-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IefkAeg1/Ii+THHu1kjVcOq4ZHeBHAhdy8yuKv6h+2UqiuhjQtENZiZ2RrSdZt/g 2ZzrV8GiQr6pS/C7VbPeCg== 0000912057-00-012009.txt : 20000317 0000912057-00-012009.hdr.sgml : 20000317 ACCESSION NUMBER: 0000912057-00-012009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHART INDUSTRIES INC CENTRAL INDEX KEY: 0000892553 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443] IRS NUMBER: 341712937 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11442 FILM NUMBER: 571617 BUSINESS ADDRESS: STREET 1: 5885 LANDERBROOK DRIVE STREET 2: SUITE 150 CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 BUSINESS PHONE: 4407531490 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to
Commission file number 1-11442 ------------------------ CHART INDUSTRIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 34-1712937 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5885 Landerbrook Dr. Suite 150, Cleveland, Ohio 44124 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (440) 753-1490 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE EACH CLASS ON WHICH REGISTERED ---------------- ------------------------- Common stock New York Stock Exchange par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes / / No / / As of February 15, 2000, the registrant had 23,932,387 shares of Common Stock outstanding. As of that date, the aggregate market value of the voting stock of the registrant held by non-affiliates was $65,556,991 (based upon the closing price of $4.125 per share of Common Stock on the New York Stock Exchange on February 15, 2000). For purposes of this calculation, the registrant deems the 8,039,783 shares of Common Stock held by all of its Directors and executive officers to be the shares of Common Stock held by affiliates. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement to be used in connection with its Annual Meeting of Stockholders to be held on May 4, 2000 are incorporated by reference into Part III of this Form 10-K. Except as otherwise stated, the information contained in this Form 10-K is as of December 31, 1999. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS; ITEM 2. PROPERTIES; AND ITEM 3. LEGAL PROCEEDINGS. THE COMPANY Chart Industries, Inc. (the "Company" or "Chart") was organized in June 1992 as a Delaware corporation to serve as a holding company for the operations described herein. As used herein, the terms "Company" or "Chart" mean Chart Industries, Inc., its subsidiaries and its predecessors, unless the context otherwise indicates. The Company's executive offices are located at 5885 Landerbrook Drive, Suite 150, Cleveland, Ohio 44124, and its telephone number is (440) 753-1490. The Company's sales for the year ended December 31, 1999 reached $292.9 million, an increase of 27.7 percent over sales of $229.4 million in 1998. The Company's net loss in 1999 was $36.3 million compared with net income of $28.2 million in 1998. The 1999 net loss includes the effects of a reorganization of the Company which resulted from the April 12, 1999 acquisition of MVE Holdings, Inc. ("MVE"). Excluding non-recurring items resulting from this acquisition and reorganization, the Company had net income of $4.2 million. Including MVE's results on a pro forma basis as if acquired January 1, 1998, the Company's sales and net loss for 1999 would have been $337.8 million and $38.2 million, respectively. Management anticipates demand for the Company's products in the industrial gas market will increase over the next several years, driven principally by the Company's initiatives in supplying equipment to end-user markets, as well as global industrialization and heightened environmental standards that result in higher demand for high purity industrial gases, which are generally produced, stored and distributed in a cryogenic form. The recent mergers of several of the industrial gas producers have temporarily dampened this demand for new equipment. The pressures for increased efficiency in the industry, however, are expected to result in renewed demand for newer equipment and increased service of existing equipment, both from which the Company is positioned to benefit. In the hydrocarbon processing market, management expects strong domestic and international growth, stemming in part from increased global production. Oil producing countries are newly committed to capturing and marketing flared methane that previously was a waste product of the production process. This increased availability of economically priced hydrocarbon, which makes these products more desirable, will likely demand a new supply of equipment to liquefy and transport natural gases. BUSINESS GENERAL The Company is a leading supplier of standard and custom-built industrial process equipment, primarily for cryogenic (low-temperature) applications. The Company has developed a particular expertise in cryogenic systems and equipment, which operate at low temperatures sometimes approaching absolute zero (0 DEG. Kelvin/ -273 DEG. Centigrade/-459 DEG. Fahrenheit). The majority of the Company's products, including heat exchangers, cold boxes, vacuum-insulated containment vessels and other cryogenic components, are used in the processing, liquefaction, storage, transportation and use of gases and hydrocarbons. SEGMENTS AND PRODUCTS The Company's operations are organized within three segments: Process Systems & Equipment, Distribution & Storage Equipment and Applied Technologies. Further information about these segments is found at Note L to the Company's financial statements included at Item 8 of this Annual Report on Form 10-K. 2 PROCESS SYSTEMS & EQUIPMENT SEGMENT ("PROCESS") The Company's principal products within the Process segment, which accounted for 28 percent of sales in 1999, are focused on the process equipment, primarily heat exchangers and coldboxes, used by the major industrial gas, natural gas and petrochemical companies in the production of their products. HEAT EXCHANGERS The Company is the leading designer and manufacturer of cryogenic heat exchangers. Using technology pioneered by the Company, heat exchangers are incorporated into systems such as cold boxes to facilitate the progressive cooling and liquefaction of air or hydrocarbon mixtures for the subsequent recovery or purification of component gases. In the industrial gas market, heat exchangers are used to obtain high purity atmospheric gases, such as oxygen, nitrogen and argon, which have numerous diverse industrial applications. In hydrocarbon processing industries, heat exchangers allow producers to obtain purified hydrocarbon by-products, such as methane, ethane, propane and ethylene, which are commercially marketable for various industrial or residential uses. Heat exchangers are customized to the customer's order and range in price from approximately $30,000 for a relatively simple unit to as high as $10 million for a major project. Management anticipates the return of strong demand for its heat exchangers, resulting substantially from increased activity in the petrochemical and liquid natural gas segments of the hydrocarbon processing market. In particular, management believes that continuing efforts by less developed countries to make better use of previously flared methane and to broaden their industrial base present a promising source of demand for the Company's heat exchangers. Demand for heat exchangers in developed countries is expected to continue as firms upgrade their facilities for greater efficiency and regulatory compliance. To ensure adequate capacity for anticipated growth in demand for heat exchangers, the Company operates two facilities, the larger being in the United States with a smaller capacity facility in the United Kingdom. The Company's principal competitors for heat exchangers are Linde, Sumitomo, Kobe and Nordon. Management believes that the Company is the only producer of large brazed aluminum heat exchangers in the United States and, with the second facility in the United Kingdom, has the leading market share in the global heat exchanger market. Major customers for the Company's heat exchangers in the industrial gas market include Air Liquide, Air Products, BOC, MG Industries and Praxair. In the hydrocarbon processing market, major customers include BP AMOCO, ARCO, EXXON and contractors such as ABB Randall, Bechtel and M.W. Kellogg. COLD BOXES The Company is a leading designer and fabricator of cold boxes. Cold boxes are highly engineered systems used to significantly reduce the temperature of gas mixtures to the point where component gases liquefy and can be separated and purified for further use in multiple industrial, scientific and commercial applications. In the industrial gas market, cold boxes are used to separate air into its major atmospheric components, including nitrogen, oxygen and argon, where the gases are used in a diverse range of applications such as the quick-freezing of food, wastewater treatment and industrial welding. In the hydrocarbon processing market, the Company's cold box systems are used in natural gas processing and in the petrochemical industry. The construction of a cold box generally consists of one or more heat exchangers and other equipment packaged in a "box" consisting of metal framing and a complex system of piping and valves. Cold boxes, which are designed and fabricated to order, sell in the price range of $500,000 to $10 million, with the majority of cold boxes priced between $1 million and $2 million. The Company has a number of competitors for fabrication of cold boxes, including E.S. Fox, Ivor J. Lee, McShane and NAPTech. Principal customers for the Company's cold boxes include Air Liquide, ABB Randall, BP AMOCO, Bechtel, Stone & Webster, MG Industries, M.W. Kellogg, ARCO and Praxair. 3 DISTRIBUTION & STORAGE EQUIPMENT SEGMENT ("DISTRIBUTION") Representing 36 percent of the Company's sales in 1999, the products supplied by the Distribution segment are driven primarily by the large installed base of users of cryogenic liquids. The Company's products span the entire spectrum for transportation, storage and handling of liquids and include the following: CRYOGENIC STORAGE TANKS The Company is a leading supplier of cryogenic tanks ranging in size up to 100,000 gallons. Using sophisticated vacuum insulation systems placed between inner and outer tanks, these tanks are able to store and transport liquefied industrial gases and hydrocarbon gases at temperatures nearing absolute zero. The Company has experienced substantial growth in its storage tank sales as the demand for liquefied industrial gases and liquefied hydrocarbon gases has increased. Customers for the Company's cryogenic storage tanks include industrial gas producers, chemical producers, manufacturers of electrical components and businesses in the oil and natural gas industries. Prices for the Company's cryogenic storage tanks range from $5,000 to $500,000. Principal customers for the Company's cryogenic storage tanks are AGA, Air Liquide, Air Products, BOC and Praxair. The Company competes chiefly with Harsco for cryogenic storage tank customers. LIQUID CYLINDERS The Company is a leading supplier of liquid cylinders ranging in size from 50 gallons up to 1,000 gallons. Liquid cylinders are used extensively in the packaged gas industry to allow smaller quantities of liquid to be easily delivered to the customers of the industrial gas distributors. Principal customers for the Company's liquid cylinders are AGA, Air Liquide, Air Products, BOC and Praxair. The Company competes chiefly with Harsco for liquid cylinder customers. TRANSPORT EQUIPMENT The Company supplies numerous products used for transporting cryogenic liquids including railcars, intermodal containers and small truck-mounted units such as the Orca-TM- Micro-Bulk delivery system. The Orca-TM- Micro-Bulk delivery system has revolutionized traditional distribution by efficiently introducing on-site filling technology. A typical fill can take three minutes from the time the driver comes to a stop until the no-loss fill automatically terminates. The Orca system allows assets to be used more fully, reduces labor, eliminates empty-for-full exchange and significantly reduces distribution costs. CRYOGENIC SERVICES The Company acquired a group of privately held companies, collectively known as Northcoast Cryogenics, in March 1999. This business now operates as the Company's Cryogenic Services Division. The Company offers seven locations to provide installation, service and maintenance of cryogenic products including storage tanks, liquid cylinders, cryogenic trailers, cryogenic pumps and vacuum-insulated pipe. The Company's national service network is unique in the industry, and the Company believes this network provides a significant competitive edge. The Company anticipates the demand for full service, national, qualified maintenance of cryogenic products and installations will increase. APPLIED TECHNOLOGIES SEGMENT ("APPLICATIONS") The Applications segment, which accounted for 36 percent of the Company's sales in 1999, consists of various product lines built around the Company's core competencies in cryogenics but with a focus on the end users of the gases instead of the large producers and distributors. The Company's products in the Applications segment include the following: 4 BULK LIQUID CO(2) CONTAINERS This product line consists primarily of vacuum-insulated, bulk liquid CO(2) containers used for beverage carbonation in restaurants, convenience stores and cinemas. The Company also manufactures and markets non-insulated bulk flavored syrup containers for side-by-side installation with its CO(2) systems. The Company's beverage systems are sold to food franchisers, soft drink companies and CO(2) distributors. The Company's primary competitors for its bulk liquid CO(2) beverage delivery systems are producers of high pressure gaseous CO(2) systems and sellers of bulk liquid CO(2) beverage systems. The Company believes that competition for bulk liquid CO(2) beverage systems is based primarily on service and price. MEDICAL PRODUCTS The medical oxygen product lines include a limited range of medical respiratory products, including liquid oxygen systems, ambulatory oxygen systems and oxygen concentrators, all of which are used for the in-home supplemental oxygen treatment of patients with chronic obstructive pulmonary diseases, such as bronchitis, emphysema and asthma. The Company also manufactures and markets patient information systems, consisting of both electronic hardware and software, which allow its customers to monitor system performance and patient compliance. Individuals for whom supplemental oxygen is prescribed generally purchase or rent an oxygen system from a home healthcare provider or medical equipment dealer. The provider/dealer or physician usually selects which type of oxygen system to recommend to its customers: liquid oxygen systems, oxygen concentrators or high pressure oxygen cylinders. The three methods are currently believed to be therapeutically equivalent. The Company believes that competition for liquid oxygen systems is based primarily upon product performance, reliability, ease-of-service and price and focuses its marketing strategies on these considerations. MAGNETIC RESONANCE IMAGING ("MRI") CRYOSTAT COMPONENTS The basis of the MRI technique is the magnetic properties of certain nuclei of the human body which can be detected, measured and converted into images for analysis. MRI equipment uses high-strength magnetic fields, applied radio waves and high-speed computers to obtain cross-sectional images of the body. The major components of the MRI assembly are a series of concentric thermal shields and a supercooled magnet immersed in a liquid helium vessel (a "cryostat") that maintains a constant, extremely low temperature (-452 DEG. Fahrenheit; 4 DEG. Kelvin) to achieve superconductivity. The Company manufactures large cryostats, various cryogenic interfaces, electrical feed-throughs and various other MRI components that are used to transfer power and/or cryogenic fluids from the exterior of the MRI unit to the various layers of the cryostat and superconducting magnet. The Company currently sells all of its MRI cryostats to General Electric Company ("GE") and is the exclusive supplier of GE's cryostats. GE is the leading worldwide manufacturer of MRI equipment. BIOLOGICAL STORAGE SYSTEMS This product line consists of vacuum-insulated vessels used by the beef and dairy cattle breeding industry to transport frozen semen and embryos and vacuum-insulated vessels used by hospitals, medical laboratories and research facilities to transport and store human organs, tissue samples and other temperature-sensitive biological matter. 5 These products are sold through laboratory product original equipment manufacturers ("OEMs"), laboratory product distributors, industrial gas distributors and breeding service providers. Many of these distributors provide a single source for many different types of products to hospitals, medical laboratories and research facilities. The Company's competitors for biological storage systems include only a few companies inside and outside the United States, including Harsco. Competition for biological storage systems is based primarily on product design, reliability and price. Alternatives to vacuum-insulated vessels include mechanical, electrically powered refrigeration for storage of biological matter. LIQUID NATURAL GAS ("LNG") ALTERNATIVE FUEL SYSTEMS This product line consists of vacuum-insulated containers for LNG storage and fueling systems for centrally fueled fleets of vehicles powered by LNG, such as fleets operated by metropolitan transportation authorities, refuse haulers, railroads and utilities. Competition for LNG fueling and storage systems is based primarily on product design, customer support and service, dependability and price. Although there are alternatives to LNG fuel, the Company is not aware of any alternatives to vacuum-insulated containers for LNG fueling and storage systems. NITROGEN INJECTION SYSTEMS This product line consists of injectors used by the bottling industry to give enhanced storage characteristics to non-carbonated beverages such as iced tea, water and juices. VACUUM-INSULATED PIPE This product line specializes in the design and fabrication of custom cryogenic piping ("VIP") for liquid nitrogen, oxygen, argon, helium and hydrogen in pipe sizes ranging from 1/4" to 14". The configuration of VIP is built to order and is restricted only by shipping and installation constraints. Approximately 50 percent of VIP is supplied as fuel transfer piping to space launch facilities. Launch pad construction is at an all time high to service increased launch demand for satellites driven by growth in telecommunications, global positioning, scientific observation and defense applications. The Company provides unique design, production and installation capabilities. The Company's equipment is employed on every launch facility in North America. Competition for VIP is based on technology (foam vs. vacuum insulation), price and delivery lead times. The Company is developing new technologies for insulated piping that will expand applications for the Company's VIP. Python-TM- piping is sold as an alternative to modular foam insulated piping for thermally sensitive liquids, process fluids and beverage production. Large bore vacuum insulated piping is being developed for sale to LNG production and receiving terminals. THERMAL VACUUM TEST CHAMBERS The Company designs and manufactures thermal vacuum systems marketed to a customer base that includes the aerospace industry, government agencies, universities and national research facilities. The Company is a leading domestic supplier of space simulation systems and other types of test chambers used to test satellites and electronic components. The Company also manufactures large vacuum chambers for telescope mirror aluminizing, a process in which aluminum is vaporized to coat the surface of a large telescope mirror to restore its reflectivity. Management believes that the Company, as a pioneer in the development of this technology, has supplied the majority of these systems worldwide. The Company's major competitors in the market for thermal vacuum products and systems for aerospace and research applications include Qualmark, Tenney Vacuum and Bemco. 6 The Company's experience and technological advancements in the high-vacuum area resulted in its involvement, beginning in 1995 and concluding in December 1998, in equipping the Laser Interferometer Gravitational-Wave Observatory ("LIGO") project, a scientific research project sponsored by the National Science Foundation and jointly managed by the Massachusetts Institute of Technology and the California Institute of Technology. The observatories are dedicated to the detection and measurement of cosmic gravitational waves and the harnessing of these waves for scientific research. The Company supplied all of the required LIGO vacuum equipment, including vacuum chambers, large pipe spools, valves, vacuum pumps, controllers and modular clean rooms. Management believes that expertise in the field of high vacuum technology developed by the Company through its involvement in the LIGO project may have a number of new commercial applications. CRYOGENIC AND NON-CRYOGENIC COMPONENTS The Company's line of cryogenic components, including high-pressure cryogenic pumps, valves and specialty components, are recognized in the market for their reliability, quality and performance. These products are sold to the Company's heat exchanger and cold box customers in the industrial gas and hydrocarbon processing industries, as well as to a diverse group of customers in those and other industries. The Company competes with a number of suppliers of cryogenic components, including Cryogenic Industries, CCI and Acme Cryogenics. The Company also produces small diameter stainless steel tubing for sale to distributors to satisfy their customers' requirements for quick delivery. The Company's manufacturing strategy is to focus on custom sizes and smaller production runs, which management believes gives the Company a competitive advantage in providing a superior quality product while meeting customer demands for dependable, fast delivery. With its production and marketing efforts directed principally to customers relying on prompt delivery, the Company is able to compete primarily on the basis of service rather than price. Numerous manufacturers of stainless steel tubing are able to compete with the Company in this market. MARKET OVERVIEW The markets served by the Company's principal products are the industrial gas and hydrocarbon processing markets. Most of the Company's cryogenic products, including heat exchangers, cold boxes, cryogenic tanks and cryogenic components, serve both of these markets. Management believes that the global expansion of the industrial gas and hydrocarbon processing markets presents attractive opportunities for growth. To date, the sources of the Company's international business principally have been its large domestic-based customers who are aggressively expanding into international markets, and large foreign-based companies with significant U.S. operations. In 1999, approximately 34 percent of the Company's sales were destined for use at job sites outside the United States. To position the Company to take advantage of anticipated growth opportunities in the industrial gas and hydrocarbon processing markets abroad, management recently has concentrated its efforts on enhancing the Company's international presence by forming the Chart Europe Division. The mission of this division is to integrate the Company's European manufacturing ability with its marketing arm. The industrial gas market is the largest market served by the Company. The top world producers of industrial gases have been among the Company's largest customers for each of the last three years. Producers of industrial gases separate atmospheric air into its component gases using cryogenic processes. The resultant liquid gases are then stored and transported for ultimate use by a wide variety of customers in the petrochemical, electronics, glass, paper, metals, food, fertilizer, welding, enhanced oil recovery and medical industries. Industrial gas producers use heat exchangers and cold boxes to produce liquid gases. Cryogenic tanks and components, including pumps, valves and piping, are also used to store, transport and distribute liquid gases to end users. 7 The hydrocarbon processing market consists of petrochemical and natural gas processors. Natural gas processing involves the separation and purification of natural gas for the production of liquid gas end products such as methane, ethane, propane and butane, and by-products such as helium, which have numerous commercial and industrial applications. In the petrochemical industry, cryogenic separation and purification processes are required to produce ethylene (the basic building block of plastics), propylene and numerous other primary hydrocarbons having industrial uses. Like the industrial gas market, the hydrocarbon processing market uses all of the categories of the Company's cryogenic products in the gas separation and purification processes and the subsequent storage and distribution of liquid gases. Major customers for the Company's products in the hydrocarbon processing markets are large multinational firms in the oil and gas industry, and large engineering and construction concerns. An additional subset of the industrial gas and hydrocarbon processing markets which the Company has begun to emphasize is the cryogenic products end user equipment market. This market is somewhat independent of the two large market drivers of industrial gases and hydrocarbon processing. While end user equipment may be related to these markets in that the products use industrial gases or hydrocarbons, the market drivers are not the same. Each of the Company's products in the Applications segment are driven largely by factors purely related to the end user market such as carbonated beverage consumption, medical respiratory disease frequency, new developments in MRI usage and a myriad of other demand drivers. ENGINEERING AND PRODUCT DEVELOPMENT The Company's engineering and product development activities are focused on developing new and improved solutions and equipment for the end users of cryogenic equipment. The Company's engineering, technical and marketing employees actively assist customers in specifying their needs and in determining appropriate products to meet those needs. Portions of the Company's engineering expenditures typically are charged to customers, either as separate items or as components of product cost. COMPETITION Management believes the Company can compete effectively around the world and that it is a leading competitor in its markets. Competition is based primarily on performance and the ability to provide the design, engineering and manufacturing capabilities required in a timely and cost-efficient manner. Contracts are usually awarded on a competitive bid basis. Quality, technical expertise and timeliness of delivery are the principal competitive factors within the industry. Price and terms of sale are also important competitive factors. Because reliable market share data is not available, it is difficult to estimate the Company's exact position in its markets, although the Company believes it ranks among the leaders in the markets it serves. MARKETING The Company's principal operating units currently market products and services in North America primarily through 169 direct sales personnel, and supplement these direct sales through independent sales representatives and distributors. The technical and custom design nature of the Company's products requires a professional, highly trained sales force. While each salesperson is expected to develop a highly specialized knowledge of one product or group of products within a segment of the Company, each salesperson is now able to sell many products from different segments to a single market. The Company uses independent sales representatives to conduct its sales in certain foreign countries which the Company serves. These independent sales representatives supplement the Company's direct sales force in dealing with language and cultural matters. The Company's domestic and foreign independent sales representatives earn commissions on sales, which vary by product type. 8 ORDERS AND BACKLOG The Company considers orders to be those for which the Company has received a signed purchase order or other written contract from the customer. Such orders are included in backlog until recognized as revenue or cancelled. The table below sets forth orders and backlog by segment for the periods presented.
