands, except per share data)
Net sales $70,363 $72,535 $75,530 $74,095
Cost of goods sold 24,828 24,876 25,941 23,909
Income before income taxes 7,728 8,267 9,138 8,458
Provision for income taxes 3,205 3,538 3,884 3,489
Net income 4,523 4,729 5,254 4,969
Net income per
share of common stock:
Basic .41 .42 .48 .46
Diluted .40 .42 .48 .46
Diluted weighted average
shares outstanding 11,175 11,161 11,057 10,785
Quarter ended
-------------------------------------------------------------------
1997 Mar. 31 Jun. 30 Sept. 30 Dec. 31*
- ---- ------- ------- -------- --------
(In thousands, except per share data)
Net sales $65,883 $70,390 $71,420 $70,451
Cost of goods sold 22,731 24,105 24,331 24,818
Income before income taxes 7,949 9,463 10,044 8,268
Provision for income taxes 3,227 3,814 4,165 3,167
Net income 4,722 5,649 5,879 5,101
Basic and diluted net income per
share of common stock .42 .51 .53 .46
Diluted weighted average
shares outstanding 11,209 11,140 11,157 11,181
*Inventories and cost of goods sold during interim periods are determined
through the use of estimated gross profit rates. The difference between actual
and estimated gross profit rates used for the interim periods is adjusted in the
fourth quarter. In 1998, this adjustment increased net income by approximately
$1,146,000 while in 1997, this adjustment decreased net income by approximately
$438,000. Also, in the fourth quarter of 1998, non-recurring charges were
recorded related to severance and early retirement benefits which reduced net
income by $1,520,000.
SCHEDULE II
LAWSON PRODUCTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to
Beginning of Costs and Deductions- Balance at End
Description Period Expenses Describe (A) of Period
----------- ------ -------- ------------ ---------
Allowance deducted from assets to which it applies:
Allowance for doubtful accounts:
Year ended December 31, 1998 $1,423,902 $983,367 $957,202 $1,450,067
Year ended December 31, 1997 1,357,662 1,028,221 961,981 1,423,902
Year ended December 31, 1996 1,111,337 859,326 613,001 1,357,662
Note A - Uncollected receivables written off, net of recoveries.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
----------------------------------------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
a. Directors
---------
The information required by this Item is set forth in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
May 11, 1999, under the caption "Election of Directors," which information is
incorporated herein by reference.
b. Executive Officers
------------------
The executive officers of the Company, all of whose terms of
office expire on May 11, 1999, are as follows:
Year First Other Offices Held
Name and Present Elected to During the Past
Position with Company Age Present Office Five Years
- --------------------- --- -------------- ----------
Sidney L. Port, 88 1977 *
Chairman of the
Executive Committee
and Director
Bernard Kalish, 61 1989 *
Chief Executive
Officer, Chairman of
the Board and Director
Peter G. Smith(1) 60 1989 *
President,
Chief Operating
Officer and Director
- ------------------------
(1) Mr. Smith retired as President and Chief Operating Officer of the Company on
December 31, 1998.
Jeffrey B. Belford(2) 52 1989 *
Executive Vice
President--Operations
Chief Operating Officer
(Office of the President)
Robert J. Washlow(3) 54 1985 *
Executive Vice President
Corporate Affairs, Secretary
and Director
(Office of the President)
Roger Cannon 50 1997 Mr. Cannon has been
Executive Vice President - a member of the
Sales/Marketing Office of the President
(Office of the President) since January 1, 1999.
Vice President - -
Central Field Sales
from 1991 to 1997.
James Smith, 58 1996 Mr. Smith was Vice
Vice President-- President, Personnel
Human Resources from 1995 to 1996. Prior to
1995, Mr. Smith was
Manager, Human Resources since he
joined the Company in 1993.
Jerome Shaffer, 71 1987 *
Vice President,
Treasurer and Director
Joseph L. Pawlick, 56 1987 *
Vice President and
Controller and Assistant
Secretary
- -------------------------
(2) Mr. Belford became Chief Operating Officer and a member of the Office of the
President effective January 1, 1999.
(3) Mr. Washlow has been Executive Vice President-Corporate Affairs since 1998,
Secretary since 1985 and a member of the Office of the President since
January 1, 1999.
* These persons have held the indicated positions for at least five years.
Item 11. Executive Compensation.
----------------------
The information required by this Item is set forth in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
May 11, 1999, under the caption "Remuneration of Executive Officers," which
information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The information required by this Item is set forth in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
May 11, 1999 under the caption "Securities Beneficially Owned by Principal
Stockholders and Management," which information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information required by this Item is set forth in the
Company's Proxy Statement for the Annual Meeting of stockholders to be held on
May 11, 1999 under the caption "Election of Directors," which information is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a) (1) Financial Statements
--------------------
The following information is presented in this report:
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Income for the Years ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Changes in Stockholders' Equity for
the Years ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the Years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedule
----------------------------
The following consolidated financial statement schedule of Lawson
Products, Inc. and subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts is submitted with this report.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not submitted because
they are not applicable or are not required under Regulation S-X or because the
required information is included in the financial statements or notes thereto.
(a) (3) Exhibits.
--------
2 Purchase Agreement dated April 30, 1996 among
Assembly Component Systems, Inc., Automatic Screw
Machine Products Company, David E. Norman and James
C. Norman, incorporated herein by reference from
Exhibit (2)(a) to the Company's Current Report on
Form 8-K dated April 30, 1996.
3(a) Certificate of Incorporation of the Company, as
amended, incorporated herein by reference to Exhibit
3(a) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.
3(b) By-laws of the Company, as amended.
*10(c)(1) Lawson Products, Inc. Incentive Stock Plan,
incorporated herein by reference to Exhibit A to the
Company's Proxy Statement for the Annual Meeting of
Stockholders held on May 28, 1997.
*10(c)(2) Salary Continuation Agreement between the Company and
Mr. Sidney L. Port dated January 7, 1980 incorporated
herein by reference from Exhibit 10(c)(2) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991.
*10(c)(3) Employment Agreement between the Company and Mr.
Peter G. Smith dated July 17, 1972 incorporated
herein by reference from Exhibit 10(c)(6) to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1981.
*10(c)(4) Employment Agreement between the Company and Mr.
Bernard Kalish, incorporated herein by reference from
Exhibit 10(c)(6) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1985; First Amendment to Employment Agreement dated
as of May 27, 1988 incorporated herein by reference
from Exhibit 10(c)(6) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1988.
*10(C)(4.1) Second Amendment to Employment Agreement dated as of
August 1, 1996, incorporated herein by reference to
Exhibit 10(c)(4.1) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1996.
- ---------------------
*Indicates management employment contracts or compensatory plans or
arrangements.
*10(c)(5) Employment Agreement between the Company and Mr.
Jerome Shaffer, incorporated herein by reference from
Exhibit 10(c)(9) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1985.
*10(c)(5.1) First Amendment to Employment Agreement dated as of
August 1, 1996, incorporated herein by reference from
Exhibit 10(c)(6.1) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1996.
*10(c)(6) Amended and Restated Executive Deferral Plan,
incorporated herein by reference from Exhibit
10(c)(7) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
*10(c)(7) Agreement of Early Retirement dated December 23,
1998, between Peter G. Smith and the Company.