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) ORDERS Process Systems & Equipment................... $ 32,087 $ 82,404 $ 98,867 Distribution and Storage Equipment............ 96,722 36,727 30,281 Applied Technologies.......................... 112,528 53,004 50,942 -------- -------- -------- Total....................................... $241,337 $172,135 $180,090 ======== ======== ======== BACKLOG Process Systems & Equipment................... $ 8,165 $ 63,688 $ 79,963 Distribution and Storage Equipment............ 26,372 14,820 20,844 Applied Technologies.......................... 25,891 17,615 26,674 -------- -------- -------- Total....................................... $ 60,428 $ 96,123 $127,481 ======== ======== ========
The Company experienced a significant decline in orders from the Process segment in 1999. This decline was due to the prolonged downturn in new plant construction caused by industry consolidation, softness in the industrial gas market, and the Asian economic situation. Orders from the Distribution and Applications segments increased in 1999 primarily due to the inclusion of MVE, which was acquired by the Company in April 1999. All of the December 31, 1999 backlog is scheduled to be recognized as sales during 2000. The Company's backlog fluctuates from time to time, and the amounts set forth above are not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as sales. The increased focus within the Company on the Distribution and Applications segments will generally reduce backlog, as products within these segments tend to have shorter lead times. CUSTOMERS Ten customers accounted for 35 percent of consolidated sales in 1999. The Company's sales to particular customers fluctuate from period to period. In 1999, approximately 34 percent of sales were destined to be used in foreign countries. To reduce credit risk for both foreign and domestic sales, the Company requires customer advances, letters of credit and other similar guarantees of payment. For certain foreign customers the Company also purchases credit and political risk insurance. Management believes the Company's relationships with its customers are good. PATENTS AND TRADEMARKS Although the Company has a number of patents, trademarks and licenses related to its business, no one of them or related group of them is considered by the Company to be of such importance that its expiration or termination would have a material adverse effect on the Company's business. In general, the Company depends upon technological capabilities, manufacturing quality control and application of know-how, rather than patents or other proprietary rights, in the conduct of its business. 9 RAW MATERIALS AND SUPPLIERS The Company manufactures most of the products it sells. The raw materials used in manufacturing include aluminum sheets, bars, plate and piping, stainless steel strip, heads, plate and piping, carbon steel heads and plate and 9 percent nickel steel heads and plate. Most raw materials are available from multiple sources of supply. Commodity metals used by the Company have experienced fluctuations in price. The Company has generally been able to recover the costs of price increases through its contracts with customers. The Company foresees no acute shortages of any raw materials which would have a material adverse effect on its operations. EMPLOYEES As of December 31, 1999, the Company had approximately 1,641 domestic employees and 622 international employees, including approximately 775 salaried, 180 union hourly and 1,308 non-union hourly employees. The salaried employees included approximately 209 engineers and draft-persons and 566 other professional, technical and clerical personnel. The Company is a party to three collective bargaining agreements through its operating subsidiaries. The agreement with the International Association of Machinists and Aerospace Workers covering 88 employees at the Company's La Crosse, Wisconsin, heat exchanger facility expires February 3, 2001. The agreement with the International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers covering 92 employees at the Company's Plaistow, New Hampshire, facility expires August 30, 2002. Employees at the Company's New Prague, Minnesota, facility agreed in early January 2000 to accept the Company's proposed contract with the United Steel Workers. Since the acquisition of each of its operating units, the Company has not had any work stoppages or strikes. The Company believes its employee relations are good. ENVIRONMENTAL MATTERS The Company's operations involve and have involved the handling and use of substances, such as various cleaning fluids used to remove grease from metal, that are subject to federal, state and local environmental laws and regulations. These regulations impose limitations on the discharge of pollutants into the soil, air and water, and establish standards for their storage and disposal. The Company monitors and reviews its procedures and policies for compliance with environmental laws and regulations. The Company's management is familiar with these regulations, and supports an ongoing capital investment program to maintain the Company's adherence to required standards. As part of its ongoing environmental compliance and monitoring programs, the Company is voluntarily developing work plans for remediation of environmental conditions involving certain of its operating facilities. Based upon the Company's study of the known conditions and its prior experience in investigating and correcting environmental conditions, the Company estimates that the potential costs of these site remediation efforts will not have a material adverse effect on the Company's financial position, liquidity, cash flows or results of operations. Expected future expenditures relating to these remediation efforts are expected to be made primarily within the next 48 months, as the necessary regulatory agency approvals of the Company's work plans are obtained. Although the Company believes it has adequately provided for the cost of all known environmental conditions, the applicable regulatory agencies could insist upon different and more costly remediative measures than those the Company believes are adequate or required by existing law. Except for its continuing remediative efforts described above, the Company believes that it is currently in substantial compliance with all known material and applicable environmental regulations. 10 FACILITIES The Company occupies 25 principal locations totaling approximately 1.9 million square feet, with the majority, approximately 1.8 million square feet, devoted to manufacturing, assembly and storage. Of these manufacturing facilities, approximately 1.4 million square feet are owned and 500,000 square feet are occupied under operating leases. The Company considers its manufacturing facilities sufficient to meet its current and planned operational needs. The Company leases approximately 11,400 square feet for its executive offices in Cleveland, Ohio. The following table sets forth certain information about the Company's facilities:
LOCATION SEGMENT SQ. FT. OWNERSHIP USE - -------- ---------------------- -------- ---------- -------------------- La Crosse, Wisconsin............... Process 134,000 Owned Manufacturing 10,000 Owned Office 5,000 Leased Warehouse Wolverhampton, England............. Process 133,500 Owned Manufacturing 4,900 Owned Office Westborough, Massachusetts......... Process 51,900 Owned Manufacturing 33,200 Owned Office 10,000 Leased Warehouse New Iberia, Louisiana.............. Process 62,400 Leased Manufacturing Plaistow, New Hampshire............ Distribution 154,000 Owned Manufacturing 10,400 Owned Office Denver, Colorado................... Distribution 108,900 Leased Manufacturing 15,400 Leased Office 87,200 Owned Manufacturing 16,600 Owned Office Ottawa Lake, Michigan.............. Distribution 25,200 Leased Manufacturing Houston, Texas..................... Distribution 22,000 Leased Manufacturing Holly Springs, Georgia............. Distribution 6,000 Leased Manufacturing Phoenix, Arizona................... Distribution 2,000 Leased Manufacturing Olathe, Kansas..................... Distribution 3,200 Leased Manufacturing Allentown, Pennsylvania............ Distribution 13,100 Leased Manufacturing New Prague, Minnesota.............. Distribution 200,000 Owned Manufacturing 15,000 Leased Manufacturing 6,000 Owned Manufacturing 16,000 Leased Office 8,000 Owned Manufacturing Solingen, Germany.................. Distribution 2,600 Leased Office/Warehouse Decin, Czech Republic.............. Distribution 194,000 Owned Manufacturing Yennora, Australia................. Distribution 80,000 Leased Manufacturing Zhangiajang, China................. Distribution 30,000 Leased Manufacturing Columbus, Ohio..................... Applications 46,200 Leased Manufacturing 5,000 Leased Warehouse Costa Mesa, California............. Applications 21,900 Leased Manufacturing Burnsville, Minnesota.............. Applications 91,000 Owned Manufacturing/Office Canton, Georgia.................... Applications 138,000 Owned Manufacturing/Office Lonsdale, Minnesota................ Applications 13,500 Leased Manufacturing Clarksville, Arkansas.............. Applications 82,500 Owned Manufacturing 2,800 Owned Office Greenville, Pennsylvania........... Applications 2,100 Leased Office Cleveland, Ohio.................... Corporate Headquarters 11,400 Leased Office
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 11 EXECUTIVE OFFICERS OF THE REGISTRANT Certain information as of December 31, 1999, regarding each of the Company's executive officers is set forth below:
NAME AGE POSITION - ---- -------- ------------------------------------------------ Arthur S. Holmes............................. 58 Chairman, Chief Executive Officer and a Director James R. Sadowski............................ 58 President and Chief Operating Officer Don A. Baines................................ 56 Chief Financial Officer, Treasurer and a Director John T. Romain............................... 35 Controller and Chief Accounting Officer
ARTHUR S. HOLMES has been Chairman and Chief Executive Officer of the Company since its formation in June 1992, and was President until December 1993. He also has been President and the principal owner of Holmes Investment Services, Inc. ("HIS"), a management consulting firm, since 1989. Mr. Holmes served as President of ALTEC from 1985 through 1989. From 1978 through 1985, he served in a variety of managerial capacities for Koch Process Systems, Inc., the predecessor of Process Systems International, Inc. ("PSI"), most recently as Vice President-Manager of the Gas Processing Division. Mr. Holmes is the co-inventor of the Company's patented Ryan/Holmes technology. See "Business--Patents and Trademarks". Mr. Holmes holds a BS and an MS in Chemical Engineering from the Pennsylvania State University and an MBA from Northeastern University. JAMES R. SADOWSKI has been President and Chief Operating Officer of the Company since December 1993. Prior to joining the Company, Mr. Sadowski served as Group Vice President of Parker Hannifin Corporation's Bertea Aerospace Group ("Bertea") from 1991 to 1993. Prior to his service at Bertea he served in various managerial capacities at Parker Hannifin Corporation and TRW Inc. Mr. Sadowski holds a BS in Engineering/Science from Case Institute of Technology and an MS degree from the same institution in Mechanical Engineering. DON A. BAINES has been the Chief Financial Officer and Treasurer of the Company since its formation in June 1992. He also has served as Chief Financial Officer for HIS since 1989. From 1986 through 1989, Mr. Baines served as Vice President, Manager of Finance for ALTEC. From 1976 through 1985, Mr. Baines served in a variety of managerial capacities, most recently Controller, in the Process/Transport Division of the Trane Company, which included the predecessor of ALTEC. Mr. Baines is a Certified Public Accountant and holds a BBA in Accounting from St. Edward's University, Austin, Texas. JOHN T. ROMAIN has been the Controller and Chief Accounting Officer since May 1999 and has served as the Company's Controller since July 1993. Prior to joining the Company, Mr. Romain worked for Ernst & Young LLP in its Audit and Assurance practice. Mr. Romain is a Certified Public Accountant and holds a BA in Accounting and Computer Systems from Grove City College, Grove City, Pennsylvania. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. QUARTERLY STOCK PRICES AND DIVIDENDS
QUARTER 1999 HIGH LOW DIVIDENDS - ------- -------- -------- --------- 1st $ 9.000 $ 6.375 $.050 2nd 10.750 6.438 .050 3rd 7.875 4.125 4th 5.250 3.375 QUARTER 1998 HIGH LOW DIVIDENDS - ------- -------- -------- --------- 1st $19.958 $10.750 $.050 2nd 23.292 14.417 .050 3rd 15.938 6.063 .050 4th 9.750 5.125 .050
LIMITATIONS ON THE PAYMENT OF DIVIDENDS Under the terms of the Company's amended Credit Agreement, the Company is prohibited from paying any cash dividends with respect to its capital stock until January 1, 2001. The Company will be permitted to pay cash dividends not exceeding $7.2 million in any fiscal year after January 1, 2001, only if at both the time of the payment of the dividend and immediately thereafter there is no event of default under the Credit Agreement. RELATED STOCKHOLDER MATTERS Chart Industries Common Stock is traded on the New York Stock Exchange under the symbol "CTI". The information in the table above has been adjusted to reflect the three-for-two split of the Common Stock effected as a 50 percent share dividend in June 1998. Shareholders of record on January 31, 2000 numbered 2,091. The Company estimates that an additional 5,000 shareholders own stock held for their accounts at brokerage firms and financial institutions. RECENT SALES OF UNREGISTERED SECURITIES On March 15, 1999, the Company acquired a group of privately held companies, collectively known as Northcoast Cryogenics, for approximately $2.3 million in cash and 102,010 shares of the Company's Common Stock with an aggregate value of $720,000. Registration under the Securities Act of 1933 was not effected with respect to the transaction described above in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933. 13 ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- INCOME STATEMENT DATA: Sales..................................... $292,937 $229,423 $192,249 $148,400 $112,479 Gross profit.............................. 77,381 77,657 61,240 45,002 30,775 Selling, general and administrative expense................................. 51,455 32,189 25,901 21,457 17,976 Goodwill amortization expense............. 3,670 1,313 305 288 132 Restructuring charge...................... 11,982 Acquired in-process research and development............................. 22,010 Operating income (loss)................... (11,736) 44,155 35,034 23,257 12,667 Gain on sale of product line.............. 2,505 Net interest expense...................... 15,854 901 350 623 1,858 Income tax expense........................ 3,106 15,039 12,057 7,605 3,746 Minority interest......................... 280 Net income (loss) before extraordinary charge.................................. (28,471) 28,215 22,627 15,029 7,063 Extraordinary item, net of tax............ (7,809) Net income (loss)......................... (36,280) 28,215 22,627 15,029 7,063 EARNINGS PER COMMON SHARE: Net income (loss)......................... $ (1.53) $ 1.17 $ 1.01 $ .67 $ .31 Net income (loss)--assuming dilution...... $ (1.53) $ 1.16 $ .99 $ .66 $ .31 OTHER FINANCIAL DATA: Operating income before net interest expense, income taxes and depreciation and amortization........................ $ 5,173 $ 51,181 $ 38,545 $ 25,965 $ 15,409 Depreciation and amortization............. 16,909 7,026 3,511 2,708 2,742 Dividends................................. 2,370 4,821 3,858 3,002 2,787 Dividends per share....................... $ .10 $ .20 $ .17 $ .13 $ .12 BALANCE SHEET DATA: Cash, cash equivalents and restricted cash.................................... $ 2,314 $ 2,169 $ 22,095 $ 9,408 $ 229 Working capital........................... 50,087 25,326 39,476 14,191 17,750 Total assets.............................. 424,570 158,205 128,919 81,196 66,506 Total debt................................ 278,672 11,325 4,468 4,830 14,573 Long-term debt, less current portion...... 259,336 10,894 4,063 4,469 12,566 Shareholders' equity...................... 55,512 93,154 76,457 28,096 18,433
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL In 1999, the Company experienced a 27.7 percent increase in sales and a 228.6 percent decrease in net income compared with the prior year. These changes can primarily be attributed to the acquisitions of MVE and Northcoast, the non-recurring items resulting from these acquisitions (primarily acquired in- process research and development expense and the extraordinary loss on the early extinguishment of debt), the subsequent reorganization of the Company and the continued weakness in the Process segment. 14 The Process segment experienced a significant decline in new orders received due largely to industry consolidations, fixed asset rationalizations, softness in the industrial gas market and the Asian economic situation. New orders in this segment were $32.1 million compared with $82.4 million in 1998. The Distribution segment continued at a steady pace in 1999 and was helped by the MVE acquisition, as new orders in 1999 were $96.7 million compared with $36.7 in 1998. The Applications segment was significantly enhanced by the addition of MVE and strong MRI orders, growing from $53.0 million in orders for 1998 to $112.5 million in 1999. The significant decline in the Company's backlog was also due to the Process segment, which had backlog of $8.2 million at December 31, 1999. The Distribution and Applications segments had backlog of $26.4 million and $25.9 million, respectively, at December 31, 1999. OPERATING RESULTS The following table sets forth the percentage relationship each line item in the Company's statements of operations represents to sales.
YEARS ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 -------- -------- -------- Sales....................................................... 100.0% 100.0% 100.0% Cost of products sold....................................... 73.6 66.2 68.1 Gross profit................................................ 26.4 33.8 31.9 Selling, general and administrative expense................. 17.6 14.0 13.5 Goodwill amortization expense............................... 1.2 .6 .1 Restructuring charge........................................ 4.1 Acquired in-process research and development................ 7.5 Operating income (loss)..................................... (4.0) 19.2 18.3 Gain on sale of product line................................ .8 Interest expense, net....................................... 5.4 .4 .2 Income taxes................................................ 1.1 6.5 6.3 Net income (loss) before extraordinary item................. (9.7) 12.3 11.8 Extraordinary item.......................................... (2.7) Net income (loss)........................................... (12.4) 12.3 11.8
SEGMENT INFORMATION The following table sets forth sales, gross profit and gross profit margin for the Company's three operating segments.
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) SALES Process Systems and Equipment............................... $ 82,085 $124,609 $ 93,562 Distribution and Storage Equipment.......................... 105,529 42,558 31,744 Applied Technologies........................................ 105,323 62,256 66,943 -------- -------- -------- Total..................................................... $292,937 $229,423 $192,249 ======== ======== ======== GROSS PROFIT Process Systems and Equipment............................... $ 16,547 $ 47,273 $ 34,040 Distribution and Storage Equipment.......................... 25,313 13,061 9,739 Applied Technologies........................................ 35,521 17,323 17,461 -------- -------- -------- Total..................................................... $ 77,381 $ 77,657 $ 61,240 ======== ======== ======== GROSS PROFIT MARGIN Process Systems and Equipment............................... 20.2% 37.9% 36.4% Distribution and Storage Equipment.......................... 24.0% 30.7% 30.7% Applied Technologies........................................ 33.7% 27.8% 26.1% Total..................................................... 26.4% 33.8% 31.9%
15 YEARS ENDED DECEMBER 31, 1999 AND 1998 Sales for 1999 were $292.9 million versus $229.4 million for 1998, an increase of $63.5 million, or 27.7 percent. The acquisitions of MVE on April 12, 1999 and of Northcoast on March 15, 1999 contributed $123.1 million in incremental sales to the year, improving the sales of both the Distribution and Applications segments. Principally offsetting these incremental sales were declines in volume and price resulting in a $42.5 million reduction in Process segment sales, and a lower volume of vacuum equipment sales resulting in a $13.7 million reduction in Applications segment sales, compared with 1998. Gross profit for 1999 was $77.4 million versus $77.7 million for 1998. Gross profit in 1999 was reduced by $1.2 million for acquired profit in inventory related to the MVE acquisition and $936,000 for inventory related restructuring charges, both of which were included in cost of sales. Gross profit margin for 1999 was 26.4 percent versus 33.8 percent for 1998. The significant decline in gross profit margin occurred primarily in the Process segment, where gross profit margin declined approximately 18 percentage points. Pricing pressure in this segment was intense, as the market for Process equipment was very competitive due to industry consolidations, fixed asset rationalizations and the overall softness in the industrial gas market. In addition, under-utilization of capacity resulted in lower margin percentages. Gross profit margin in the Distribution segment declined approximately 7 percentage points due to lower prices on cryogenic storage tanks, while gross profit margin in the Applications segment increased approximately 6 percentage points, primarily due to favorable pricing on new product sales acquired with MVE. Selling, general and administrative ("SG&A") expense for 1999 was $51.5 million versus $32.2 million for 1998, an increase of $19.3 million, or 59.9 percent. Offsetting the $24.9 million additional SG&A costs incurred by MVE and Northcoast was approximately $5.6 million in overall restructuring savings and lower sales commissions. As a percentage of sales, SG&A expense was 17.6 percent for 1999, up from 14.0 percent for 1998. The increase as a percentage of sales largely reflects the lower sales base for the Process segment and the higher marketing costs inherent in the pursuit of the Applications segment. Goodwill amortization expense for 1999 was $3.7 million compared with $1.3 million for 1998. The increase is attributable to incremental amortization expense resulting from the MVE and Northcoast acquisitions, where the purchase prices exceeded the fair values of the net assets acquired. The Company recorded a net $12.9 million charge in 1999 to restructure its operations as a result of the MVE acquisition. The charge included a non-cash portion of $10.6 million to write-off impaired inventory, fixed assets and goodwill, and a cash portion of $3.1 million for severance and other costs related to closing a manufacturing facility. In the third quarter of 1999 the Company reduced the restructuring reserve by $803,000 for charges taken in the second quarter of 1999 related to certain fixed assets held for disposal that were subsequently determined to be useable. The Company terminated 188 employees in 1999 under this restructuring plan. The Company expects it will incur less than $500,000 in additional restructuring costs to complete its restructuring plan by the second quarter of 2000. In allocating the purchase price to the net assets acquired in the MVE acquisition, the Company assigned $22.0 million to in-process research and development ("IPR&D") projects, primarily MVE's Drywash-TM- technology, that had not reached technological feasibility and had no alternative future use. This amount was recognized as a non-cash expense with no tax benefit at the date of acquisition. The Company estimates that it will complete and recognize sales from these projects in 2000. The Company recorded a $2.5 million gain on the sale of its standard cryogenic systems product line on proceeds of $3.3 million in cash in the fourth quarter of 1999. This product line was sold so that the Company's Process Systems Division could focus on its core coldbox business. Net interest expense for 1999 was $15.9 million compared with $901,000 for 1998, reflecting interest on funds borrowed to finance the MVE acquisition. 16 The effective income tax rate for 1999 was 12.4 percent compared with 34.8 percent for 1998. The change in the effective income tax rate is due to the loss incurred in 1999 offset by non-deductible IPR&D expense and goodwill amortization. Management has determined, based on the Company's history of prior earnings and its expectations for the future, that taxable income of the Company will more likely than not be sufficient to recognize fully these net deferred tax assets. In the second quarter of 1999, the Company borrowed funds under its Credit Facility and retired prior to maturity certain debt assumed as part of the MVE acquisition with a fair value of $119.2 million. The debt extinguishment resulted in an extraordinary loss of $12.5 million, $7.8 million net of tax. As a result of the foregoing, the Company incurred a net loss of $36.3 million in 1999, compared with net income of $28.2 million in 1998. YEARS ENDED DECEMBER 31, 1998 AND 1997 Sales for 1998 were $229.4 million, an increase of $37.2 million or 19.3 percent over 1997. The largest increase in sales occurred in the Process segment, with 1998 sales exceeding 1997 sales by $31.0 million, of which $23.4 million was attributable to incremental sales of brazed aluminum heat exchangers by Chart Marston. Sales in the Distribution segment increased $10.8 million over the prior year, primarily on the strength of industrial gas equipment sales at Cryenco, which were up $8.2 million. Applications sales declined by $4.7 million in 1998. Much of the sales decline in this segment is the result of the winding down of the LIGO project, which was successfully completed in December 1998. Gross profit for 1998 increased $16.4 million or 26.8 percent from 1997 levels. The gross margin increased from 31.9 percent in 1997 to 33.8 percent in 1998. As in sales, a large portion of the improvement in both gross profit and in gross margin came from the Process segment. The most dramatic improvement came as a result of increased volume and price in the brazed aluminum heat exchanger market. Selling, general and administrative expense totaled $32.2 million for 1998, an increase of $6.3 million from 1997. The increase in SG&A expense is largely driven by the variable expenses of profit sharing, management incentive compensation and selling commissions, all of which are closely tied to profitability and sales levels. In addition, the acquisition of Chart Marston added $3.3 million of SG&A expense during the nine months its results were included in the Company's results. As a percentage of sales, SG&A expense increased from 13.5 percent in 1997 to 14.0 percent in 1998. The increase in SG&A expense as a percentage of sales in 1998 is partially caused by expenses related to merger and acquisition activity the Company engaged in throughout the year. Goodwill amortization expense was $1.3 million for 1998, an increase of $1.0 million from 1997. The increase was due to amortization of the goodwill created in the Chart Marston acquisition. Net interest expense increased to $901,000 during 1998 from $350,000 during 1997. The increase in interest expense is due to the increase in debt incurred in connection with the acquisition of Chart Marston. LIQUIDITY AND CAPITAL RESOURCES Cash used by operations in 1999 was $5.3 million compared with cash provided by operations of $30.9 million in 1998 and $22.7 million in 1997. The significant decrease in operating cash flow in 1999 was due primarily to the large decrease in operating income from the Process segment and decreases in customer advances. As orders recover in the Process segment and grow in the other segments, there could be large fluctuations in cash flows depending on negotiated payment terms with customers. 17 Capital expenditures in 1999, 1998 and 1997 were $7.0 million, $10.0 million and $7.1 million, respectively. The Company's 1999 capital expenditures relate primarily to the Distribution segment, where new equipment was necessary as a result of the Company's reorganization plan. In 1998, the Company paid $3.5 million to acquire land and buildings used by its Cryenco facility. The 1997 capital expenditures relate primarily to the expansion of capacity at the Company's ALTEC facility, as well as general throughput enhancing expenditures at the Company's other operations. The Company expects future capital expenditures to be similar in magnitude to the prior years. On December 15, 1999, the Company acquired certain assets relating to a cryogenic repair business operated by Air Liquide America Corporation ("Air Liquide") for $1.0 million in cash and $2.6 million in rebate credits to be given to Air Liquide on future sales. On April 12, 1999, the Company acquired the common stock of MVE for approximately $9.2 million in cash ($2.2 million net of cash acquired) and redeemed the preferred stock of MVE for approximately $74.6 million. Finally, the Company paid approximately $156.1 million to retire MVE's existing debt obligations and complete the tender offer and consent solicitation for the 12.5 percent senior secured notes due 2002 issued by MVE, Inc., a subsidiary of MVE. On March 15, 1999, the Company acquired a group of privately held companies, collectively known as Northcoast Cryogenics, for approximately $2.3 million in cash ($2.2 million net of cash acquired) and $720,000 in Chart Common Stock. On March 27, 1998, the Company, through its wholly-owned subsidiary Chart Marston, acquired the net assets of the industrial heat exchanger division of IMI Marston Limited, a wholly-owned subsidiary of IMI plc, for 21 million Pounds Sterling (approximately U.S. $35.3 million). The Company borrowed 11 million Pounds Sterling (approximately U.S. $18.5 million) to fund the acquisition. On July 31, 1997, the Company acquired all of the shares outstanding of Cryenco, a Denver, Colorado based manufacturer of cryogenic tanks and related products for the transportation, storage and dispensing of LNG and liquefied argon, oxygen, and nitrogen. Consideration for the acquisition included the payment of $19.6 million to purchase the common stock outstanding and certain warrants of Cryenco, the payment of $685,000 to redeem its preferred stock outstanding and the assumption of approximately $6.2 million of indebtedness. The Company also assumed Cryenco's obligations under other warrants, which were converted into warrants to purchase Common Stock of the Company, and were recorded in the Company's accounts at an estimated fair value of $436,000. In order to finance the acquisition of MVE, the Company negotiated a consolidated credit and revolving loan facility (the "Credit Facility") which provides for loans of up to $300 million. The Company paid approximately $6.5 million in fees to establish the Credit Facility. The Credit Facility provides the agent bank with a secured interest in substantially all of the property, plant and equipment of the Company. The Company had borrowings of $265.2 million outstanding under the Credit Facility at December 31, 1999. As a result of the Company's second-quarter performance, the Company breached a financial covenant of the credit agreement related to the Credit Facility. On August 24, 1999, Chase Manhattan Bank, the Company's agent bank, waived such breach and amended the Credit Facility. The amendment provides for modified covenants based upon current performance levels, increased interest rates and the suspension of quarterly dividend payments. The Company paid approximately $1.2 million to amend the Credit Facility. The Company completed a stock offering on October 9, 1997. Of the 4,830,000 shares of Common Stock sold, 2,580,000 were offered by the Company and 2,250,000 were offered by certain stockholders. Consideration for the sale of all shares sold in the offering (excluding underwriter discounts and expenses) was $14.00 per share. The proceeds to the Company from the stock sale were used to repay the borrowings outstanding under the Company's credit facility in place at that time. 18 In November 1996, the Board of Directors authorized a program to repurchase 2,250,000 shares of the Company's Common Stock. The amount and timing of share purchases will depend on market conditions, share price and other factors. The Company reserves the right to discontinue the repurchase program at any time. In 1999, 1998 and 1997, 104,000, 909,433 and 562,725 shares, respectively, were acquired under the program, leaving 344,667 shares available for repurchase under the program. The Company forecasts that cash generated by operations, borrowings under its Credit Facility, which extends through March 31, 2006, and access to capital markets will be sufficient to satisfy its working capital, capital expenditure and debt repayment requirements and to finance continued growth through acquisitions. Dividends totaling $2.4 million, or $.10 per share, $4.8 million, or $.20 per share, and $3.9 million, or $.17 per share, were paid during 1999, 1998 and 1997, respectively. Any future declarations of dividends are subject to approval by the Company's agent bank and are then at the sole discretion of the Company's Board of Directors. No assurance can be given as to whether dividends may be declared in the future, and if declared, the amount and timing of such dividends. IMPACT OF YEAR 2000 In prior years, the Company discussed the nature and progress of its plans to become Year 2000 compliant. In late 1999, the Company completed its remediation and testing of systems. As a result such efforts, the Company has not experienced significant disruptions in mission critical information technology and non-information technology systems to date and believes those systems successfully responded to the Year 2000 date change. The Company expensed less than $1 million in connection with remediating its systems. The Company is not currently aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are promptly addressed. ADOPTION OF THE EURO Based upon a preliminary evaluation, the Company's management believes that the adoption of the Euro by the European Economic Community will not have a material impact on the Company's international operations. The Company's international operations conduct the majority of their business in a single currency with minimal price variations between countries. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company's operations are exposed to continuing fluctuations in foreign currency values and interest rates that can affect the cost of operating and financing. Accordingly, the Company addresses a portion of these risks through a program of risk management. The Company's primary interest rate risk exposure results from the Credit Facility's various floating rate pricing mechanisms. This interest rate exposure is managed by the use of multiple maturity dates and certain interest rate derivative contracts. If interest rates were to increase 200 basis points (2%) from December 31, 1999 rates, and assuming no changes in debt from the December 31, 1999 levels, the additional annual expense would be approximately $4.1 million on a pre-tax basis. The Company has assets, liabilities and cash flows in foreign currencies, primarily the British Pound Sterling, the Czech Koruna and the Euro, creating foreign exchange risk. Monthly measurement, evaluation and forward exchange contracts are employed as methods to reduce this risk. 19 FORWARD-LOOKING STATEMENTS The Company is making this statement in order to satisfy the "safe harbor" provisions contained in the Private Securities Litigation Reform Act of 1995. This Annual Report on Form 10-K includes forward-looking statements relating to the business of the Company. Forward-looking statements contained herein or in other statements made by the Company are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those matters expressed or implied by forward-looking statements. The Company believes that the following factors, among others, could affect its future performance and cause actual results of the Company to differ materially from those expressed or implied by forward-looking statements made by or on behalf of the Company: (a) general economic, business and market conditions; (b) competition; (c) decreases in spending by its industrial customers; (d) the loss of a major customer or customers; (e) ability of the Company to identify, consummate and integrate the operations of suitable acquisition targets; (f) ability of the Company to manage its fixed-price contract exposure; (g) the Company's ability to pass on increases in raw material prices; (h) the Company's relations with its employees; (i) the extent of product liability claims asserted against the Company; (j) variability in the Company's operating results; (k) the ability of the Company to attract and retain key personnel; (l) the costs of compliance with environmental matters; (m) the ability of the Company to protect its proprietary information; and (n) the ability of the Company to satisfy covenants under its Credit Facility. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Chart Industries, Inc. We have audited the accompanying consolidated balance sheets of Chart Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 Chart Industries, Inc. and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Cleveland, Ohio February 7, 2000 21 CHART INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------- 1999 1998 ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 2,314 $ 2,169 Accounts receivable, net of allowances of $1,857 and $775.................................................... 60,236 37,336 Inventories, net.......................................... 50,578 29,803 Unbilled contract revenue................................. 8,582 2,911 Deferred income taxes..................................... 16,411 1,845 Prepaid expenses and other current assets................. 5,229 2,047 -------- -------- TOTAL CURRENT ASSETS........................................ 143,350 76,111 Property, plant and equipment, net.......................... 74,757 40,536 Goodwill, net of amortization of $4,722 and $1,422.......... 177,228 31,568 Other assets, net........................................... 29,235 9,990 -------- -------- TOTAL ASSETS................................................ $424,570 $158,205 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable.......................................... $ 25,102 $ 11,540 Customer advances......................................... 2,765 13,011 Billings in excess of contract revenue.................... 296 2,194 Accrued salaries, wages and benefits...................... 13,106 10,357 Warranty reserves......................................... 