*10(c)(8) Employment Agreement dated July 21, 1994 between the
Company and Roger F. Cannon.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fourth quarter
of the fiscal year covered by this Report.
(c) Exhibits
--------
See item 14(a)(3) above for a list of exhibits to this report.
(d) Schedules
---------
See item 14(a)(2) above for a list of schedules filed with
this report.
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.
LAWSON PRODUCTS, INC.
Date: March 24, 1999 By /s/ Bernard Kalish
------------------
Bernard Kalish, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Bernard Kalish Chairman, Chief Executive Officer and
Director
(principal executive officer)
/s/ Jerome Shaffer Vice President, Treasurer and Director
- ---------------------------------
Jerome Shaffer (principal financial officer)
/s/ Joseph L. Pawlick Vice President and Controller
- ---------------------------------
Joseph L. Pawlick (principal accounting officer)
/s/ James T. Brophy Director March 24, 1999
- ---------------------------------
James T. Brophy
/s/ Ronald B. Port, M.D. Director
- ---------------------------------
Ronald B. Port, M.D.
/s/ Sidney L. Port Director
- ---------------------------------
Sidney L. Port
/s/ Robert G. Rettig Director
- ---------------------------------
Robert G. Rettig
/s/ Mitchell H. Saranow Director
- ---------------------------------
Mitchell H. Saranow
/s/ Peter G. Smith Director
- ---------------------------------
Peter G. Smith
/s/ Robert J. Washlow Director
- ---------------------------------
Robert J. Washlow
EXHIBIT INDEX
-------------
Exhibit
Number Description of Exhibit
- ------ ----------------------
2 Purchase Agreement dated April 30, 1996 among Assembly
Component Systems, Inc., Automatic Screw Machine Products
Company, David E. Norman and James C. Norman, incorporated
herein by reference from Exhibit (2)(a) to the Company's
Current Report on Form 8-K dated April 30, 1996.
3(a) Certificate of Incorporation of the Company, as amended,
incorporated herein by reference to Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
3(b) By-laws of the Company, as amended.
10(c)(1) Lawson Products, Inc. Incentive Stock Plan, incorporated
herein by reference to Exhibit A to the Company's Proxy
Statement for the Annual Meeting of Stockholders held on May
28, 1997.
10(c)(2) Salary Continuation Agreement between the Company and Mr.
Sidney L. Port, dated January 7, 1980, incorporated herein by
reference from Exhibit 10(c)(2) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991.
10(c)(3) Employment Agreement between the Company and Mr. Peter G.
Smith, dated January 17, 1972 incorporated herein by reference
from Exhibit 10(c)(6) to the Company's Annual Report on Form
10-K for the year ended December 31, 1981.
10(c)(4) Employment Agreement between the Company and Mr. Bernard
Kalish, incorporated herein by reference from Exhibit 10(c)(6)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1985; First Amendment to Employment
Agreement dated as of May 27, 1988 incorporated herein by
reference from Exhibit 10(c)(6) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988.
10(c)(4.1) Second Amendment to Employment Agreement dated as of August 1,
1996, incorporated herein by reference to Exhibit 10(c)(4.1)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
10(c)(5) Employment Agreement between the Company and Mr. Jerome
Shaffer, incorporated herein by reference from Exhibit
10(c)(9) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1985.
10(c)(5.1) First Amendment to Employment Agreement dated as of August 1,
1996, incorporated herein by reference from Exhibit 10(c)(6.1)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
Exhibit
Number Description of Exhibit
- ------ ----------------------
10(c)(6) Amended and Restated Executive Deferral Plan, incorporated
herein by reference from Exhibit 10(c)(7) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
10(c)(7) Agreement of Early Retirement dated December 23, 1998 between
Peter G. Smith and the Company.
10(c)(8) Employment Agreement dated July 21, 1994 between the Company
and Roger F. Cannon.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
Exhibit 3(b)
LAWSON-PRODUCTS, INC.
---------------------
BY-LAWS
-------
* * *
ARTICLE I
---------
OFFICES
-------
Section 1.1 Registered Office. The registered office of the Corporation
shall be maintained in the City of Dover, State of Delaware, and the registered
agent in charge thereof is United States Corporation Company.
Section 1.2 Other Offices. The Corporation may also have an office in
the City of Des Plaines, State of Illinois and at such other places as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
----------
STOCKHOLDERS MEETINGS
---------------------
Section 2.1 Place of Meetings. All meetings of the stockholders,
whether annual or special, shall be held at the offices of the Corporation in
Des Plaines, Illinois, or at such other place as may be fixed from time to time
by the Board of Directors.
Section 2.2 Annual Meetings. An annual meeting of the stockholders
shall be held in May in each year on such date and at such time as may from time
to time be determined by the Board of Directors, at which the stockholders shall
elect directors, and transact such other business as may properly be brought
before the meeting.
Section 2.3 Notice of Meeting. Written notice of the annual meeting
stating the place, date and hour of the meeting, shall be given not less than
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, notice is given when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the Corporation.
Section 2.4 Stockholder Nominations and Proposals. At an annual meeting
of the stockholders, only such business shall be conducted as shall have been
properly brought before an annual meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of the meeting (or
any supplement thereto) given by or at the direction of the Board of Directors,
(ii) otherwise properly brought before the meeting by or at the direction of the
Board of Directors or (iii) otherwise properly brought before the meeting by a
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section, who is entitled to vote at the
meeting and who complied with the notice procedures set forth in this Section.
For business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation at the principal executive office of the
Corporation. To be timely, a stockholder's notice shall be delivered not less
than 90 days nor more than 110 days prior to the first anniversary of the
preceding year's meeting; provided, however, that in the event that the date of
the annual meeting is advanced by more than 30 days or delayed by more than 60
days from such anniversary date, notice by the stockholder, to be timely, must
be so delivered not later than the 10th day following the day on which public
announcement (as defined herein) of the date of such meeting is first made.
Such stockholder's notice shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting and any interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (ii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the proposal is made (A) the name and
address of such stockholder, as they appear on the Corporation's books, and the
name and address of such beneficial owner, (B) the class and number of shares of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner as of the date such notice is given, and (C) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to propose such business; (iii) in the event that such business
includes a proposal to amend either the Certificate of Incorporation or the
Bylaws of the Corporation, the language of the proposed amendment and (iv) if
the stockholder intends to solicit proxies in support of such stockholder's
proposal, a representation to that effect. The foregoing notice requirements
shall be deemed satisfied by a stockholder if the stockholder has notified the
Corporation of his or her intention to present a proposal at an annual meeting
and such stockholder's proposal has been included in a proxy statement that has
been prepared by management of the Corporation to solicit proxies for such
annual meeting; provided, however, that if such stockholder does not appear or
send a qualified representative to present such proposal at such annual meeting,
the Corporation need not present such proposal for a vote at such a meeting,
notwithstanding that proxies in respect of such vote may have been received by
the Corporation. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with this
paragraph, and the Chairman of the Board or other person presiding at an annual
meeting of stockholders, may refuse to permit any business to be brought before
an annual meeting without compliance with the foregoing procedures or if the
stockholder solicits proxies in support of such stockholder's proposal without
such stockholder having made the representation required by clause (iv) of the
second preceding sentence. For the purposes of this paragraph "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). In addition to the provisions of this
paragraph, a stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in these Bylaws shall be deemed to affect any
rights of the stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2.5 Stockholders List. At least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder,
shall be prepared, or caused to be prepared, by the Secretary. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 2.6 Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Executive
Committee, if any, the Chairman of the Board or by the President and shall be
called by the Secretary at the request in writing of a majority of the Board of
Directors. Such request shall state the purpose or purposes of the proposed
meeting. Unless otherwise prescribed by statute or by the Certificate of
Incorporation, stockholders of this Corporation shall not be entitled to request
a special meeting of stockholders.