8,255 4,374 Other current liabilities................................. 24,403 8,878 Current portion of long-term debt......................... 19,336 431 -------- -------- TOTAL CURRENT LIABILITIES................................... 93,263 50,785 Revolving Credit Facility................................... 18,000 7,250 Other long-term debt........................................ 241,336 3,644 Other long-term liabilities................................. 16,459 3,372 SHAREHOLDERS' EQUITY Preferred stock, 1,000,000 shares authorized, none issued or outstanding Common stock, par value $.01 per share--30,000,000 shares authorized, 24,423,927 and 24,321,917 shares issued at December 31, 1999 and 1998, respectively.................. 244 243 Additional paid-in capital.................................. 43,219 43,367 Retained earnings........................................... 17,702 56,352 Accumulated other comprehensive income...................... (661) (358) Treasury stock, at cost, 606,725 and 755,516 shares at December 31, 1999 and 1998, respectively.................. (4,992) (6,450) -------- -------- 55,512 93,154 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $424,570 $158,205 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 22 CHART INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- --------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Sales....................................................... $292,937 $229,423 $192,249 Cost of products sold: Cost of sales............................................. 213,458 151,766 131,009 Acquired profit in inventory.............................. 1,162 Restructuring charge...................................... 936 -------- -------- -------- 215,556 151,766 131,009 -------- -------- -------- Gross profit................................................ 77,381 77,657 61,240 Selling, general and administrative expense................. 51,455 32,189 25,901 Goodwill amortization expense............................... 3,670 1,313 305 Restructuring charge........................................ 11,982 Acquired in-process research and development................ 22,010 -------- -------- -------- 89,117 33,502 26,206 -------- -------- -------- Operating income (loss)..................................... (11,736) 44,155 35,034 Other income (expense): Gain on sale of product line.............................. 2,505 Interest expense--net..................................... (15,854) (901) (350) -------- -------- -------- (13,349) (901) (350) -------- -------- -------- Income (loss) before income taxes, minority interest and extraordinary item........................................ (25,085) 43,254 34,684 Income tax expense (benefit): Current................................................... 4,325 14,096 12,874 Deferred.................................................. ( 1,219) 943 (817) -------- -------- -------- 3,106 15,039 12,057 -------- -------- -------- Income (loss) before minority interest and extraordinary item...................................................... (28,191) 28,215 22,627 Minority interest........................................... (280) -------- -------- -------- Income (loss) before extraordinary item..................... (28,471) 28,215 22,627 Extraordinary loss on early extinguishment of debt, net of taxes of $4.7 million..................................... (7,809) -------- -------- -------- Net income (loss)........................................... $(36,280) $ 28,215 $ 22,627 ======== ======== ======== Net income (loss) per common share: Income (loss) before extraordinary item..................... $ (1.20) $ 1.17 $ 1.01 Extraordinary item.......................................... ( .33) -------- -------- -------- Net income (loss) per common share.......................... $ (1.53) $ 1.17 $ 1.01 ======== ======== ======== Net income (loss) per common share--assuming dilution: Income (loss) before extraordinary item..................... $ (1.20) $ 1.16 $ .99 Extraordinary item.......................................... ( .33) -------- -------- -------- Net income (loss) per common share--assuming dilution....... $ (1.53) $ 1.16 $ .99 ======== ======== ======== Shares used in per share calculations....................... 23,660 24,084 22,336 ======== ======== ======== Shares used in per share calculations--assuming dilution.... 23,660 24,426 22,860 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 23 CHART INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED ADDITIONAL OTHER TOTAL SHARES COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS' OUTSTANDING STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK EQUITY ----------- -------- ---------- -------- -------------- -------- ------------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Balance at January 1, 1997......... 9,841 $102 $18,118 $14,321 $(4,445) $ 28,096 Net income....................... 22,627 22,627 Dividends ($.17 per share)....... (3,858) (3,858) Treasury stock acquisitions...... (252) (5,646) (5,646) Stock options, net of tax benefit........................ 39 1 469 470 Conversion of Cryenco warrants... 436 436 Three for two stock split........ 4,809 51 (51) Contribution of stock to employee benefit plans.................. 31 571 95 666 Stock offering................... 1,720 17 33,649 33,666 Retirement of treasury shares.... (9) (9,987) 9,996 ------ ---- ------- -------- ----- ------- -------- Balance at December 31, 1997....... 16,188 162 43,256 33,039 76,457 Net income....................... 28,215 28,215 Other comprehensive income, net of tax: Foreign currency translation adjustments.................. $(358) (358) -------- Comprehensive income............. 27,857 Dividends ($.20 per share)....... (4,821) (4,821) Treasury stock acquisitions...... (844) (8,278) (8,278) Stock options, net of tax benefit........................ 65 77 706 783 Three for two stock split........ 8,071 81 (81) Contribution of stock to employee benefit plans.................. 86 (77) 1,122 1,045 Other............................ 111 111 ------ ---- ------- -------- ----- ------- -------- Balance at December 31, 1998 23,566 243 43,367 56,352 (358) (6,450) 93,154 Net income....................... (36,280) (36,280) Other comprehensive income, net of tax: Foreign currency translation adjustments.................. (303) (303) -------- Comprehensive income (loss)...... (36,583) Dividends ($.10 per share)....... (2,370) (2,370) Treasury stock acquisitions...... (104) (728) (728) Stock options, net of tax benefit........................ 4 (23) 31 8 Contribution of stock to employee benefit plans.................. 249 (847) 2,155 1,308 Other............................ 102 1 722 723 ------ ---- ------- -------- ----- ------- -------- Balance at December 31, 1999....... 23,817 $244 $43,219 $17,702 $(661) $(4,992) $ 55,512 ====== ==== ======= ======== ===== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 24 CHART INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------- 1999 1998 1997 --------- -------- -------- (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES Net income (loss)......................................... $ (36,280) $ 28,215 $ 22,627 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss on early extinguishment of debt.................... 12,459 Acquired in-process research and development............ 22,010 Acquired inventory profit............................... 1,162 Restructuring charge.................................... 9,790 Gain on sale of product line............................ (2,505) Depreciation and amortization........................... 16,909 7,026 3,511 Minority interest....................................... 280 Deferred income taxes................................... (5,449) 943 (817) Contribution of stock to employee benefit plans......... 1,308 1,045 666 Increase (decrease) in cash resulting from changes in operating assets and liabilities: Accounts receivable................................... (462) 3,807 (323) Inventory and other current assets.................... 1,618 (2,895) 126 Accounts payable and other current liabilities........ (14,110) (1,666) 4,325 Billings in excess of contract revenue and customer advances............................................ (12,012) (5,541) (7,402) --------- -------- -------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES....... (5,282) 30,934 22,713 INVESTING ACTIVITIES Capital expenditures...................................... (7,047) (10,006) (7,140) Acquisition of MVE, net of cash acquired.................. (2,225) Redemption of MVE preferred stock......................... (74,642) Acquisition of Northcoast Cryogenics, net of cash acquired................................................ (2,185) Acquisition of Chart Marston.............................. (35,324) Acquisition of Cryenco, net of cash acquired.............. (20,128) Proceeds from sale of product line........................ 3,300 Other investing activities................................ 605 60 195 --------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES..................... (82,194) (45,270) (27,073) FINANCING ACTIVITIES Borrowings on revolving credit facilities................. 96,305 43,594 48,000 Repayments on revolving credit facilities................. (87,082) (36,357) (54,750) Borrowings for acquisition of MVE......................... 250,000 Principal payments on long-term debt...................... (148,957) (405) (835) Premiums on repurchase of long-term debt.................. (12,459) Deferred financing costs.................................. (7,698) Purchases of treasury stock............................... (728) (8,278) (5,646) Stock offering............................................ 33,666 Stock options exercised................................... 8 783 470 Dividends paid to shareholders............................ (2,370) (4,821) (3,858) --------- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... 87,019 (5,484) 17,047 --------- -------- -------- Net increase (decrease) in cash and cash equivalents........ (457) (19,820) 12,687 Effect of exchange rate changes on cash..................... 602 (106) Cash and cash equivalents at beginning of year.............. 2,169 22,095 9,408 --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 2,314 $ 2,169 $ 22,095 ========= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 25 CHART INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A--NATURE OF OPERATIONS The Company is involved in the engineering and manufacturing of industrial equipment and systems for the cryogenic and process industries and various research applications. The Company's operations are primarily located in the United States. Substantially all of the Company's sales and trade accounts receivable are related to the industrial gas, hydrocarbon and chemical processing and power generation industries. To reduce credit risk for both foreign and domestic sales the Company requires customer advances, letters of credit and other such guarantees of payment. For certain foreign customers the Company also purchases credit and political risk insurance. NOTE B--SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions are eliminated in consolidation. Certain items in prior year financial statements have been reclassified to conform to current year presentation. 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 those estimates. CASH AND CASH EQUIVALENTS: The Company considers all investments with an initial maturity of three months or less when purchased to be cash equivalents. The December 31, 1999 balance includes money market investments and cash. FINANCIAL INSTRUMENTS: The fair values of cash equivalents, accounts receivable and short-term bank debt approximate their carrying amount because of the short maturity of these instruments. The fair value of long-term debt is estimated based on the present value of the underlying cash flows discounted at the Company's estimated borrowing rate. At December 31, 1999 and 1998, the fair value of the Company's long-term debt approximated its carrying value. The Company has entered into interest rate derivative contracts with two of its banks to hedge interest rate exposure. These contracts have a notional value of $125 million and amortize following the Company's amortization schedule for its term borrowings under the Credit Facility. These agreements are generally described as collars and result in putting a cap on the base LIBOR interest rate at approximately 7.0 percent and a floor at approximately 5.0 percent for approximately half the Company's floating rate term debt. The fair value of these contracts at December 31, 1999 is not significant. INVENTORIES: Inventories are stated at the lower of cost or market with cost being determined by both the last-in, first-out ("LIFO") method (approximately 16 percent and 51 percent of total inventory at December 31, 1999 and 1998, respectively), and the first-in, first-out ("FIFO") method. The components of inventory are as follows:
DECEMBER 31, ---------------------- 1999 1998 -------- -------- (DOLLARS IN THOUSANDS) Raw materials and supplies............................... $27,256 $14,785 Work in process.......................................... 14,022 13,955 Finished goods........................................... 9,595 1,273 LIFO reserve............................................. (295) (210) ------- ------- $50,578 $29,803 ======= =======
26 NOTE B--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated on the basis of cost. Expenditures for maintenance, repairs and renewals are charged to expense as incurred, whereas major betterments are capitalized. The cost of applicable assets is depreciated over their estimated useful lives. Depreciation is computed using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. Depreciation expense was $10,781,000, $5,629,000 and $3,135,000 in 1999, 1998 and 1997, respectively. The following table shows original costs and the estimated useful lives by classification of assets:
DECEMBER 31, ---------------------- CLASSIFICATION EXPECTED USEFUL LIFE 1999 1998 - -------------- ----------------------- -------- -------- (DOLLARS IN THOUSANDS) Land and buildings................ 20-35 years (buildings) $ 40,524 $20,986 Machinery and equipment........... 3-12 years 52,528 34,993 Furniture and fixtures............ 3-5 years 6,432 4,665 Construction in process........... 540 1,094 -------- ------- 100,024 61,738 Less accumulated depreciation..... 25,267 21,202 -------- ------- Total property, plant and equipment, net.................. $ 74,757 $40,536 ======== =======
Property, plant and equipment and intangible assets are periodically evaluated for impairment. The Company assesses impairment for each of its operating units by measuring future cash flows against the carrying value of these long-lived assets. If the future undiscounted cash flows are less than the carrying value of the assets, an impairment reserve is recorded in the period identified. Measurement of impairment is based upon discounted cash flows, asset appraisals or market values of similar assets. GOODWILL AND OTHER INTANGIBLE ASSETS: All intangible assets are carried at cost less applicable amortization. Goodwill represents the excess of purchase price over the fair value of net assets acquired in purchase business combinations. Goodwill is amortized using the straight-line method over the periods of expected benefit, but not in excess of 40 years. Total amortization expense of all intangibles was $6,128,000, $1,397,000 and $376,000 in 1999, 1998 and 1997, respectively. Accumulated amortization for all intangibles was $7,853,000 and $2,142,000 at December 31, 1999 and 1998, respectively. REVENUE RECOGNITION: For the majority of the Company's products, revenue is recognized when products are shipped. For certain product lines, the Company uses the percentage of completion method of accounting. Earned revenue is based on the percentage that incurred costs to date bear to total estimated costs at completion after giving effect to the most current estimates. Earned revenue on contracts in process totaled $27.2 million through December 31, 1999. Timing of amounts billed on contracts varies from contract to contract causing high variation in working capital needs. Amounts billed on percentage of completion contracts in process total $23.2 million at December 31, 1999. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known. Earned revenue reflects the original contract price adjusted for agreed upon claims and change orders, if any. Losses expected to be incurred on contracts in process, after consideration of estimated minimum recoveries from claims and change orders, are charged to operations as soon as such losses are known. RESEARCH AND DEVELOPMENT COSTS: With the acquisition of MVE and the highly technical products manufactured in the Company's applied technologies segment, the Company incurred research and development costs of $3,469,000 in 1999. These costs are expensed as incurred. DEFERRED INCOME TAXES: The Company and its subsidiaries file a consolidated federal income tax return. Deferred income taxes are provided for temporary differences between financial reporting and the consolidated tax return in accordance with the liability method. 27 NOTE B--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS PER SHARE: The following table sets forth the computation of basic and diluted earnings per share:
YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- --------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Income (loss) before extraordinary item................. $(28,471) $28,215 $22,627 Extraordinary loss...................................... (7,809) -------- ------- ------- Net income (loss)....................................... $(36,280) $28,215 $22,627 ======== ======= ======= Weighted-average common shares.......................... 23,660 24,084 22,336 Effect of dilutive securities: Employee stock options and warrants................... 342 524 -------- ------- ------- Dilutive potential common shares........................ 23,660 24,426 22,860 ======== ======= ======= Net income (loss) per common share: Income (loss) before extraordinary item............... $ (1.20) $ 1.17 $ 1.01 Extraordinary item.................................... (.33) -------- ------- ------- Net income (loss) per common share.................... $ (1.53) $ 1.17 $ 1.01 ======== ======= ======= Net income (loss) per common share -- assuming dilution: Income (loss) before extraordinary item............... $ (1.20) $ 1.16 $ .99 Extraordinary item.................................... (.33) -------- ------- ------- Net income (loss) per common share--assuming dilution............................................ $ (1.53) $ 1.16 $ .99 ======== ======= =======
FOREIGN CURRENCY TRANSLATION: The functional currency for the majority of the Company's foreign operations is the applicable local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The resulting translation adjustments are recorded as a component of shareholders' equity. Gains or losses resulting from foreign currency transactions are charged to income as incurred. EMPLOYEE STOCK OPTIONS: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. STOCK SPLIT: All shares of common stock (except for transactions affecting shares outstanding in the Consolidated Statements of Shareholders' Equity) and per share amounts have been adjusted to give retroactive effect to a three-for-two stock split effected in the form of a 50 percent stock dividend distributed on June 30, 1998 to shareholders of record on June 16, 1998. RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities," which is required to be adopted beginning in the year 2001. Because of the Company's minimal use of derivatives, the adoption of Statement 133 is not expected to have a material impact on the earnings or the financial position of the Company. 28 NOTE C--BALANCE SHEET COMPONENTS
DECEMBER 31, ---------------------- 1999 1998 -------- -------- (DOLLARS IN THOUSANDS) Other assets, net: Deferred financing costs, net............................. $ 6,919 Existing technologies, net................................ 6,736 Patents, trademarks and intellectual property, net........ 7,053 $7,844 Deferred income taxes..................................... 3,464 Other..................................................... 5,063 2,146 ------- ------ $29,235 $9,990 ======= ====== Other current liabilities: Accrued interest.......................................... $ 4,532 $ 10 Accrued income taxes...................................... 2,240 2,031 Accrued rebates........................................... 3,502 Accrued restructuring..................................... 1,338 Accrued other............................................. 12,791 6,837 ------- ------ $24,403 $8,878 ======= ====== Other long-term liabilities: Deferred income taxes..................................... $ 6,271 $1,198 Accrued environmental..................................... 3,374 1,953 Accrued pension cost...................................... 5,634 221 Minority interest......................................... 940 Other..................................................... 240 ------- ------ $16,459 $3,372 ======= ======
NOTE D--LONG-TERM DEBT AND CREDIT ARRANGEMENTS The following table shows the components of the Company's long-term borrowings at December 31, 1999 and 1998, respectively.
DECEMBER 31, ----------------------- 1999 1998 ---------- ---------- (DOLLARS IN THOUSANDS) Term loan A, due March 2005, quarterly principal payments, average interest rate of 8.63% at December 31, 1999....... $122,500 Term loan B, due March 2006, quarterly principal payments, average interest rate of 9.19% at December 31, 1999....... 124,688 Revolving Credit Facility, due March 2005, average interest rate of 9.02% at December 31, 1999........................ 18,000 $ 7,250 Industrial Development Revenue Bonds, due June 2011, semi-annual principal payments, interest at variable rates from 2% to 9%............................................. 2,860 Revolving foreign credit facility........................... 2,932 Several notes payable with varying principal and interest payments.................................................. 7,692 4,075 -------- ------- Total long-term debt........................................ 278,672 11,325 Less: current maturities.................................... 19,336 431 -------- ------- Long-term debt, net of current maturities................... $259,336 $10,894 ======== =======
29 NOTE D--LONG-TERM DEBT AND CREDIT ARRANGEMENTS (CONTINUED) In order to finance the acquisition of MVE, the Company negotiated a consolidated credit and revolving loan facility (the "Credit Facility") which provides for loans of up to $300 million, of which $50 million may be available for revolving credit and the issuance of letters of credit. The Company paid approximately $6.5 million in fees to establish the Credit Facility. The Credit Facility provides the bank with a secured interest in substantially all of the property, plant and equipment of the Company. Under the terms of the Credit Facility, term loans and revolving credit bear interest, at the Company's option, at rates equal to the prime rate (8.50 percent at December 31, 1999) or LIBOR plus incremental margins. The incremental margins vary based on the Company's financial position and currently range from 1 percent to 3 percent. The Company is also required to pay a commitment fee of .5 percent per annum on the unused amount of the revolving portion of the Credit Facility. The Company has letters of credit outstanding and bank guarantees totaling $8.6 million supported by the Credit Facility. The Credit Facility contains certain covenants and conditions which impose limitations on the Company and its operating units, including meeting certain financial tests and the quarterly maintenance of certain financial ratios on a consolidated basis such as: minimum net worth, maximum leverage, minimum pre-tax interest coverage ratio and minimum fixed charge coverage ratio. As a result of the Company's second-quarter performance, the Company breached a financial covenant of the credit agreement related to the Credit Facility. On August 24, 1999, Chase Manhattan Bank, the Company's agent bank, waived such breach and amended the Credit Facility. The amendment provides for modified covenants based upon current performance levels, increased interest rates and the suspension of quarterly dividend payments. The Company paid approximately $1.2 million to amend the Credit Facility. As of December 31, 1999, the Company was in compliance with all covenants and conditions of the Credit Facility. The scheduled annual maturities of long-term debt at December 31, 1999, are as follows:
YEAR AMOUNT - ---- ---------------------- (DOLLARS IN THOUSANDS) 2000..................................................... $ 19,336 2001..................................................... 20,073 2002..................................................... 26,209 2003..................................................... 31,168 2004..................................................... 36,039 Thereafter............................................... 145,847 -------- $278,672 ========
Interest paid was $11,332,000, $1,561,000 and $709,000 in 1999, 1998 and 1997 respectively. NOTE E--ACQUISITIONS The following acquisitions were accounted for using the purchase method of accounting and, accordingly, the related purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair values. Results of operations for these acquisitions have been included in the consolidated results of operations since the date of acquisition. The purchase price allocations reflected in these financial statements are preliminary and may be adjusted as the estimated fair value of the assets acquired and liabilities assumed are finalized. On December 15, 1999, the Company acquired certain assets relating to a cryogenic repair business previously operated by Air Liquide for $1.0 million in cash and $2.6 million in rebate credits to be given to Air Liquide on future sales. 30 NOTE E--ACQUISITIONS (CONTINUED) On April 12, 1999, the Company acquired the common stock of MVE Holdings, Inc. ("MVE") for approximately $9.2 million in cash ($2.2 million net of cash acquired) and redeemed the preferred stock of MVE for approximately $74.6 million. Finally, the Company paid approximately $156.1 million to retire MVE's existing debt obligations and complete the tender offer and consent solicitation for the 12.5 percent senior secured notes due 2002 issued by MVE, Inc., a subsidiary of MVE. In allocating the purchase price, $173.5 million was allocated to net liabilities assumed, including minority interests in certain consolidated subsidiaries of MVE, $22.0 million was allocated to in-process research and development ("IPR&D") projects that had not reached technological feasibility and had no alternative future use, $7.7 million was allocated to identifiable intangible assets which are being amortized over five years, and $153.0 million was allocated to goodwill, which is being amortized over 40 years. The amount allocated to IPR&D was determined by independent consultants who estimated the costs to develop the technology into commercially viable products, estimated cash flows resulting from the expected revenues generated from such products and discounted the net cash flows back to their present value using a risk-adjusted discount rate. This amount was recognized as a non-cash expense without tax benefit at the date of acquisition. On March 15, 1999, the Company acquired a group of privately held companies, collectively known as Northcoast Cryogenics, for approximately $2.3 million in cash ($2.2 million net of cash acquired) and $720,000 in Chart Common Stock. Additional contingent consideration will be issued in an amount equal to three percent of the net sales of Northcoast Cryogenics, as defined in the purchase agreement, with respect to each fiscal year or partial fiscal year during the three-year period beginning March 15, 1999, subject to possible extension for one additional year. In allocating the purchase price, $373,000 was allocated to net assets acquired and $2.7 million was allocated to goodwill, which is being amortized over 15 years. On March 27, 1998, the Company, through its wholly-owned subsidiary Chart Marston, acquired the net assets of the industrial heat exchanger division of IMI Marston Limited, a wholly-owned subsidiary of IMI plc, for 21 million Pounds Sterling (approximately U.S. $35.3 million). The Company borrowed 11 million Pounds Sterling (approximately U.S. $18.5 million) to fund the acquisition. In allocating the purchase price, $15.9 million was allocated to goodwill, which is being amortized over 40 years. On July 31, 1997, the Company acquired all of the shares outstanding of Cryenco, a Denver, Colorado based manufacturer of cryogenic tanks and related products for the transportation, storage and dispensing of LNG and liquefied argon, oxygen and nitrogen. Consideration for the acquisition included the payment of $19.6 million to purchase the common stock outstanding and certain warrants of Cryenco, the payment of $685,000 to redeem its preferred stock outstanding, and the assumption of approximately $6.2 million of indebtedness. The Company also assumed Cryenco's obligations under other warrants, which were converted into warrants to purchase Common Stock of the Company, and were recorded as additional paid-in capital at an estimated fair value of $436,000. In allocating the purchase price to the net assets acquired, $15.2 million was allocated to goodwill, which is being amortized over 40 years. 31 NOTE E--ACQUISITIONS (CONTINUED) The pro-forma unaudited results of operations for 1999 and 1998, assuming consummation of the acquisition of MVE and extinguishment of the related debt as of January 1, 1998, are as follows:
DECEMBER 31, -------------------------- 1999 1998 ---------- ---------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Net sales............................................ $337,754 $435,560 Income (loss) before extraordinary item.............. (30,412) 20,675 Income (loss) before extraordinary item per share.... (1.28) .86 Income (loss) before extraordinary item per share-- assuming dilution.................................. (1.28) .85 Net income (loss).................................... (38,221) 26,793 Net income (loss) per share.......................... (1.61) 1.11 Net income (loss) per share--assuming dilution....... (1.61) 1.10
NOTE F--RESTRUCTURING PLAN During 1999, the Company recorded net restructuring charges of $12.9 million. The restructuring charges related to the creation of a new organizational structure necessitated primarily by the acquisition of MVE. Pursuant to the restructuring plan, the Company recognized charges in 1999 for the write-off of net book value of certain fixed assets totaling $2.8 million made redundant by the acquisition, the write-off of impaired goodwill of $6.8 million resulting from the Company's decision to discontinue production of the Cryenco trailer product line, which was part of the distribution and storage equipment segment, $1.2 million for lease payments and other costs related to exiting certain facilities, $936,000 for the write-off of inventory to be disposed of, which has been classified in cost of sales, and $1.9 million for severance and other costs related to the elimination of 188 positions throughout the Company. In the third quarter of 1999 the Company reduced the restructuring reserve by $803,000 for charges taken in the second quarter of 1999 related to certain fixed assets held for disposal that were subsequently determined to be useable. The Company reinstated the net book value of these assets in the third quarter of 1999. The activity related to the charges recognized in 1999 is as follows:
ACTIVITY RELATED RESERVE RESTRUCTURING TO THE DECEMBER 31, CHARGES CHARGES 1999 ------------- -------- ------------ (DOLLARS IN THOUSANDS) Non-cash items: Inventory....................................... $ 936 $ (936) Fixed assets.................................... 2,834 (2,834) Impaired goodwill............................... 6,823 (6,823) Cash items: Severance....................................... 1,912 (1,566) $ 346 Lease termination costs......................... 1,017 (25) 992 Other........................................... 199 (199) ------- -------- ------ $13,721 $(12,383) $1,338 ======= ======== ======
32 NOTE F--RESTRUCTURING PLAN (CONTINUED) The Company expects to have all actions comprising the restructuring plan completed by the second quarter of 2000. At December 31, 1999, the Company's restructuring reserve of $1.3 million is included in other current liabilities. NOTE G--INCOME TAXES Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1999, the Company had net operating loss carryforwards for income tax purposes of $3.4 million which expire in years 2003 through 2020 and other credits of $200,000 which have an indefinite carryforward period. These carryforwards resulted from the current year loss and the Company's acquisitions of Process Engineering and MVE. The acquired carryforwards are subject to Section 382 limitations imposed by the Internal Revenue Service Code of 1986, as amended, and the regulations thereunder. Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, ---------------------- 1999 1998 -------- -------- (DOLLARS IN THOUSANDS) Deferred tax assets: Accruals and reserves................................. $15,978 $4,643 Net operating loss and credit carryforwards........... 3,577 233 Other--net............................................ 320 285 ------- ------ Total deferred tax assets............................. 19,875 5,161 ------- ------ Deferred tax liabilities: Property, plant and equipment......................... 3,536 2,411 Intangibles........................................... 1,827 Inventory............................................. 540 1,537 Pensions.............................................. 356 371 Other--net............................................ 12 195 ------- ------ Total deferred tax liabilities........................ 6,271 4,514 ------- ------ Net deferred taxes...................................... $13,604 $ 647 ======= ======
Management has determined, based on the Company's history of prior earnings and its expectations for the future, that taxable income of the Company will more likely than not be sufficient to recognize fully these net deferred tax assets. 33 NOTE G--INCOME TAXES (CONTINUED) Significant components of the provision for income taxes are as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Current: Federal................................................ $ 3,699 $12,844 $11,908 State.................................................. 624 793 966 Foreign................................................ 2 459 ------- ------- ------- 4,325 14,096 12,874 Deferred: Federal................................................ (1,630) 821 (750) State.................................................. (389) 77 (67) Foreign................................................ 800 45 ------- ------- ------- (1,219) 943 (817) ------- ------- ------- $ 3,106 $15,039 $12,057 ======= ======= =======
The reconciliation of income taxes computed at the U.S. federal statutory tax rates to income tax expense is as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Tax at U.S. statutory rates.............................. $(8,780) $15,139 $12,139 State income taxes, net of federal tax benefit........... 153 566 584 Effective tax rate differential of earnings outside of U.S.................................................... 989 (267) Federal tax benefit of Foreign Sales Corp................ (291) (617) (528) Non-deductible goodwill.................................. 11,157 158 32 Other--net............................................... (122) 60 (170) ------- ------- ------- $ 3,106 $15,039 $12,057 ======= ======= =======
The Company paid approximately $2.2 million, $12.4 million and $11.1 million of income taxes in 1999, 1998 and 1997, respectively. NOTE H--EMPLOYEE BENEFIT PLANS The Company has five defined benefit pension plans which cover certain hourly and salary employees. The Company's funding policy is to contribute at least the minimum funding amounts required by law. Plan assets consist primarily of corporate stocks and bonds. During 1999, the Company, through the acquisition of MVE, assumed two defined benefit pension plans. In addition, the defined benefit pension plan related to Chart Marston was finalized during the year, and the assets and liabilities were transferred from the previous plan. The opening benefit obligations assumed and plan assets acquired are shown as separate line items in the reconciliation below. 34 NOTE H--EMPLOYEE BENEFIT PLANS (CONTINUED) The actuarially computed combined pension cost included the following components for the years ended December 31:
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Service cost................................................ $ 2,194 $ 227 $ 321 Interest cost............................................... 2,169 383 336 Actual return on plan assets................................ (5,085) (183) (574) Net amortization and deferrals.............................. 2,701 (194) 265 ------- ----- ----- Total pension cost.......................................... $ 1,979 $ 233 $ 348 ======= ===== =====
During 1998 the Company curtailed its pension plan related to certain of the union employees at ALTEC and recognized $161,000 of expense in addition to the normal pension cost disclosed above. As a result of this curtailment, the Company is making contributions to a multi-employer pension plan maintained by the union. The Company now makes contributions to two union supported multi-employer pension plans with expenses totaling $269,000, $297,000 and $66,000 in 1999, 1998 and 1997, respectively. The following table sets forth changes in the benefit obligation, plan assets, funded status of the plans and amounts recognized in the balance sheets as of December 31:
1999 1998 -------- -------- (DOLLARS IN THOUSANDS) Change in benefit obligation: January 1 benefit obligation............................ $ 6,143 $5,366 Benefit obligations assumed........................... 35,485 Service cost.......................................... 2,194 227 Interest cost......................................... 2,169 383 Benefits paid......................................... (923) (223) Actuarial gains and losses............................ (7,374) 390 ------- ------ December 31 benefit obligation.......................... $37,694 $6,143 ======= ====== Change in plan assets: Fair value at January 1................................. $ 5,667 $5,113 Plan assets acquired.................................. 29,450 Actual return......................................... 5,085 183 Employer contributions................................ 1,899 594 Employee contributions................................ 154 Benefits paid......................................... (922) (223) ------- ------ Fair value at December 31............................. $41,333 $5,667 ======= ====== Funded status of the plans.............................. $ 3,639 $ (76) Unrecognized actuarial gain (loss)...................... (8,226) 1,307 ------- ------ Net pension asset (liability) recognized................ $(4,587) $ 831 ======= ====== Prepaid benefit cost.................................... $ 1,047 $1,052 Accrued benefit liability............................... (5,634) (221) ------- ------ Net pension asset (liability) recognized................ $(4,587) $ 831 ======= ======
35 NOTE H--EMPLOYEE BENEFIT PLANS (CONTINUED) The assumptions used in determining pension cost and funded status information for the years ended December 31, 1999 and 1998 are as follows:
1999 1998 -------- ------------ Discount rate............................................... 8.04% 6.5% - 6.75% Weighted average rate of increase in compensation........... 3.00% 3.0% - 5.0% Expected long-term weighted average rate of return on plan assets.................................................... 9.25% 8.0%
While on an overall basis at December 31, 1999, plan assets exceed plan liabilities, two of the Company's plans have benefit obligations which exceed individual plan assets. This shortfall totals $1.3 million on benefit obligations of $12.9 million at December 31, 1999. The Company has defined contribution savings plans that cover most of its employees. Company contributions to the plans are based on employee contributions and the level of Company match and discretionary contributions. Expenses under the plans totaled $1,792,000, $1,583,000 and $1,314,000 for the years ended December 31, 1999, 1998 and 1997, respectively. NOTE I--STOCK OPTION PLANS In July 1992, the Company adopted a Key Employee Stock Option Plan which provides for the granting of options to purchase shares of Common Stock to certain key employees of the Company. In May 1999 and May 1997, shareholders approved increases of 300,000 shares and 562,500 shares, respectively, in the number of shares authorized for the Key Employee Stock Option Plan. These nonqualified stock options vest in equal annual installments over a five year period from the date of grant and are exercisable for up to 10 years at an option price determined by the Compensation Committee of the Board of Directors. Certain information for 1999, 1998 and 1997 relative to the Key Employee Stock Option Plan is summarized below:
1999 1998 1997 -------------------- -------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE --------- -------- --------- -------- --------- -------- Outstanding at beginning of year........................ 1,036,437 $5.71 936,557 $ 6.35 730,125 $3.81 Granted....................... 250,000 6.33 431,250 9.33 257,718 13.09 Exercised..................... (500) 2.44 (63,620) 2.31 (46,786) 3.88 Expired or canceled........... (32,962) 8.31 (267,750) 14.57 (4,500) 7.05 --------- ----- --------- ------ ------- ----- Outstanding at end of year.... 1,252,975 $5.77 1,036,437 $ 5.71 936,557 $6.35 ========= ===== ========= ====== ======= ===== Exercisable at end of year.... 584,395 427,872 322,599 ========= ========= ======= Weighted-average fair value of options granted during the year........................ $3.99 $ 3.98 $5.15 ===== ====== ===== Participants at end of year... 89 70 57 ========= ========= ======= Available for future grant at end of year................. 280,725 197,763 361,276 ========= ========= =======