Section 2.7 Notice of Special Meetings. Except as otherwise provided by
statute, written notice of a special meeting, stating the place, date and hour
of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, notice
is given when deposited in the United States mail, postage prepaid, directed to
the stockholder at his address as it appears on the records of the Corporation.
Section 2.8 Quorum. The holders of a majority of the total voting power
of all outstanding shares of capital stock of the Corporation entitled to vote
thereat, present in person or represented by proxy, shall be requisite and shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, by the Certificate of
Incorporation or by these By-Laws. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, of the place, date and hour of the adjourned meeting, until a
quorum shall again be present or represented by proxy. At the adjourned meeting
at which a quorum shall be present or represented by proxy, the Corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than thirty days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 2.9 Voting. When a quorum is present at any meeting, and
subject to the provisions of the General Corporation Law of the State of
Delaware, the Certificate of Incorporation or by these By-Laws in respect of the
vote that shall be required for a specified action, the vote of the holders of a
majority of the total voting power of all outstanding shares of capital stock of
the Corporation, present in person or represented by proxy, shall be
determinative of any question brought before such meeting, unless the question
is one upon which, by express provision of the statutes or of the Certificate of
Incorporation or of these By-Laws, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Each stockholder shall have one vote for each share of stock having voting power
registered in his name on the books of the Corporation, except as otherwise
provided in the Certificate of Incorporation.
Section 2.10 Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may in writing authorize another person or persons to act for
him by proxy, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period not to exceed ten
years.
Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy, a stockholder may validly
authorize another person or persons to act for him as proxy by: (a) executing a
writing to that effect, which execution may be accomplished by the stockholder
or his authorized officer, director, employee or agent signing the writing or
causing his signature to be affixed to the writing by any reasonable means
including, but not limited to, by facsimile signature; or (b) transmitting or
authorizing the transmission of a telegram, cablegram, or other means of
electronic transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
transmission, provided that any telegram, cablegram or other means of electronic
transmission must either set forth or be submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. If it is determined that any
telegram, cablegram or other electronic transmission submitted pursuant to
clause (b) above is valid, the inspectors shall specify the information upon
which they relied. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
Section 2.11 Elimination of Right to Act by Consent. No action required
to be taken or which may be taken at any annual or special meeting of
stockholders of the Corporation may be taken without a meeting, and the power of
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied.
Section 2.12 Voting Procedures and Inspectors of Elections.
(a) The Corporation, by action of the Secretary, shall, in
advance of any meeting of stockholders, appoint one or more inspectors
to act at the meeting of stockholders and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at
the meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his
ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares
represented at a meeting and the validity of proxies and ballots, (iii)
count all votes and ballots, (iv) determine and retain for a reasonable
period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of
the number of shares represented at the meeting and their count of all
votes and ballots. The inspectors may appoint or retain other persons
or entities to assist them in the performance of their duties.
(c) The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a
meeting shall be announced at the meeting. No ballot, proxies or votes,
nor any revocations thereof or changes thereto, shall be accepted by
the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the
proxies, any envelopes submitted with those proxies, any information
provided in accordance with clause (b) of Section 2.10 of these
By-Laws, ballots and the regular books and records of the Corporation,
except that the inspectors may consider other reliable information for
the limited purpose of reconciling proxies and ballots submitted by or
on behalf of banks, brokers, their nominees or similar persons which
represent more votes than the holder of a proxy is authorized by the
record owner to cast or more votes than the stockholder holds of
record. If the inspectors consider other reliable information for the
limited purpose permitted herein, the inspectors, at the time they make
their certification pursuant to subsection (b)(v) of this Section,
shall specify the specific information considered by them, including
the person or persons from whom they obtained the information, when the
information was obtained, the means by which the information was
obtained and the basis for the inspectors belief that the information
is accurate and reliable.
ARTICLE III
-----------
DIRECTORS
---------
Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such acts and things as
are not by the General Corporation Law of the State of Delaware nor by the
Certificate of Incorporation nor by these By-Laws directed or required to be
exercised or done by the stockholders.
Section 3.2 Number of Directors, Classes, Terms and Election;
Vacancies. The number of directors shall not be less than five nor more than
nine, the exact number of directors to be determined from time to time by
resolution adopted by a majority of the whole Board, and such exact number shall
be nine until otherwise determined by resolution adopted by a majority of the
whole Board. As used in this Article, a whole Board means the total number of
directors which at the time are to constitute the Board of Directors, either as
designated in this Section or as determined by the Board of Directors in
accordance herewith, as the case may be. No decrease in the number of directors
constituting the Board shall shorten the term of any incumbent director.
The Board of Directors shall be divided into three classes as nearly
equal in number as possible, with the term of office of Class I expiring at the
annual meeting of stockholders in 1983, of Class II expiring at the annual
meeting of stockholders in 1984, and of Class III expiring at the annual meeting
of stockholders in 1985. At each annual meeting of stockholders, directors
chosen to succeed those whose terms then expire shall be elected for a term of
office expiring at the third succeeding annual meeting of stockholders after
their election.
If the office of any director or directors becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office, or
otherwise, or a new directorship is created, a majority of the remaining
directors, though less than a quorum, shall choose a successor or successors, or
a director to fill the newly created directorship. Directors elected to fill a
vacancy shall hold office for a term expiring at the annual meeting at which the
term of the class to which they shall have been elected expires.
Section 3.3 Removal of Directors. Subject to the rights of the holders
of any series of Preferred Stock then outstanding, (a) any director, or the
entire Board of Directors may be removed at any time, but only for cause; and
(b) the affirmative vote of the holders of not less than 75% of the total voting
power of all outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (considered for this purpose as one
class) outstanding at the time a determination is made shall be required to
remove a director from office.
Section 3.4 Place of Meetings. The Board of Directors may hold its
meetings outside of the State of Delaware, at the office of the Corporation or
at such other places as they may from time to time determine, or as shall be
fixed in the respective notices or waivers of notice of such meetings.
Section 3.5 Committees of Directors. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board may designate one or more directors as alternate
Members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amendment to
the By-Laws of the Corporation; and, unless the resolution, By-Laws, or
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
The committees shall keep regular minutes of their proceedings and report the
same to the Board of Directors when required.