36 NOTE I--STOCK OPTION PLANS (CONTINUED) Exercise prices for options outstanding as of December 31, 1999 ranged from $.08 to $25.78. The weighted-average remaining contractual life of those options is 7.2 years. Certain information for ranges of exercise prices is summarized below:
OUTSTANDING EXERCISABLE ---------------------------------- -------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE EXERCISE PRICE OF SHARES PRICE LIFE OF SHARES PRICE - -------------- --------- -------- ----------- --------- -------- Less than $5.................... 368,625 $ 2.48 4.4 338,250 $ 2.45 $5 to less than $10............. 877,911 7.05 8.3 239,706 7.04 Equal to or greater than $10.... 6,439 18.85 7.6 6,439 18.85 --------- ------- 1,252,975 5.77 7.2 584,395 4.51 ========= =======
In May 1996, the shareholders approved the 1996 Outside Directors Stock Option Plan, which provides for the granting of options to purchase up to 168,750 shares of Common Stock, supplementing the previously authorized 1995 and 1994 Outside Directors Stock Option Plans (collectively, the "Outside Directors Stock Option Plans"). The option price for options granted under the Outside Directors Stock Option Plans to outside directors will be equal to the fair market value of a share of Common Stock on the date of grant. These nonqualified stock options become fully vested and exercisable on the first anniversary of the date of grant and are exercisable for a period of ten years. Certain information for 1999, 1998 and 1997 relative to the Outside Directors Stock Option Plans is summarized below:
1999 1998 1997 -------------------- -------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE --------- -------- --------- -------- --------- -------- Outstanding at beginning of year........................ 82,500 $11.52 63,750 $ 6.72 52,500 $ 2.63 Granted....................... 45,000 9.00 33,750 18.75 33,750 10.41 Exercised..................... (3,000) 1.78 (15,000) 7.38 (22,500) 2.71 ------- ------ ------- ------ ------- ------ Outstanding at end of year.... 124,500 $10.84 82,500 $11.52 63,750 $ 6.72 ======= ====== ======= ====== ======= ====== Exercisable at end of year.... 79,500 48,750 15,000 ======= ======= ======= Weighted-average fair value of options granted during the year........................ $ 4.89 $ 7.99 $ 3.03 ====== ====== ====== Participants at end of year... 4 3 3 ======= ======= ======= Available for future grant at end of year................. 33,750 78,750 112,500 ======= ======= =======
37 NOTE I--STOCK OPTION PLANS (CONTINUED) Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123, "Accounting for Stock-Based Compensation," which also requires that the information be determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of Statement 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 1998 and 1997:
1999 1998 1997 -------- -------- -------- Risk free interest rate........................... 6.5% 4.7% 6.7% Dividend yield.................................... 0.0% 2.5% 2.0% Market price volatility factor.................... 54.2% 50.0% 38.0% Weighted average expected life of key employee options......................................... 7 years 6 years 6 years Weighted average expected life of outside directors options............................... 5 years 3 years 3 years
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's Key Employee and Outside Directors stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of these stock options. The Company's pro forma disclosures showing the estimated fair value of the options, amortized to expense over the options' vesting periods, are as follows:
1999 1998 1997 --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Pro forma net income (loss)..................... $(37,311) $27,460 $22,251 Pro forma net income (loss) per share........... (1.58) 1.14 1.00 Pro forma net income (loss) per share--assuming dilution...................................... (1.58) 1.12 .97
NOTE J--LEASE COMMITMENTS The Company incurred $2,266,000, $1,940,000 and $1,533,000 of rental expense under operating leases in 1999, 1998 and 1997, respectively. At December 31, 1999, future minimum lease payments for non-cancelable operating leases for the next five years total $7.8 million and are payable as follows: 2000-- $2,340,000; 2001--$1,891,000; 2002--$1,461,000; 2003--$1,236,000; and 2004--$886,000. NOTE K--CONTINGENCIES The Company's operating units are parties, in the ordinary course of their businesses, to various legal actions related to performance under contracts, product liability and other matters, several of which actions claim substantial damages. The Company believes these legal actions will not have a material adverse effect on the Company's financial position or liquidity. The Company is subject to federal, state and local environmental laws and regulations concerning, among other matters, waste water effluents, air emissions and handling and disposal of hazardous materials such as cleaning fluids. 38 NOTE K--CONTINGENCIES (CONTINUED) As part of its ongoing environmental compliance and monitoring programs, the Company is voluntarily developing work plans for remediation of environmental conditions involving certain of its operating facilities. Based upon the Company's study of the known conditions and its prior experience in investigating and correcting environmental conditions, the Company estimates that the potential costs of these site remediation efforts will not have a material adverse effect on the Company's financial position, liquidity, cash flows or results of operations. Expected future expenditures relating to these remediation efforts are expected to be incurred primarily within the next 48 months, as the necessary regulatory agency approvals of the Company's work plans are obtained. Although the Company believes it has adequately provided for the cost of all known environmental conditions, the applicable regulatory agencies could insist upon different and more costly remediative measures than those the Company believes are adequate or required by existing law. The Company believes that it is currently in substantial compliance with all known material and applicable environmental regulations. NOTE L--OPERATING SEGMENTS The Company created a new organizational structure subsequent to its acquisition of MVE and changed the composition of its operating segments. As a result, the Company has the following three reportable segments: process systems and equipment ("Process"), distribution and storage equipment ("Distribution") and applied technologies ("Applications"). All segment information for all prior periods presented has been restated to reflect the Company's current reportable segments. The Company's reportable segments are business units that offer different products. The reportable segments are each managed separately because they manufacture and distribute distinct products with different production processes. The Process segment consists of two operating divisions that sell brazed aluminum heat exchangers and coldboxes to industrial gas, natural gas and petrochemical processing companies who use them for the liquefaction and separation of industrial and natural gases. The Distribution segment consists of two operating divisions that sell cryogenic tanks, trailers, intermodal containers, railcars and cryogenic repair services to various companies for the storage and transportation of both industrial and natural gases. The Applications segment consists of three operating divisions that sell products including vacuum-insulated, bulk liquid CO(2) systems, medical oxygen products, magnetic resonance imaging cryostat components, biological storage systems, vacuum-insulated piping systems, LNG alternative fuel systems, nitrogen injection systems, large and small thermal vacuum test chambers, CO(2) dry cleaning equipment and various cryogenic and non-cryogenic components including pumps, valves and tubing. Due to the nature of the products that each operating segment sells, there are no intersegment sales. 39 NOTE L--OPERATING SEGMENTS (CONTINUED) The Company evaluates performance and allocates resources based on profit or loss from operations before interest expense and income taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.
1999 ------------------------------------------------- PROCESS DISTRIBUTION APPLICATIONS TOTALS -------- ------------ ------------ -------- (DOLLARS IN THOUSANDS) Revenues from external customers................... $82,085 $105,529 $105,323 $292,937 Depreciation and amortization expense.............. 4,489 5,451 5,484 15,424 Operating income (loss) before interest expense and income taxes..................................... (300) 3,919 10,583 14,202 Segment assets..................................... 61,934 172,649 163,203 397,786 Capital expenditures............................... 1,072 1,761 2,633 5,466
1998 ------------------------------------------------- PROCESS DISTRIBUTION APPLICATIONS TOTALS -------- ------------ ------------ -------- (DOLLARS IN THOUSANDS) Revenues from external customers.................. $124,609 $ 42,558 $ 62,256 $229,423 Depreciation and amortization expense............. 3,557 1,446 1,684 6,687 Operating income before interest expense and income taxes.................................... 30,806 5,760 10,062 46,628 Segment assets.................................... 68,342 36,298 40,328 144,968 Capital expenditures.............................. 2,292 4,426 3,029 9,747
1997 ------------------------------------------------- PROCESS DISTRIBUTION APPLICATIONS TOTALS -------- ------------ ------------ -------- (DOLLARS IN THOUSANDS) Revenues from external customers................... $93,562 $ 31,744 $ 66,943 $192,249 Depreciation and amortization expense.............. 1,476 828 1,190 3,494 Operating income before interest expense and income taxes............................................ 22,626 6,074 9,152 37,852 Segment assets..................................... 34,895 32,426 37,829 105,150 Capital expenditures............................... 4,791 937 1,412 7,140
40 NOTE L--OPERATING SEGMENTS (CONTINUED) GEOGRAPHIC INFORMATION:
1999 1998 1997 --------------------- --------------------- --------------------- LONG-LIVED LONG-LIVED LONG-LIVED REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS -------- ---------- -------- ---------- -------- ---------- (DOLLARS IN THOUSANDS) United States........................ $241,228 $240,313 $205,997 $48,621 $192,249 $44,070 Non U.S. Countries................... 51,709 40,907 23,426 33,473 -------- -------- -------- ------- -------- ------- Total................................ $292,937 $281,220 $229,423 $82,094 $192,249 $44,070 ======== ======== ======== ======= ======== =======
RECONCILIATION OF OPERATING INCOME (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAXES:
1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Reportable segments......................................... $ 14,202 $46,628 $37,852 Headquarters................................................ (25,938) (2,473) (2,818) -------- ------- ------- Total....................................................... $(11,736) $44,155 $35,034 ======== ======= =======
RECONCILIATION OF TOTAL ASSETS:
1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Reportable segments......................................... $397,786 $144,968 $105,150 Headquarters................................................ 26,784 13,237 23,769 -------- -------- -------- Total....................................................... $424,570 $158,205 $128,919 ======== ======== ========
NOTE M--EXTRAORDINARY ITEM In the second quarter of 1999, the Company borrowed funds under its Credit Facility and retired prior to maturity certain debt assumed as part of the MVE acquisition with a fair value of $119.2 million. The debt extinguishment resulted in an extraordinary loss of $12.5 million, $7.8 million net of tax, or $.33 per diluted share. 41 NOTE N--QUARTERLY DATA (UNAUDITED) Selected quarterly data for the years ended December 31, 1999 and 1998 are as follows.
YEAR ENDED DECEMBER 31, 1999 ---------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Sales............................................ $44,588 $ 84,726 $84,108 $79,515 $292,937 Gross profit..................................... 12,317 20,875 20,147 24,042 77,381 Operating income (loss).......................... 4,725 (19,758) (4,169) 7,466 (11,736) Income (loss) before extraordinary item.......... 2,902 (24,080) (8,946) 1,653 (28,471) Extraordinary loss on early extinguishment of debt, net of taxes of $4.7 million............. (7,809) (7,809) Net income (loss)................................ 2,902 (31,889) (8,946) 1,653 (36,280) Income (loss) before extraordinary item per share.......................................... .12 (1.01) (.38) .07 (1.20) Net income (loss) per share...................... .12 (1.34) (.38) .07 (1.53) Income (loss) before extraordinary item per share--assuming dilution....................... .12 (1.01) (.38) .07 (1.20) Net income (loss) per share--assuming dilution... .12 (1.34) (.38) .07 (1.53)
YEAR ENDED DECEMBER 31, 1998 ---------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Sales............................................ $56,104 $57,030 $57,823 $58,466 $229,423 Gross profit..................................... 20,560 19,412 19,061 18,624 77,657 Operating income................................. 12,219 11,652 10,506 9,778 44,155 Net income....................................... 7,942 7,225 6,727 6,321 28,215 Net income per share............................. .33 .30 .28 .27 1.17 Net income per share--assuming dilution.......... .32 .29 .28 .26 1.16
NOTE O--SUBSEQUENT EVENT In February 2000, the Company entered into an agreement to sell its manufacturing and office facility located in Westborough, Massachusetts, for $4.1 million. The sale is expected to be completed by April 30, 2000. The Company's Process Systems Division will lease space from the new owner and will remain in the office facility. 42 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information appearing under the captions "Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the registrant's definitive Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 4, 2000 (the "2000 Proxy Statement") is incorporated herein by reference. Information regarding executive officers of the registrant is set forth in Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated herein by reference to "Election of Directors" and "Executive Compensation" in the 2000 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated herein by reference to "Stock Ownership of Principal Holders and Management" in the 2000 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Report of Independent Auditors.............................. 21 Consolidated Balance Sheets at December 31, 1999 and 1998... 22 Consolidated Statements of Operations for the Years ended December 31, 1999, 1998 and 1997.......................... 23 Consolidated Statements of Shareholders' Equity for the Years ended December 31, 1999, 1998 and 1997.............. 24 Consolidated Statements of Cash Flows for the Years ended December 31, 1999, 1998 and 1997.......................... 25 Notes to Consolidated Financial Statements.................. 26 (a)(2) Financial Statement Schedules. No financial statement schedules required. (a)(3) Exhibits See the Index to Exhibits at page 45 of this Form 10-K Annual Report. (c) Reports on Form 8-K. None
43 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. CHART INDUSTRIES, INC. By: /s/ ARTHUR S. HOLMES ----------------------------------------- Arthur S. Holmes CHAIRMAN & CHIEF EXECUTIVE OFFICER
Date: March 16, 2000 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/ ARTHUR S. HOLMES Chairman and Chief Executive ------------------------------------------- Officer (Principal Executive March 16, 2000 Arthur S. Holmes Officer) Chief Financial Officer, /s/ DON A. BAINES Treasurer and a Director ------------------------------------------- (Principal Financial March 16, 2000 Don A. Baines Officer) Controller and Chief /s/ JOHN T. ROMAIN Accounting Officer ------------------------------------------- (Principal Accounting March 16, 2000 John T. Romain Officer) /s/ RICHARD J. CAMPBELL ------------------------------------------- Director March 16, 2000 Richard J. Campbell /s/ THOMAS F. MCKEE ------------------------------------------- Director March 16, 2000 Thomas F. McKee /s/ LAZZARO G. MODIGLIANI ------------------------------------------- Director March 16, 2000 Lazzaro G. Modigliani /s/ ROBERT G. TURNER, JR. ------------------------------------------- Director March 16, 2000 Robert G. Turner, Jr.
44 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - --------------------- ----------- 2.1 Plan and Agreement of Merger, dated April 30, 1997, by and among the Company, Greenville Tube Corporation, Chart Acquisition Company, Inc. and Cryenco Sciences, Inc....... (F) 2.2 Agreement for the Sale and Purchase of the Industrial Heat Exchanger Group, dated March 5, 1998, by and among the Company, IMI Kynoch Limited, IMI Marston Limited, IMI plc and Chart Marston Limited................................. (H) 2.3 Agreement and Plan of Merger, dated as of February 16, 1999, by and among the Company, Chart Acquisition Company and MVE Holdings, Inc......................................... (K) 2.4 Agreement and Plan of Merger, dated as of February 25, 1999, by and among the Company, Chart Acquisition Company and MVE Investors, LLC........................................ (K) 3.1 Amended and Restated Certificate of Incorporation of the Company, as filed with the Secretary of State of Delaware on December 3, 1992....................................... (A) 3.2 Amended and Restated By-Laws of the Company................. (A) 4.1 Specimen certificate of the Company's Common Stock.......... (B) 4.2 Form of Warrant Agreements of various dates by and between Cryenco Sciences, Inc. and various warrant holders........ (F) 4.3 Form of Amendment No. 1 to Warrant Agreement by and among the Company, Cryenco Sciences, Inc. and various warrant holders................................................... (F) 4.4 Form of Warrant Certificate................................. (F) 4.5 Rights Agreement, dated as of May 1, 1998, by and between the Company and National City Bank, as Rights Agent....... (I) 10.1 Form of Indemnity Agreement of the Company.................. (B) *10.2 Key Employees Stock Option Plan of the Company.............. (B) *10.3 1994 Stock Option Plan for Outside Directors of the Company................................................... *10.3.1 1995 Stock Option Plan for Outside Directors of the Company................................................... (C) *10.3.2 1996 Stock Option Plan for Outside Directors of the Company................................................... (D) *10.4 Amended and Restated 1997 Stock Option and Incentive Plan... *10.5 1997 Stock Bonus Plan....................................... (E) *10.6 Deferred Compensation Plan.................................. (J) 10.7 License Agreement, dated August 30, 1991, by and between Koch Industries, Inc. and PSI relating to the Ryan/Holmes Technology................................................ (B) 10.8 Lease, dated August 1991, by and between Koch Process Systems, Inc. and PSI..................................... (B) 10.9 Permitted User Agreement, dated as of March 27, 1998, by and between Chart Marston Limited and IMI Marston Limited..... (H) 10.10 1998-2001 Labor Agreement, dated March 25, 1998, by and between ALTEC and District Lodge 66 of the International Association of Machinists and Aerospace Workers, AFL-CIO................................................... 10.11 Agreement, effective July 21, 1996, by and between Process Engineering and The International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers & Helpers Local Lodge No. 752 of the AFL-CIO................ (D) *10.12 Employment Agreement, dated November 30, 1995, by and between Chart Management Company, Inc. and James R. Sadowski.................................................. (C) *10.13 Salary Continuation Agreement, dated May 12, 1996, by and between the Company and John T. Romain.................... *10.13.1 Amendment No. 1 to Salary Continuation Agreement, dated December 4, 1998, by and between the Company and John T. Romain....................................................