Section 3.6 Compensation of Directors. Directors, as such, may receive
such stated salary for their services and/or such fixed sums and expenses of
attendance for attendance at each regular or special meeting of the Board of
Directors as may be established by resolution of the Board; provided that
nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 3.7 Annual Meeting. The annual meeting of the Board of
Directors shall be held within ten days after the annual meeting of the
stockholders in each year. Notice of such meeting, unless waived, shall be given
by mail or telegram to each director elected at such annual meeting, at his
address as the same may appear on the records of the Corporation, or in the
absence of such address, at his residence or usual place of business, at least
three days before the day on which such meeting is to be held. Said meeting may
be held at such place as the Board may fix from time to time or as may be
specified or fixed in such notice or waiver thereof.
Section 3.8 Special Meetings. Special meetings of the Board of
Directors may be held at any time on the call of the Chairman of the Executive
Committee (if any), the Chairman of the Board or President or at the request in
writing made to either of said Chairman or the President of any three directors.
Notice of any such meeting, unless waived, shall be given by mail or telegram to
each director at his address as the same appears on the records of the
Corporation not less than one day prior to the day on which such meeting is to
be held if such notice is by telegram, and not less than three days prior to the
day on which the meeting is to be held if such notice is by mail. If the
Secretary shall fail or refuse to give such notice, then the notice may be given
by the officer to whom the request is made or by any one of the directors making
the call. Any such meeting may be held at such place as the Board may fix from
time to time or as may be specified or fixed in such notice or waiver thereof.
Any meeting of the Board of Directors shall be a legal meeting without any
notice thereof having been given, if all the directors shall be present thereat,
and no notice of a meeting shall be required to be given to any director who
shall attend such meeting.
Section 3.9 Action Without Meeting; Participation at Meeting by
Telephone. Any action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting, if a
written consent to such action is signed by all members of the Board or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors.
Members of the Board of Directors, or any committee designated by the
Board, may participate in a meeting of the Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this section shall constitute presence in person at such
meeting.
Section 3.10 Quorum and Manner of Acting. Except as otherwise provided
in these By-Laws, a majority of the total number of directors as at the time
specified by the By-Laws shall constitute a quorum at any regular or special
meeting of the Board of Directors. Except as otherwise provided by statute, by
the Certificate of Incorporation, or by these By-Laws, the vote of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors. In case of an equality of votes on any question
before the Board of Directors of the Corporation, the Director who holds the
office of Chairman of the Executive Committee, if any, Chairman of the Board, or
the President (if a director), in that order if present, shall have a second and
deciding vote. In the absence of a quorum, a majority of the directors present
may adjourn the meeting from time to time until a quorum shall be present.
Notice of any adjourned meeting need not be given, except that notice shall be
given to all directors if the adjournment is for more than thirty days.
ARTICLE IV
----------
OFFICERS
--------
Section 4.1 Executive Officers. The executive officers of the
Corporation shall be a Chairman of the Executive Committee (if such a committee
is established in the manner prescribed by Section 3.5 of these By-Laws) , a
Chairman of the Board, President or Office of the President established in the
manner prescribed by Section 4.17 of these by-laws, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, such number of Vice Presidents,
if any, as the Board of Directors may determine, a Secretary and a Treasurer.
One person may hold any number of said offices, except that the office of
President and Secretary shall not be held by the same person.
Section 4.2 Election, Term of Office and Eligibility. The executive
officers of the Corporation shall be elected annually by the Board of Directors
at its annual meeting or at a special meeting held in lieu thereof. Each
officer, except such officers as may be appointed in accordance with the
provisions of Section 4.3, shall hold office until his successor shall have been
duly elected or appointed and qualified or until his death, resignation or
removal. The Chairman of the Board shall be and remain a member of the Board of
Directors. None of the other officers need be members of the Board.
Section 4.3 Subordinate Officers. The Board of Directors may appoint
such Assistant Secretaries, Assistant Treasurers, Controller and other officers,
and such agents as the Board may determine, to hold office for such period and
with such authority and to perform such duties as the Board may from time to
time determine. The Board may, by specific resolution, empower the chief
executive officer of the Corporation or the Executive Committee to appoint any
such subordinate officers or agents.
Section 4.4 Removal. The Chairman of the Executive Committee, the
Chairman of the Board, the President, any Vice President, the Secretary and/or
the Treasurer may be removed at any time, either with or without cause, but only
by the affirmative vote of the majority of the total number of directors as at
the time specified by the By-Laws. Any subordinate officer appointed pursuant to
Section 4.3 may be removed at any time, either with or without cause, by the
majority vote of the directors present at any meeting of the Board or by any
committee or officer empowered to appoint such subordinate officers.
Section 4.5 The Chairman of the Executive Committee. The Chairman of
the Executive Committee shall, subject to the control of the Board of Directors
and to such limitations as are imposed by statute, the Articles of
Incorporation, and these By-Laws, be responsible for planning the future course
and direction of the business of this Corporation and developing a program for
the implementation thereof. Such responsibilities may include, but shall not be
limited to, initiating programs for the development of new executive positions
within this Corporation, the establishment of requirements and qualifications of
personnel to fill such positions, determining potential new product categories,
and exploring the utilization of new and more sophisticated operating and
general business techniques. In the absence of the Chairman of the Board, the
Chairman of the Executive Committee shall act as Chief Executive Officer of the
Company and shall administer and be responsible for the management of the
business and affairs of this Corporation.
Section 4.6 The Chairman of the Board. The Chairman of the Board shall
be the chief executive officer of the Corporation. Subject to the control vested
in the Board of Directors by statute, by the Certificate of Incorporation, or by
these By-Laws, shall administer and be responsible for the overall management of
the business and affairs of the Corporation. He shall preside at all meetings of
the stockholders and the Board of Directors; and in general, shall perform all
duties incident to the office of the Chairman of the Board and such other duties
as from time to time may be assigned to him by the Board of Directors.
Section 4.7 The President. The President shall have authority to see
that all resolutions of the Board of Directors and of the Executive Committee
are carried into effect, shall perform such duties as are incident to the office
of President or as may from time to time be assigned by the Chairman of the
Executive Committee, the Chairman of the Board, or the Board of Directors, and,
if the President is a director, in the absence or disability of the Chairman of
the Board, shall perform the duties of the Chairman of the Board.
Section 4.8 The Executive Vice Presidents. In the absence of the
Chairman of the Executive Committee, the Chairman of the Board and the
President, or in the event of their inability or refusal to act, the Executive
Vice President (or in the event there be more than one Executive Vice President,
Executive Vice Presidents in the order designated, or in the absence of any
designation, in the order elected) shall perform the duties of the Chairman of
the Executive Committee, the Chairman of the Board and the President. Each
Executive Vice President shall perform such other duties as from time to time
may be assigned to him by the Chairman of the Executive Committee, the Chairman
of the Board, the President or by the Board of Directors.
Section 4.9 The Vice Presidents. In the event of the absence or
disability of the Chairman of the Executive Committee, the Chairman of the
Board, the President and/or all Executive Vice Presidents, each senior Vice
President, in the order of his seniority, which shall be in the order of his
election, and then each Vice President, in the order of his seniority, shall
perform the duties of such officers. The Vice Presidents shall also perform such
other duties as from time to time may be assigned to them by the Chairman of the
Executive Committee, the Chairman of the Board, the President, Executive Vice
Presidents or by the Board of Directors of the Corporation.
Section 4.10 The Secretary. The Secretary shall:
(a) Keep the minutes of the meetings of the stockholders and of the
Board of Directors;
(b) See that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law;
(c) Be custodian of the records and of the seal of the Corporation and
see that the seal or a facsimile or equivalent thereof is affixed to or
reproduced on all documents, the execution of which on behalf of the Corporation
under its seal is duly authorized;
(d) Have charge of the stock record books of the Corporation, unless
the same shall be entrusted by the Board of Directors to a registrar or transfer
agent, in which case the registrar or transfer agent shall have charge of same;
(e) In general, perform all duties incident to the office of Secretary,
and such other duties as are provided by these By-Laws and as from time to time
are assigned to him by the Chairman of the Executive Committee, the Chairman of
the Board, the President or the Board of Directors of the Corporation.
Section 4.11 The Assistant Secretaries. If one or more Assistant
Secretaries shall be appointed pursuant to the provisions of Section 4.3
respecting subordinate officers, then, at the request of the Secretary, or in
his absence or disability, the Assistant Secretary designated by the Secretary
(or in the absence of such designations, then any one of such Assistant
Secretaries) shall perform the duties of the Secretary and when so acting shall
have all the powers of and be subject to all the restrictions upon the
Secretary.
Section 4.12 The Treasurer. The Treasurer shall:
(a) Receive and be responsible for all funds of and securities owned or
held by the Corporation and, in connection therewith, among other things: keep
or cause to be kept full and accurate records and accounts for the Corporation;
deposit or cause to be deposited to the credit of the Corporation all moneys,
funds and securities so received in such bank or other depository as the Board
of Directors or an officer designated by the Board may from time to time
establish; and disburse or supervise the disbursement of the funds of the
Corporation as may be properly authorized;
(b) Render to the Board of Directors at any meeting thereof, or from
time to time whenever the Board of Directors or the chief executive officer of
the Corporation may require, financial and other appropriate reports on the
condition of the Corporation;
(c) In general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Chairman of the Executive Committee, the Chairman of the Board, the
President or the Board of Directors of the Corporation.
Section 4.13 The Assistant Treasurers. If one or more Assistant
Treasurers shall be appointed pursuant to the provisions of Section 4.3
respecting subordinate officers, then, at the request of the Treasurer, or in
his absence or disability, the Assistant Treasurer designated by the Treasurer
(or in the absence of such designation, then any one of such Assistant
Treasurers) shall perform all the duties of the Treasurer and when so acting
shall have all the powers of and be subject to all the restrictions upon the
Treasurer.
Section 4.14 Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.
Section 4.15 Bonds. If the Board of Directors or the chief executive
officer shall so require, any officer or agent of the Corporation shall give
bond to the Corporation in such amount and with such surety as the Board of
Directors or the chief executive officer, as the case may be, may deem
sufficient, conditioned upon the faithful performance of their respective duties
and offices.
Section 4.16 Delegation of Duties. In case of the absence of any
officer of the Corporation or for any other reason which may seem sufficient to
the Board of Directors, the Board of Directors may, for the time being, delegate
his powers and duties, or any of them, to any other officer or to any director.
Section 4.17 Office of the President. Notwithstanding anything herein
to the contrary, the Board of Directors of the Corporation may at any time, and
from time to time, (i) designate, in lieu of a President, an Office of the
President or (ii) disband such Office of the President in favor of a President.
The Office of the President shall consist of at least two, but not more than
three employees of the Corporation, elected by the Board of Directors. Each
member of the Office of the President shall perform such duties as may be
prescribed by the Chairman of the Board or the Board of Directors and shall have
the same duties and powers as a President of the Corporation hereunder;
provided, however, that (i) the Board of Directors of the Corporation may, by
resolution, designate only certain members of the Office of the President who
may exercise certain authority of a President hereunder, and (ii) the approval
of at least two members of the Office of the President shall be required for all
actions of the Office of the President including, but not limited to, the
following:
(a) Calling for a special meeting of stockholders
pursuant to Section 2.6 hereof;
(b) Calling for a special meeting of the Board of
Directors of the Corporation pursuant to
Section 3.8 hereof;
(c) Casting the deciding vote on any question before the
Board of Directors of the Corporation pursuant to
Section 3.10 if and only if all such members of the
Office of the President are also directors of the
Corporation. If only one member of the Office of the
President is a director, such member shall have
authority to cast the deciding vote pursuant to
Section 3.10 hereof; and
(d) Assign duties to any Executive Vice President, any
Vice President, the Secretary or the Treasurer.
ARTICLE V
---------
SHARES Of STOCK
---------------
Section 5.1 Regulation. Subject to the terms of any contract of the
Corporation, the Board of Directors may make such rules and regulations as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the stock of the Corporation, including the issue of
new certificates for lost, stolen or destroyed certificates, and including the
appointment of transfer agents and registrars.
Section 5.2 Stock Certificates. Certificates for shares of the stock of
the Corporation shall be respectively numbered serially for each class of stock,
or series thereof, as they are issued, shall be impressed with the corporate
seal or a facsimile thereof, and shall be signed by the Chairman of the Board,
the President or an Executive Vice President, and by the Secretary or Treasurer,
or an Assistant Secretary or an Assistant Treasurer, provided that such
signatures may be facsimiles on any certificate countersigned by a transfer
agent other than the Corporation or its employee. Each certificate shall exhibit
the name of the Corporation, the class (or series of any class) and number of
shares represented thereby, the name of the holder, the par value of the shares
represented thereby, or that such shares are without par value. The powers,
designations, preferences, and relative, participating, optional or other
special rights of each class of stock and series of any class and the
qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificates
which the Corporation shall issue, or such certificate shall contain a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Each certificate shall be otherwise in such form as may be prescribed by
the Board of Directors.
Section 5.3 Transfer of Shares. Shares of the capital stock of the
Corporation shall be transferable on the books of the Corporation by the holder
thereof in person or by his duly authorized attorney, upon the surrender or
cancellation of a certificate or certificates for a like number of shares. Upon
presentation and surrender of a certificate properly endorsed and payment of all
taxes therefor, the transferee shall be entitled to a new certificate or
certificates in lieu thereof. As against the Corporation, a transfer of shares
can be made only on the books of the Corporation and in the manner hereinabove
provided, and the Corporation shall be entitled to treat the registered holder
of any share as the owner thereof and shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the statutes of the State of Delaware.
Section 5.4 Fixing Date for Determination Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to any other action.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 5.5 Lost Certificate. Any stockholder claiming that a
certificate representing shares of stock has been lost, stolen or destroyed may
make an affidavit or affirmation of the fact and, if the Board of Directors so
requires, advertise the same in a manner designated by the Board, and give the
Corporation a bond of indemnity in form and with security for an amount
satisfactory to the Board (or an officer or officers designated by the Board),
whereupon a new certificate may be issued of the same tenor and representing the
same number, class and/or series of shares as were represented by the
certificate alleged to have been lost, stolen or destroyed.
ARTICLE VI
----------
BOOKS AND RECORDS
-----------------
Section 6.1 Location. The books, accounts and records of the
Corporation may be kept at such place or places within or without the State of
Delaware as the Board of Directors may from time to time determine.