45
EXHIBIT NO. DESCRIPTION - --------------------- ----------- *10.14 Salary Continuation Agreement, dated May 22, 1996, by and between the Company and Don A. Baines..................... *10.14.1 Amendment No. 1 to Salary Continuation Agreement, dated December 4, 1998, by and between the Company and Don A. Baines.................................................... 10.15 Credit Agreement, dated as of April 12, 1999, by and among the Company, the Subsidiary Borrowers (as defined therein), the Subsidiary Guarantors (as defined therein), the Lenders (as defined therein), The Chase Manhattan Bank, as Administrative Agent, and National City Bank, as Documentation Agent....................................... (K) 10.15.1 Amendment No. 1, dated as of August 24, 1999, to the Credit Agreement, dated as of April 12, 1999, by and among the Company, the Subsidiary Borrowers (as defined therein), the Subsidiary Guarantors (as defined therein), the Lenders (as defined therein), The Chase Manhattan Bank, as Administrative Agent, and National City Bank, as Documentation Agent....................................... (L) 10.16 Indemnification and Warrant Purchase Agreement, dated as of April 12, 1999, by and among the Company, MVE Holdings, Inc. and each of the former members of MVE Investors, LLC listed on the signature pages thereto...... (K) 10.17 Form of Promissory Note..................................... (K) 10.18 Form of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing........................................ (K) 10.19 Warrant Agreement, dated as of April 12, 1999, between the Company and each of the persons listed on the signature pages thereto............................................. (K) 10.20 Escrow Agreement, dated as of April 12, 1999, by and among the Company, MVE Holdings, Inc., Chart Acquisition Company, ACI Capital I, LLC, in its own capacity and, with respect to the Class B Escrow Amount (as defined therein), as agent and attorney-in-fact for each of the former members of MVE Investors, LLC listed therein, and Firstar Bank of Minnesota, N.A.................................... (K) 21.1 Subsidiaries of the Registrant.............................. 23.1 Consent of Ernst & Young LLP................................ 27.1 Financial Data Schedule.....................................
- ------------------------ * Management contract or compensation plan or arrangement identified pursuant to Item 14(c) of this Form 10-K Annual Report. (A) Incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-1 (Reg. No. 333-35321). (B) Incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-1 (Reg. No. 33-52754). (C) Incorporated herein by reference to the appropriate exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1995. (D) Incorporated herein by reference to the appropriate exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1996. (E) Incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-8 (Reg. No. 333-32535). (F) Incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K, dated July 31, 1997. (G) Incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K, dated October 8, 1997. 46 (H) Incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K, dated March 27, 1998. (I) Incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form 8-A, filed June 3, 1998. (J) Incorporated herein by reference to the appropriate exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1999. (K) Incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K, dated April 12, 1999. (L) Incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K, dated August 24, 1999. 47 EX-10.3 2 EX-10.3 1994 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS Chart Industries, Inc., hereinafter referred to as the "Company," hereby adopts a stock option plan for eligible Directors of the Company (hereinafter referred to sometimes as "Optionees") pursuant to the following terms and provisions: 1. PURPOSE OF THE PLAN. The purpose of this plan, hereinafter referred to as the "Plan," is to provide additional incentive to those Directors of the Company who are not employees of the Company or any of its subsidiaries or affiliates by encouraging them to acquire a new or an additional share ownership in the Company, thus increasing their proprietary interest in the Company's business and providing them with an increased personal interest in the Company's continued success and progress. These objectives will be promoted through the grant of options to acquire Common Stock, par value $.01 per share (the "Common Stock"), of the Company pursuant to the terms of the Plan. Only those Directors who meet the qualifications stated above are eligible for and shall receive options under this Plan. 2. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective upon the date this Plan is approved by holders of a majority of the outstanding shares of voting capital stock of the Company which is present and entitled to vote thereon at a meeting or otherwise. In the case that the Company's stockholders have not approved the Plan within twelve (12) months after the date the Plan is adopted by the Board of Directors, the Plan and the options granted hereunder shall be null and void. 3. SHARES SUBJECT TO THE PLAN. The shares to be issued upon the exercise of the options granted under the Plan shall be shares of Common Stock of the Company. Either treasury or authorized and unissued shares of Common Stock, or both, as the Board of Directors shall from time to time determine, may be so issued. No shares of Common Stock which are subject of any lapsed, expired or terminated options may be made available for reoffering under the Plan. If an option granted under this Plan is exercised pursuant to the terms and conditions of subsection 5(b), any shares of Common Stock which are the subject thereof shall not thereafter be available for reoffering under the Plan. Subject to the provisions of the next succeeding paragraph of this Section 3, the aggregate number of shares of Common Stock for which options may be granted under the Plan shall be Fifty Thousand (50,000) shares of Common Stock. In the event that subsequent to the date of effectiveness of the Plan, the Common Stock should, as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or other such change, be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, then (i) there shall automatically be substituted for each share of Common Stock subject to an unexercised option (in whole or in part) granted under the Plan, each share of Common Stock available for additional grants of options under the Plan and each share of Common Stock made available for grant to each eligible Director pursuant to Section 4 hereof, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be changed or for which each such share of Common Stock shall be exchanged, (ii) the option price per share of Common Stock or unit of securities shall be increased or decreased proportionately so that the aggregate purchase price for the securities subject to the option shall remain the same as immediately prior to such event and (iii) the Board shall make such other adjustments as may be appropriate and equitable to prevent enlargement or 2 dilution of option rights. Any such adjustment may provide for the elimination of fractional shares. 4. GRANT OF OPTIONS. (a) INITIAL AUTOMATIC GRANT. Subject to the terms of the Plan, each eligible Director shall be granted a non-qualified stock option for 10,000 shares of Common Stock on the later of (1) the date of stockholder approval of the Plan or (2) the effective date of such Director's initial election as a member of the Board of Directors. Such grant shall occur automatically without any further action by the Board of Directors. (b) OPTION PRICE. The price at which each share of Common Stock may be purchased pursuant to an option granted under the Plan shall be equal to the "fair market value" (as determined pursuant to Section 7) for each such share as of the date on which the option is granted (the "Date of Grant"), but in no event shall such price be less than the par value of such shares of Common Stock. Anything contained in this subsection (b) to the contrary notwithstanding, in the event that the number of shares of Common Stock subject to any option is adjusted pursuant to Section 3, a corresponding adjustment shall be made in the price at which the shares of Common Stock subject to such option may thereafter be purchased. (c) DURATION OF OPTIONS. Each option granted under the Plan shall expire and all rights to purchase shares of Common Stock pursuant thereto shall cease on the date (the "Expiration Date") which shall be tenth anniversary of the Date of Grant of such option. (d) VESTING OF OPTIONS. Each option granted under the Plan shall be exercisable on each anniversary of the Date of Grant for up to a maximum of thirty-three and one-third percent (33-1/3%) of the total number of shares of Common Stock subject to the option, which annual rights of exercise shall be cumulative. 3 5. OPTION PROVISIONS. (a) LIMITATION ON EXERCISE AND TRANSFER OF OPTIONS. Only the Director to whom the option is granted may exercise the same except where a guardian or other legal representative has been duly appointed for such Director and except as otherwise provided in the case of such Director's death. No option granted hereunder shall be transferable otherwise than by the Last Will and Testament of the Director to whom it is granted or, if the Director dies intestate, by the applicable laws of descent and distribution. No option granted hereunder may be pledged or hypothecated, nor shall any such option be subject to execution, attachment or similar process. (b) EXERCISE OF OPTION. Each option granted hereunder may be exercised in whole or in part (to the maximum extent then exercisable) from time to time during the option period, but this right of exercise shall be limited to whole shares. Options shall be exercised by the Optionee (i) giving written notice to the Secretary of the Company at its principal business office, by certified mail, return receipt requested, of intention to exercise the same and the number of shares with respect to which the Option is being exercised (the "Notice of Exercise of Option") accompanied by full payment of the purchase price in cash or, with the consent of the Board, in whole or in part in shares of Common Stock having a fair market value on the date the option is exercised equal to that portion of the purchase price for which payment in cash is not made and (ii) making appropriate arrangements with the Company with respect to income tax withholding, as required, which arrangements may include, in lieu of other withholding arrangements, (a) the Company withholding from issuance to the Optionee such number of shares of Common Stock otherwise issuable upon exercise of the option as the Company and the Optionee may agree; provided that such Optionee has had on file with the Board of Directors, for at least six (6) months prior thereto, an effective standing election to satisfy said Optionee's tax withholding 4 obligations in such a fashion, which election form by its terms shall not be revocable or amendable for at least six (6) months or (b) with the consent of the Board of Directors, the Optionee's delivery to the Company of all of Common Stock having a fair market value on the date the option is exercised equal to that portion of the withholding obligation for which payment in cash is not made. Such Notice of Exercise of Option shall be deemed delivered upon deposit into the mails. (c) TERMINATION OF DIRECTORSHIP. If the Optionee ceases to be a Director of the Company, his or her option shall terminate three (3) months after the effective date of termination of his or her directorship and neither he or she nor any other personal shall have any right after such date to exercise all or any part of such option. If the termination of the directorship is due to death, then the option may be exercised within three (3) months after the Optionee's death by the Optionee's estate or by the person designated in the Optionee's Last Will and Testament or to whom transferred by the applicable laws of descent and distribution (the "Personal Representative"). Notwithstanding the foregoing, in no event shall any option be exercisable after the expiration of the option period and not to any greater extent than the Optionee would have been entitled to exercise the option at the time of death. (d) ACCELERATION OF EXERCISE OF OPTIONS IN CERTAIN EVENTS. Notwithstanding anything in the foregoing to the contrary, in the event of a "change in control" the eligible Director shall have the immediate right and option (notwithstanding the provisions to Section 4) to exercise the option with respect to all shares of Common Stock covered by the option, which exercise, if made, shall be irrevocable. The term "change in control" shall include, but not be limited to: (i) the first purchase of shares pursuant to a tender offer or exchange (other than a tender offer or exchange by the Company) for all or part of the Company's shares of any class of common stock or any securities of the Company's shares of any class of common stock 5 or any securities convertible into such common stock; (ii) the receipt by the Company of a Schedule 13D or other advise indicating that a person is the "beneficial owner" (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of twenty percent (20%) or more of the Company's shares of capital stock calculated as provide din paragraph (d) of said Rule 13d-3; (iii) the date of approval by stockholders of the Company of an agreement providing for any consolidation or merger of the Company in which the Company will not be the continuing or surviving corporation or pursuant to which shares of capital stock, of any class or any securities convertible into such capital stock, of the Company would be converted into cash, securities, or other property, other than a merger of the Company in which the holders of shares of all classes of the Company's capital stock immediately prior to the merger would have the same proportion of ownership of common stock of the surviving corporation immediately after the merger; (iv) the date of the approval by stockholders of the Company of any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company; or (v) the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of the Company. (e) OPTION AGREEMENTS. Options granted under the Plan shall be subject to the further terms and provisions of an Option Agreement, a copy of which is attached hereto as Exhibit A, the execution of which by each Optionee shall be a condition to the receipt of an option. 6. INVESTMENT REPRESENTATION; APPROVALS AND LISTING. The options to be granted hereunder shall be further conditioned upon receipt of the following investment representation from the Optionee: 6 "I further agree that any shares of Common Stock of Chart Industries, Inc. which I may acquire by virtue of this option shall be acquired for investment purposes only and not with a view to distribution or resale; provided, however, that this restriction shall become inoperative in the event the said shares of Common Stock subject to this option shall be registered under the Securities Act of 1933, as amended, or in the event Chart Industries, Inc. is otherwise satisfied that the offer or sale of the shares of Common Stock subject to his option may be lawfully made without registration of the said shares of common stock under the Securities Act of 1933, as amended." The Company shall not be required to issue any certificate or certificates for shares of Common Stock upon the exercise of an option granted under the plan prior to (i) the obtaining of any approval from any governmental agency which the Company shall, in its sole discretion, determine to be necessary or advisable, (ii) the admission of such shares of Common Stock to listing on any national securities exchange on which the Common Stock may be listed, (iii) the completion of any registration or other qualification of the shares of Common Stock under any state or federal law or ruling or regulations of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable or the determination by the Company, in its sole discretion, that any registration or other qualification of the shares of Common Stock is not necessary or advisable and (iv) the obtaining of an investment representation from the Optionee in one form stated above or in such other form as the Company, in its sole discretion, shall determine to be adequate. 7 7. GENERAL PROVISIONS. For all purposes of this Plan the fair market value of a share of Common Stock shall be determined as follows: so long as the Common Stock of the Company is listed upon an established stock exchange or exchanges such fair market value shall be determined to be the highest closing price of a share of such Common Stock on such stock exchange or exchanges on the day the option is granted (or the date the shares of Common Stock are tendered as payment, in the case of determining fair market value for that purpose) or if no sale of such Common Stock shall have been made on any stock exchange on that day, then on the closest preceding day on which there was a sale of such Common Stock, and during any period of time as such Common is not listed upon an established stock exchange the fair market value per share shall be the mean between dealer "Bid" and "Ask" prices of such Common Stock in the over-the-counter market on the day the option is granted (or the day the shares of Common Stock are tendered as payment, in the case of determining fair market value for that purpose), as reported by the National Association of Securities Dealers, Inc. The liability of the Company under the Plan and any distribution of Common Stock made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of the Plan shall be construed to impose any liability on the Company in favor of any person with respect to any loss, cost of expenses which the person may incur in connection with or arising out of any transaction in connection with the Plan, including, but not limited to, any liability to any federal, state, or local tax authority and/or any securities regulatory authority. Nothing in the Plan or in any option agreement shall confer upon any Optionee any right to continue as a Director of the Company, or to be entitled to any remuneration or benefits not set forth in the Plan or such option. 8 Nothing contained in the Plan or in option agreement shall be construed as entitling any Optionee to any rights of a stockholder as a result of the grant of an option until such time as shares of Common Stock are actually issued to such Optionee pursuant to the exercise of an option. The Plan may be assumed by the successors and assigns of the Company. The Plan shall not be amended more than once every six (6) months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. The case proceeds received by the Company from the issuance of Common Stock pursuant to the Plan will be used for general corporate purposes or in such other manner as the Board of Directors deems appropriate. The expense of administering the Plan shall be borne by the Company. The captions and section numbers appearing in the Plan are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of the Plan. 8. TERMINATION OF THE PLAN. The Plan shall terminate ten (10) years from the date of its adoption by the Board of Directors of the Company and thereafter no options shall be granted hereunder. All options outstanding at the time of termination of the Plan shall continue in full force and effect in accordance with and subject to their terms and the terms and conditions of the Plan. 9. TAXES. Appropriate provisions shall be made for all taxes required to be withheld and/or paid in connection with the options or the exercise thereof, and the transfer of shares of 9 Common Stock pursuant thereto, under the applicable laws or other regulations of any governmental authority, whether federal, state, or local and whether domestic or foreign. 