Section 6.2 Inspection. The books, accounts and records of the
Corporation shall be open to inspection by any member of the Board of Directors
at all times; and open to inspection by the stockholders at such times, and
subject to such regulations as the Board of Directors may prescribe, except as
otherwise provided by statute.
Section 6.3 Corporate Seal. The corporate seal shall contain two
concentric circles between which shall be the name of the Corporation and the
word Delaware and in the center shall be inscribed the words Corporate Seal.
ARTICLE VII
-----------
DIVIDENDS AND RESERVES
----------------------
Section 7.1 Dividends. Dividends upon the outstanding shares of capital
stock of the Corporation (other than liquidating dividends) shall be declared
only from the earned surplus or net profits of the Corporation. Subject to the
provisions of the Certificate of Incorporation, and to any other lawful
commitments of the Corporation, and subject to applicable law, dividends may be
declared and made payable at such times and in such amounts as the Board of
Directors may from time to time determine. Dividends may be declared at any
regular or special meeting of the Board and may be paid in cash or other
property or in the form of a stock dividend.
Section 7.2 Reserves. The Board of Directors of the Corporation may set
apart, out of any of the funds of the Corporation available for dividends, a
reserve or reserves for any proper purpose and may increase, reduce or abolish
any such reserve.
ARTICLE VIII
------------
MISCELLANEOUS PROVISIONS
------------------------
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall
end an the 31st day of December of each year.
Section 8.2 Depositories. The Board of Directors or an officer
designated by the Board shall appoint banks, trust companies, or other
depositories in which shall be deposited from time to time the money or
securities of the Corporation.
Section 8.3 Checks, Drafts and Notes. All checks, drafts, or other
orders for the payment of money and all notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers or agent or agents as shall from time to time be designated by
resolution of the Board of Directors or by an officer appointed by the Board.
Section 8.4 Contracts and Other Instruments. The Board of Directors may
authorize any officer, agent or agents to enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation and such
authority may be general or confided to specific instances.
Section 8.5 Notices. Whenever under the provisions of the statutes or
of the Certificate of Incorporation or of these By-Laws notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, by depositing the same
in a post office or letter box, in a postpaid sealed wrapper or by delivery to a
telegraph company, addressed to such director or stockholder at such address as
appears on the records of the Corporation, and such notice shall be deemed to be
given at the time when the same shall be thus mailed or delivered to a telegraph
company.
Section 8.6 Waivers of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these By-Laws, a waiver thereof in writing signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors or
members of a committee of directors need be specified in any written waiver of
notice.
Section 8.7 Stock in Other Corporations. Any shares of stock in any
other Corporation which may from time to time be held by this Corporation may be
represented and voted at any meeting of shareholders of such Corporation by the
Chairman of the Executive Committee, if any, the Chairman of the Board, or the
President or an Executive Vice President, or by any other person or persons
thereunto authorized by the Board of Directors, or by any proxy designated by
written instrument of appointment executed in the name of this Corporation by
its Chairman of the Executive Committee, if any, the Chairman of the Board, the
President or an Executive Vice President. Shares of stock belonging to the
Corporation need not stand in the name of the Corporation, but may be held for
the benefit of the Corporation in the individual name of the Treasurer or of any
other nominee designated for the purpose by the Board of Directors. Certificates
for shares so held for the benefit of the Corporation shall be endorsed in blank
or have proper stock powers attached so that said certificates are at all times
in due form for transfer, and shall be held for safekeeping in such manner as
shall be determined from time to time by the Board of Directors.
Section 8.8 Indemnification. (a) Each person who was or is a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the laws of Delaware as the same
now or may hereafter exist (but, in the case of any change, only to the extent
that such change authorizes the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such change)
against all costs, charges, expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his heirs, executors and administrators. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition upon receipt
by the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that the director or officer is not entitled to be indemnified under this
Section or otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of directors and officers.
(b) If a claim under subsection (a) of this Section is not paid in full
by the Corporation within thirty days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim. It shall be a defense to any action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking
has been tendered to the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Delaware law for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he has met such standard of conduct, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such standard of conduct, nor the
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contenders or its equivalent, shall be a defense to the action or
create a presumption that the claimant has failed to meet the required standard
of conduct.
(c) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
(d) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another Corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under Delaware law.
(e) To the extent that any director, officer, employee or agent of the
Corporation is by reason of such position, or a position with another entity at
the request of the Corporation, a witness in any proceeding, he shall be
indemnified against all costs and expenses actually and reasonably incurred by
him or on his behalf in connection therewith.
(e) Any amendment, repeal or modification of any provision of this
Section by the stockholders or the directors of the Corporation shall not
adversely affect any right or protection of a director or officer of the
Corporation existing at the time of such amendment, repeal or modification.
Section 8.9 Amendment of By-Laws.
The stockholders, by the affirmative vote of holders of not less than
75% of the total voting power of all outstanding shares of capital stock of the
Corporation may, at any annual or special meeting if notice of such alteration
or amendment of the By-Laws is contained in the notice of such meeting, alter,
amend, or repeal these By-Laws, and alterations or amendments of By-Laws made by
the stockholders shall not be altered or amended by the Board of Directors.
The Board of Directors, by the affirmative vote of a majority of the
whole Board, may make, alter, amend, or repeal these By-Laws at any meeting,
except as provided in the above paragraph. By-Laws made, altered, amended or
repealed by the Board of Directors may be altered or repealed by the
stockholders.
Exhibit 10(c)(7)
AGREEMENT OF EARLY RETIREMENT
This Agreement made this 23rd day of December, 1998 between Peter G.
Smith ("Smith") and Lawson Products, Inc., a Delaware corporation ("Company") at
Des Plaines, Illinois.
The Company has proposed and Smith desires to accept the proposal for
early retirement effective with the close of business on December 31, 1998 on
the terms, conditions and in accordance with the provisions as set forth herein.
Smith has since December, 1971 served the Company in various capacities
including, but not limited to, Director, corporate officer and President and has
been directly involved in the creation, acquisition and operation of many
aspects of the business of the Company and of its subsidiaries within the United
States and in foreign countries.
In consideration of the premises hereof and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereby agree as follows:
1. Effective January 1, 1999, Smith will relinquish his duties and
responsibilities and retire from the offices of President and Chief Operating
Officer of Lawson Products, Inc. (Delaware), as a member of the Executive
Committee of Lawson Products, Inc. (Delaware), and as an officer of those of its
subsidiaries of which he is an officer and as a director of those subsidiaries
of which he is a director. Smith will continue to serve as a member of the Board
of Directors of Company until otherwise determined by himself, the Board of
Directors or the shareholders of Company.
2. Salary. Smith's current annualized salary of Three Hundred Seven
Thousand One Hundred Nine Dollars ($307,109) per year will continue to be paid
until June 30, 2003 (Salary Continuation Period).
3. During the Salary Continuation Period and at all times thereafter, Smith
will not disclose to any person, firm or entity whatsoever any information
relating to the Company or its or their customers or any trade secrets of any of
them of which he became or may become aware during his employment with the
Company or at any time thereafter.
4. Smith covenants that until two years after the later to occur of (a) the
expiration of the Salary Continuation Period, and (b) the date on which Smith is
no longer a member of the Board of Directors of the Company ("Prohibited
Period"), Smith will not, without the written permission of the Board of
Directors of Company, which may be withheld for any reason, directly or
indirectly, individually or in combination with others with respect to any other
company or entity carrying on a business similar to that of the Company or any
of its subsidiaries as it or they may exist during the Prohibited Period:
(a) hold or deal in the share or other interest of any such company or
entity which is privately owned; or
(b) hold or deal in (except for investment purposes only, and in such
event, not to exceed 1% of the outstanding shares of such company or
entity) the shares or other interest of any such company or entity which is
publicly owned.
5. Smith covenants that until two years after the later to occur of (a) the
expiration of the Salary Continuation Period, and (b) the date on which Smith is
no longer a member of the Board of Directors of the Company ("Prohibited
Period"), he will not, directly or indirectly, carry on for himself or be
associated in any capacity with any business, company or entity, the business of
which competes with that of the Company or any of its subsidiaries (as it or
they may exist during the Prohibited Period) with respect to the products
handled or the customers sold or both and he will not engage in any activities
which will be detrimental or contrary to the best interest of the Company or any
of its subsidiaries. Inasmuch as the Company and certain of its subsidiaries
operate their respective businesses throughout the United States and in certain
foreign countries, the restriction herein contained shall apply throughout the
United States and in such foreign countries in which the Company or its
subsidiaries or affiliates are or may from time to time during the Prohibited
Period be seeking orders for or selling merchandise, whether directly or through
its agents or representatives.
6. Smith further covenants and agrees that in the event of a breach or
violation on his part of any of the above covenants that (a) any monies due or
to become due to Smith from Company hereunder or otherwise shall thereupon be no
longer due or payable and all obligations of Company to make such payments shall
be void; (b) all benefits to be provided to Smith by Company hereunder shall
cease; and (c) a suit in equity may be instituted to obtain an injunction and
that a temporary restraining order may be granted immediately upon the
commencement of any such suit without notice. This remedy is in addition to any
other remedies, legal or equitable, which may be available to the Company.
7. Health Insurance. During the Salary Continuation Period, Smith shall be
entitled to continue his participation in the group health insurance program
under which he was covered immediately prior to the Retirement Date if in effect
and if not, he may participate in any such plan then in effect in accordance
with its terms; provided, however, that to continue his participation in any
such program, Smith shall be responsible throughout the Salary Continuation
Period for paying the same monthly premiums and costs as he would otherwise have
been responsible for had he remained in Lawson's employ during such period.
8. Medicare Coverage. On June 22, 2003, Smith will become Medicare eligible
and all coverage under the Company's medical plan (as may be in force from time
to time) will cease. Effective that date, Smith will have the option of
enrolling in the Medicare Supplement and Prescription Plan as may then be in
effect and in accordance with its terms. If Smith enrolls in the Medicare
Supplement and Prescription Plan, Smith will pay the premium cost to the
insurance company as long as he participates in the Plan.
9. Dental Insurance. During the Salary Continuation Period, Smith shall be
entitled to continue his participation in the dental insurance program under
which he was covered immediately prior to the Retirement Date if in effect and
if not, he may participate in any such plan then in effect in accordance with
its terms; provided, however, that to continue his participation in such
program, Smith shall be responsible throughout the Salary Continuation Period
for paying the same monthly premiums and costs as he would otherwise have been
responsible for had he remained in the Company's employ during such period.
10. Retiree Spouse Coverage. During the Salary Continuation Period, Smith's
spouse will be permitted to participate in the health and dental insurance
programs under which she was covered immediately prior to Smith's Retirement
Date if in effect and if not, in any such programs as may then be in effect in
accordance with the terms of any such plan. On the date Smith reaches the age of
65 and is Medicare eligible, his spouse, if not yet 65, will be entitled to
participate in continued coverage of any such plan then in effect, if any, until
the earlier of (a) the expiration of a period of five (5) years or (b) until she
attains the age of 65. The Company will contribute its portion (as provided in
such program then in effect, if any) of the cost of the premium at the rate in
effect at the time coverage is elected. Smith will have the election of adding
his spouse to the medicare supplement insurance, at his cost, when his spouse
attains the age of sixty-five (65) to the extent permitted by such insurance, if
any.
11. Executive Deferral Plan. During the Salary Continuation Period, Smith
may continue, at his election, to remain a participant in the Company's
Executive Salary Deferral Plan. If Smith elects not to continue as a plan
participant during the Salary Continuation Period, the distribution of benefits
will begin at the time of such election; otherwise, the distribution of benefits
will commence after June 30, 2003 in accordance with the payment options
permitted by this Plan as they may exist at such time.
12. Profit Sharing. Smith will be considered an active plan participant for
the 1998 Profit Sharing Plan Year. From and after January 1, 1999, he will not
be considered an active plan participant for any purpose and any amounts
remaining in his Profit Sharing Plan Account will be treated as provided in the
Profit Sharing Plan, as amended from time to time. Distributions of funds from
Smith's Profit Sharing Plan Account shall be in conformance with IRS regulations
and the provisions of the Profit Sharing Plan, as amended from time to time.
13. Airline Travel. The Company presently has a contract with American
Airlines and until the earlier of (a) the expiration of the period the contract
remains in force, (b) the expiration of the Salary Continuation Period, or (c)
the date Smith is no longer a member of the Board of Directors of the Company,
Smith will continue to receive his current level of benefits to the extent
permitted by the said contract, if any: (1) "Platinum" status for Smith; (2)
"Admirals Club" Membership; and (3) Smith will be allowed to purchase airline
tickets through the Company which will be charged to his personal credit card.
14. Life Insurance. Subject to the last sentence of this paragraph, during
the Salary Continuation Period, Smith will be entitled to the Company paid Life
Insurance benefit of $50,000 and the Travel & Accident Insurance benefit of
$300,000 limited to the extent such benefits are offered by the Company from
time to time. Additionally and subject to the last sentence of this paragraph,
Smith may continue participation in the Supplemental Life Insurance and Spouse
Life Insurance benefit programs limited to the extent such benefits are offered
by the Company from time to time. Smith shall be responsible throughout the
Salary Continuation Period for paying the same monthly premiums for himself and
his wife as he would otherwise have been responsible for had he remained in the
Company's employ during such period.
15. Executive Physical. Until the earlier of (a) the expiration of the
Salary Continuation Period, or (b) the date Smith is no longer a member of the
Board of Directors of the Company, Smith will be entitled to the Company paid
Executive Physical, annually until June 30, 2003.
16. This Agreement supersedes that certain Employment Agreement dated July
17, 1972 by and between Smith and Lawson Products, Inc. and is intended to
survive any management change or any sale or divestiture of the Company.
LAWSON PRODUCTS, INC.
a Delaware corporation
By: /s/ Bernard Kalish /s/ Peter G. Smith
Its Chairman & CEO Peter G. Smith
Exhibit 10(c)(8)
EMPLOYMENT AGREEMENT
--------------------
This Agreement made this 21st day of July, 1994, by and between Lawson
Products, Inc., a corporation organized and existing under the Laws of the state
of Delaware hereinafter called the "Company" of one part, and of Roger F. Cannon
of Rolling Meadows, Illinois hereinafter called "Cannon" of the other part.
WITNESSETH:
Whereas, due to the uncertainty of life and understandable desire of
Cannon to provide as best he can for the future security of himself and his
family and, therefore, to put into writing for the permanent record various
matters which heretofore have been unwritten but understood between the Company
and Cannon.
Now, therefore, it is agreed that:
A. Whereas Cannon has been affiliated with the Company since
March 17, 1975 in various capacities, and now occupies the
position of Vice President of Field Sales Central,
encompassing but not limited to Western, Central, Southeastern
States, Southwestern States, Hawaii, Alaska and Puerto Rico,
with all the rights and privileges appertaining to such
position and it is agreed that Cannon shall report directly to
Hugh Allen, Executive Vice President of Sales/Marketing, and
that all areas involved shall be subject to change at any time
the Company may so require as warranted by conditions.
B. During his employment Cannon shall actively devote the whole
of his time, as required by the Company, to the business of
the Company, and shall use his best efforts and endeavor to
promote the interest and welfare of the Company at all times.
C. Cannon shall at all times conduct himself in a manner
reflecting credit upon himself and the Company and he will
refrain from any conduct which would cause disparagement of
himself or the Company.
D. He will not during his employment, and for a period of one (1)
year, after the termination of his employment, discuss with
any person whatsoever, any information relating to the Company
or its customers or any trade secrets of which he shall become
possessed while acting for the Company in any capacity.
E. He will not, during the period referred to in D, without the
written permission of the Board of Directors, directly or
indirectly, individually or in a combination with others with
respect to any other company carrying on a business similar to
that of the Company or its parent or any direct or indirect
subsidiary of the parent ("Affiliated Company"):
(a) Hold or deal in the shares of any such company whic
is privately owned, or
(b) Hold or deal in (except for investment purposes only,
and not to the extent in the aggregate of a
controlling interest) the shares of any such company
which is publicly owned.
F. The basis of compensation shall be $163,100.00 annually as of
this writing, and thereafter as determined by the Company
subject to such increases being permissible under the existing
laws and regulations.
G. Cannon covenants that during and within one (1) year following
termination of his employment for whatever reason he will not
directly or indirectly, carry on for himself or be associated
in any capacity with any business, whether it be corporation,
partnership, or individual operation, which business competes
with that of the Company or any Affiliated Company, with
respect to the products handled or the customers sold or both
and he will not engage in any activities which will be
detrimental or contrary to the best interests of the Company
or any Affiliated Company.
These hereinabove covenants (A through G, inclusive) are of the essence
of this Agreement and the breach of any or all shall give rise to a cause of
action or defense, either in law or equity, for the aggrieved party, and for
immediate termination of employment.
Cannon further covenants and agrees that, in the event of a break or
violation of his part of the above covenants, a suit in equity may be instituted
to obtain an injunction and that a temporary restraining order or injunction may
be granted immediately upon the commencement of any such suit without notice.
The remedy is in addition to any other remedies, legal or equitable, available
to the Company.
Each party shall be entitled to two (2) years notice by registered or
certified mail directed to the regular mailing address in the event termination
shall be required by either party, except that in the event of breach by Cannon
of any of the covenants, A to G, inclusive, advance notice of termination by the
Company shall not be required.
In addition, Cannon is to receive a paid vacation of four weeks
annually, plus the following additional benefits as presently in effect;
Hospitalization and Major Medical, Long Term Disability, Profit Sharing and a
Life Insurance Policy in the amount of $50,000 with Double Indemnity. He will
continue to be a participant under the Employee's Profit Sharing Plan and also
he shall participate in the stock option program in the future. In addition, an
Accidental Death Policy is carried by the Company whereby the sum of $300,000.00
is paid to the family of Cannon in the event of accidental death. This coverage
will continue as long as this Accident Policy is carried by the Company.
This is a contract for personal services and in the event Cannon shall
become incapacitated, in accordance with the terms of his Long Term Disability
Policy provided by the Company, and unable to perform his normal duties and it
becomes necessary to have another man act in the place of Cannon, Cannon shall
be paid 100% of his salary for a period not to exceed six (6) months and
one-half of his salary for the ensuing two and one-half (2 1/2) years. In every
instance, under this Agreement, the amounts payable under the Long Term
Disability Policy are to be applied as credits for the Company against the
amounts to be received by Cannon whether for a short term or a long term
incapacity.
In the event Cannon should suffer a premature demise while in the
employ of the Company, and prior to his having given notice of termination of
services, as provided above, Lawson Products, Inc. will continue to pay his
designated beneficiary, or if none, to the personal representative of his
estate, an amount equal to one-half (1/2) his annual salary for a period of one
(1) year, in equal semi-monthly installments, payable on the 10th and 25th
respectively. This additional payment is agreed to in consideration of the
services rendered over and above that which is called for in the ordinary
performance of one's duties, and for which Cannon has not been and will not be
compensated for during his lifetime, and the Company makes this provision for
payment covering such services.
The Agreement constitutes and expresses the whole agreement of said
parties hereto in reference to any employment of Cannon by the Company and in
reference to any of the matters or things herein provided for or hereinabove
discussed or mentioned, in reference to such employment - - all representations
and understandings relative hereto having been merged herein.
This Agreement is to be construed in accordance with the Laws of the
State of Illinois and severable; and, in the event any portion of it is or shall
be deemed invalid or unenforceable in any State, such invalidity or lack of
enforceability shall not render the remaining portion of this Agreement invalid
or unenforceable in said State or elsewhere.
In witness whereof the parties have hereto set their hands and seals
the day and year first herein above written.
LAWSON PRODUCTS, INC.
By: /s/Hugh L. Allen
/s/Roger F. Cannon
Roger F. Cannon
ATTEST:
EXHIBIT 21
----------
Subsidiaries of the Company
---------------------------
Jurisdiction of
Name Incorporation
- ---- --------------
Lawson Products, Inc. New Jersey
Lawson Products, Inc. Texas
Lawson Products, Inc. Georgia
Lawson Products, Inc. Nevada
Lawson Products, Inc. (Ontario) Ontario, Canada
Lawson Products Limited England
LPI Holdings, Inc. Illinois
Lawson Products de
Mexico S.A. de C.V. Mexico
Drummond American Corporation Illinois
Cronatron Welding Systems, Inc. North Carolina
Assembly Component Systems, Inc. Illinois
Automatic Screw Machine
Products Company, Inc.* Alabama
LP Service Co. Illinois
C.B. Lynn Company Illinois
*subsidiary of Assembly Component Systems, Inc.
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-17912) pertaining to the Lawson Products, Inc. Employees' Profit
Sharing Trust, and in the related Prospectus of our report dated February 26,
1999, with respect to the consolidated financial statements and schedule of
Lawson Products, Inc. included in the Annual Report (Form 10-K), for the year
ended December 31, 1998.
/s/ Ernst & Young LLP
Chicago, Illinois
March 25, 1999
5
1,000
12-MOS
Dec-31-1998
Jan-1-1998
Dec-31-1998
13,872
24,836
36,705
1,450
46,670
118,402
73,592
32,450
198,982
30,801
0
0
0
10,664
132,271
198,982
292,523
295,231
99,554
99,554
0
983
48
33,590
14,116
19,474
0
0
0
19,474
1.77
1.76