10. GOVERNING LAW. The Plan shall be governed by and construed in accordance with the laws of the State of Delaware and any applicable federal law. 11. VENUE. The venue of any claim brought hereunder by an eligible Director shall be Cleveland, Ohio. 12. CHANGES IN GOVERNING RULES AND REGULATIONS. All references herein to the Internal Revenue Code, or sections thereof, or to rules and regulations of the Department of Treasury or of the Securities and Exchange Commission, shall mean and include the Code sections thereof and such rules and regulations as are now in effect or as they may be subsequently amended, modified, substituted or superseded. IN WITNESS WHEREOF, CHART INDUSTRIES, INC., by its appropriate officers duly authorized, has executed this instrument this 15th day of February, 1994. CHART INDUSTRIES, INC. By: /s/ Arthur S. Holmes ---------------------------------------- Arthur S. Holmes, Chairman and Chief Executive Officer And: /s/ Don A. Baines ---------------------------------------- Don A. Baines, Chief Financial Officer and Treasurer 10 EX-10.4 3 EX-10.4 AMENDED AND RESTATED CHART INDUSTRIES, INC. 1997 STOCK OPTION AND INCENTIVE PLAN SECTION 1. PURPOSE The Chart Industries, Inc. 1997 Stock Option and Incentive Plan, as the same may be amended (the "Plan"), is designed to foster the long-term growth and performance of the Company by: (a) enhancing the Company's ability to attract and retain highly qualified Directors and employees; (b) motivating Directors and employees to serve and promote the long-term interests of the Company and its stockholders through stock ownership and performance-based incentives; and (c) providing the Company with flexibility to provide stock-based incentives to consultants whose services are anticipated to promote the Company's long-term business objectives. To achieve this purpose, the Plan provides authority for the grant of Stock Options and Stock Appreciation Rights. SECTION 2. DEFINITIONS (a) "ACQUISITION CONSIDERATION" shall be defined in Section 12 hereof. (b) "AFFILIATE" shall have the meaning ascribed to that term in Rule 12b-2 promulgated under the Exchange Act. (c) "AWARD" shall mean the grant of Stock Options and Stock Appreciation Rights under this Plan. (d) "AWARD AGREEMENT" shall mean any agreement between the Company and a Participant that sets forth terms, conditions, and restrictions applicable to an Award. (e) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company. (f) "CHANGE IN CONTROL" shall include, but not be limited to: (i) the first purchase of shares by a Third Party pursuant to a tender offer or exchange (other than a tender offer or exchange by the Company) for all or part of the Company's Common Stock of any class or any securities convertible into such Common Stock; (ii) the receipt by the Company of a Schedule 13D or other advice indicating that a Third Party is the "beneficial owner" (as that term is defined in Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of the Company's Common Stock calculated as provided in paragraph (d) of said Rule 13d-3; (iii) the date of approval by stockholders of the Company of an agreement providing for any consolidation or merger of the Company in which the Company will not be the continuing or surviving corporation or pursuant to which shares of capital stock of any class, or any securities convertible into such capital stock, of the Company would be converted into cash, securities or other property, other than a merger of the Company in which the holders of common stock of all classes of the Company immediately prior to the merger would have the same proportion of ownership of common stock of the surviving corporation immediately after the merger; (iv) the date of the approval by stockholders of the Company of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company; (v) the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of the Company; or (vi) such other event as the Committee shall in its sole and absolute discretion, deem to be a "Change in Control" for purposes of this Plan or any Notice of Award or Award Agreement entered into pursuant hereto. The manner of application and interpretation of the foregoing provisions shall be determined by the Committee in its sole and absolute discretion. (g) "CODE" shall mean the Internal Revenue Code of 1988, or any law that supersedes or replaces it, as amended from time to time. (h) "COMMITTEE" shall mean the Compensation Committee of the Board of Directors, or any other committee of the Board of Directors that the Board of Directors authorizes to administer this Plan. The Committee will be constituted in a manner that satisfies the "non-employee director" standard set forth in Rule 16b-3 and the "outside director" requirements of Section 162(m) of the Code. (i) "COMMON STOCK" shall mean shares of Common Stock, $.01 par value, of Chart Industries, Inc., including authorized and unissued shares and treasury shares. (j) "COMPANY" shall mean Chart Industries, Inc., a Delaware corporation, and its direct and indirect subsidiaries. (k) "DIRECTOR" shall mean a director of Chart Industries, Inc. (l) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, and any law that supersedes or replaces it, as amended from time to time. (m) "FAIR MARKET VALUE" of Common Stock shall mean the value of the Common Stock determined by the Committee, or pursuant to rules established by the Committee on a basis consistent with regulations under the Code. (n) "INCENTIVE STOCK OPTION" shall mean a Stock Option that meets the requirements of Section 422 of the Code. (o) "NOTICE OF AWARD" shall mean any notice by the Committee to a Participant that advises the participant of the grant of an Award or sets forth terms, conditions, and restrictions applicable to an Award. (p) "PARTICIPANT" shall mean any person to whom an Award has been granted under this Plan. (q) "PERSON" shall mean an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a governmental authority. (r) "RULE 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act, or any rule that supersedes or replaces it, as amended from time to time. (s) "STOCK APPRECIATION RIGHT" shall mean an Award granted pursuant to Section 6(b)(i) hereof. (t) "STOCK EQUIVALENT UNIT" shall mean an Award that is valued by reference to the value of shares of Common Stock. (u) "STOCK OPTION" shall mean an Award granted pursuant to Section 6(b)(ii) hereof. (v) "THIRD PARTY" shall mean any person, group or entity other than Arthur S. Holmes or Charles S. Holmes. SECTION 3. ELIGIBILITY All Directors and employees of, and consultants to, the Company and its Affiliates, are eligible for the grant of Awards. The selection of any such persons to receive Awards will be within the discretion of the Committee. More than one Award may be granted to the same person. Notwithstanding the foregoing, (i) no member of the Committee shall be eligible to receive Awards under the Plan during the period of his or her service thereon and (ii) any individual that renounces in writing any right that he or she may have to receive Awards under the Plan shall not be eligible to receive any Awards hereunder. SECTION 4. SHARES OF COMMON STOCK AVAILABLE FOR AWARDS; ADJUSTMENT (a) NUMBER OF SHARES OF COMMON STOCK. The aggregate number of shares of Common stock that may be subject to Awards granted under this Plan during the term of this Plan will be equal to 862,500 shares of Common Stock, subject to any adjustments made in accordance with the terms of this Section 4. The assumption of obligations in respect of awards granted by an organization acquired by the Company, or the grant of Awards under this Plan in substitution for any such awards, will not reduce the number of shares of Common Stock available in any fiscal year for the grant of Awards under this Plan. Shares of Common Stock subject to an Award that is forfeited, terminated, or canceled without having been exercised (other than shares of Common Stock subject to a Stock Option that is canceled upon the exercise of a related Stock Appreciation Right) will again be available for grant under this Plan, without reducing the number of shares of Common Stock available in any fiscal year for grant of Awards under this Plan, except to the extent that the availability of those shares of Common Stock would cause this Plan or any Awards granted under this Plan to fail to qualify for the exemption provided by Rule 16b-3. (b) NO FRACTIONAL SHARES. No fractional shares of Common Stock will be issued, and the Committee will determine the manner in which the value of fractional shares of Common Stock will be treated. (c) ADJUSTMENT. In the event of any change in the Common Stock by reason of a merger, consolidation, reorganization, recapitalization, or similar transaction, including any transaction described under Section 424(a) of the Code, or in the event of a stock dividend, stock split, or distribution to stockholders (other than normal cash dividends), the Committee will have authority to adjust, in any manner that it deems equitable, the number and class of shares of Common Stock subject to outstanding Awards, the exercise price applicable to outstanding Awards, and the Fair Market Value of the shares of Common Stock and other value determinations applicable to outstanding Awards, including as may be allowed or required under Section 424(a) of the Code. SECTION 5. ADMINISTRATION (a) COMMITTEE. This Plan will be administered by the Committee. The Committee will, subject to the terms of this Plan, have the authority to: (i) select the eligible Directors, employees and consultants who will receive Awards; (ii) grant Awards; (iii) determine the number and types of Awards to be granted to eligible Directors, employees and consultants; (iv) determine the terms, conditions, vesting periods, and restrictions applicable to Awards, including timing and price; (v) adopt, alter, and repeal administrative rules and practices governing this Plan; (vi) interpret the terms and provisions of this Plan and any Awards granted under this Plan, including, where applicable, determining the method of valuing any Award and certifying as to the satisfaction of such Awards; (vii) prescribe the forms of any Notices of Award, Award Agreements, or other instruments relating to Awards; and (viii) otherwise supervise the administration of this Plan. (b) DELEGATION. The Committee may delegate any of its authority to any other person or persons that it deems appropriate, provided the delegation does not cause this Plan or any Awards granted under this Plan to fail to qualify for the exemption provided by Rule 16b-3. (c) DECISIONS FINAL. All decisions by the Committee, and by any other Person or Persons to whom the Committee has delegated authority, to the extent permitted by law, will be final and binding on all Persons. (d) NO LIABILITY. Neither the Committee nor any of its members shall be liable for any act taken by the Committee pursuant to the Plan. No member of the Committee shall be liable for the act of any other member. SECTION 6. AWARDS (a) GRANT OF AWARDS. The Committee will determine the type or types of Awards to be granted to each Participant and will set forth in the related Notice of Award or Award Agreement the terms, conditions, vesting periods, and restrictions applicable to each Award. Awards may be granted singly or in combination or tandem with other Awards. Awards may also be granted in replacement of, or in substitution for, other awards granted by the Company, whether or not granted under this Plan. The Company may assume obligations in respect of awards granted by any Person acquired by the Company or may grant Awards in replacement of, or in substitution for, any such awards. (b) TYPES OF AWARDS. Awards may include, but are not limited to the following: (i) STOCK APPRECIATION RIGHTS. A Participant who is granted an Award which is a Stock Appreciation Right shall have the right to receive a payment in cash or shares of Common Stock, equal to the excess of (A) the Fair Market Value, or other specified valuation, of a specified number of shares of Common Stock on the date the right is exercised over (B) the Fair Market Value, or other specified valuation, of such shares of Common Stock on the date the right is granted, all as determined by the Committee. The right may be conditioned upon the occurrence of certain events, such as a Change in Control of the Company, or may be unconditional, as determined by the Committee. (ii) STOCK OPTIONS. A Participant who is granted an Award which is a Stock Option shall have the right to purchase a specified number of shares of Common Stock, during a specified period, and at a specified exercise price, all as determined by the Committee. A Stock Option may be an Incentive Stock Option or a Stock Option that does not qualify as an Incentive Stock Option. In addition to the terms, conditions, vesting periods, and restrictions established by the Committee, Incentive Stock Options must comply with the requirements of Section 422 of the Code. The exercise price of a Stock Option that does not qualify as an Incentive Stock Option may be more or less than the Fair Market Value of the shares of Common Stock on the date the Stock Option is granted. (c) LIMITS ON AWARDS. The maximum aggregate number of shares of Common Stock (i) for which Stock Options may be granted, and (ii) with respect to which Stock Appreciation Rights may be granted, to any particular employee during any calendar year during the term of this Plan is 168,750, subject to adjustment in accordance with Section 4(c). (d) TERMINATION OF AWARDS. Any Award granted under this Plan shall expire, and the Participant to whom such Award was granted shall have no further rights with respect thereto, on the tenth anniversary of the date of grant of such Award, or on such earlier date as may be established by the Committee and provided in the Notice of Award or Award Agreement with respect to such Award. SECTION 7. DEFERRAL OF PAYMENT With the approval of the Committee, the delivery of the shares of Common Stock cash, or any combination thereof subject to an Award may be deferred, either in the form of installments or a single future delivery. The Committee may also permit selected Participants to defer the receipt of some or all of their Awards, as well as other compensation, in accordance with procedures established by the Committee to assure that the recognition of taxable income is deferred under the Code. Deferred amounts may, to the extent permitted by the Committee, be credited as cash or Stock Equivalent Units. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and dividend equivalents on Stock Equivalent Units. SECTION 8. PAYMENT OF EXERCISE PRICE The exercise price of a Stock Option (other than an Incentive Stock Option) and any other Award for which the Committee has established an exercise price may be paid in cash, by the transfer of shares of Common Stock, or by a combination of these methods, as and to the extent permitted by the Committee. The exercise price of an Incentive Stock Option may be paid in cash, by the transfer of shares of Common Stock, or by a combination of these methods, as and to the extent permitted by the Committee but may not be paid by the surrender of all or part of an Award. The Committee may prescribe any other method of paying the exercise price that it determines to be consistent with applicable law and the purpose of this Plan. SECTION 9. TAXES ASSOCIATED WITH AWARDS Prior to the payment of an Award or upon the exercise or release thereof, the Company may withhold, or require a Participant to remit to the Company, an amount sufficient to pay any federal, state, and local taxes associated with the Award. The Committee may, in its discretion and subject to such rules as the Committee may adopt, permit a Participant to pay any or all taxes associated with the Award (other than an Incentive Stock Option) in cash, by the transfer of shares of Common Stock, or by a combination of these methods. The Committee may permit a Participant to pay any or all taxes associated with an Incentive Stock Option in cash, by the transfer of shares of Common Stock, or by a combination of these methods or by any other method which does not disqualify the option as an Incentive Stock Option under applicable provisions of the Code. SECTION 10. TERMINATION OF EMPLOYMENT If the employment of a Participant terminates for any reason, all unexercised, deferred, and unpaid Awards may be exercisable or paid only in accordance with rules established by the Committee or as specified in the particular Award Agreement or Notice of Award. Such rules may provide, as the Committee deems appropriate, for the expiration, continuation, or acceleration of the vesting of all or part of the Awards. SECTION 11. TERMINATION OF AWARDS UNDER CERTAIN CONDITIONS The Committee may cancel any unexpired, unpaid, or deferred Awards at any time if the Participant is not in compliance with all applicable provisions of this Plan or with any Notice of Award or Award Agreement or if the Participant, without the prior written consent of the Company, engages in any of the following activities: (i) Renders services for an organization, or engages in a business, that is, in the judgment of the Committee, in competition with the Company. (ii) Discloses to anyone outside of the Company, or uses for any purpose other than the Company's business any confidential information or material relating to the Company, whether acquired by the Participant during or after employment with the Company, in a fashion or with a result that the Committee, in its judgment, deems is or may be injurious to the bet interests of the Company. The Committee may, in its discretion and as a condition to the exercise of an Award, require a Participant to acknowledge in writing that he or she is in compliance with all applicable provisions of this Plan and of any Notice of Award or Award Agreement and has not engaged in any activities referred to in clauses (i) and (ii) above. SECTION 12. CHANGE IN CONTROL In the event of a Change in Control of the Company, the Committee shall have the right, in its sole discretion, to (i) accelerate the exercisability of any Stock Options and Stock Appreciation Rights, notwithstanding any limitations set forth in the Plan; (ii) cancel all outstanding Stock Options and Stock Appreciation Rights in exchange for the kind and amount of shares of the surviving or new corporation, cash, securities, evidences of indebtedness, other property or any combination thereof receivable in respect of one share of Common Stock upon consummation of the transaction in question (the "Acquisition Consideration") that (a) with respect to Awards of Stock Options, the Participant would have received had the Stock Option been exercised prior to such transaction, less the applicable exercise price therefor, and (b) with respect to a Stock Appreciation Right, the Participant would have received had payment therefor been made by the Company prior to such transaction in shares of Common Stock; (iii) cause the Participant to have the right thereafter and during the term of the Stock Option or Stock Appreciation Right, to receive upon exercise thereof the Acquisition Consideration receivable upon the consummation of such transaction by a holder of the number of shares of Common Stock which might have been obtained upon exercise of all or any portion thereof; or (iv) take such other action as it deems appropriate to preserve the value of the Award to the Participant. Alternatively, the Committee shall also have the right to require any purchaser of the Company's assets or stock, as the case may be, to take any of the actions set forth in the preceding sentence as such purchaser may determine to be appropriate or desirable. SECTION 13. AMENDMENT, SUSPENSION, OR TERMINATION OF THIS PLAN; AMENDMENT OF OUTSTANDING AWARDS (a) AMENDMENT, SUSPENSION, OR TERMINATION OF THIS PLAN. The Board of Directors may amend, suspend, or terminate this Plan at any time; provided, however, that in no event, without the approval of the Company's shareholders, shall any action of the Committee or the Board of Directors result in: (i) increasing, except as provided in Section 4(c) hereof, the maximum number of shares of Common Stock that may be subject to Awards granted under the Plan; (ii) making any changes which would cause any option granted under the Plan as an Incentive Stock Option not to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code; or (iii) making any change which would eliminate the exemption provided by Rule 16b-3 for this Plan and for Awards granted under this Plan. (b) AMENDMENT OF OUTSTANDING AWARDS. The Committee may, in its discretion, amend the terms of any Award, prospectively or retroactively, but no such amendment may impair the rights of any Participant without his or her consent. The Committee may, in whole or in part, waive any restrictions or conditions applicable to, or accelerate the vesting of, any Award. SECTION 14. AWARDS TO FOREIGN NATIONALS AND EMPLOYEES OUTSIDE THE UNITED STATES To the extent that the Committee deems appropriate to comply with foreign law or practice and to further the purpose of this Plan, the Committee may, without amending this Plan, (i) establish special rules applicable to Awards granted to Participants who are foreign nationals, are employed outside the United States, or both, including rules that differ from those established under this Plan, and (ii) grant Awards to such Participants in accordance with those rules. SECTION 15. NONASSIGNABILITY Unless otherwise determined by the Committee, (i) no Award granted under the Plan may be transferred or assigned by the Participant to whom it is granted other than by will, pursuant to the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code, and (ii) an Award granted under this Plan may be exercised, during the Participant's lifetime, only by the Participant or by the Participant's guardian or legal representative. Notwithstanding the foregoing, no Incentive Stock Option may be transferred or assigned pursuant to a qualified domestic relations order or exercised, during the Participant's lifetime, by the Participant's guardian or legal representative. SECTION 16. TERMS OF AWARDS AND RELATED AGREEMENTS NEED NOT BE IDENTICAL The form and substance of Awards, Award Agreements and Notices of Awards, whether granted at the same or different times, need not be identical. Subject only to the terms of the Plan, the Committee shall have the authority to prescribe the terms of any Awards and the provisions of any Award Agreements, Notices of Award or other instruments entered into with respect to the same; it being expressly understood that the Committee shall have the authority to include in any such Award Agreements, Notices of Award or other instruments relating to Awards, such representations, warranties, covenants and agreements on behalf of the Company or the participant as it deems necessary or appropriate, including, without limitation, covenants relating to non-competition, non-solicitation and non-disclosure of confidential information. SECTION 17. GOVERNING LAW The interpretation, validity, and enforcement of this Plan will, to the extent not otherwise governed by the Code or the securities laws of the United States, be governed by the laws of the State of Delaware. SECTION 18. NO RIGHTS AS EMPLOYEES/STOCKHOLDERS Nothing in the Plan or in any Award Agreement or Notice of Award shall confer upon any Participant any right to continue in the employ of the Company or an Affiliate, or to serve as a member of the Board or to be entitled to receive any remuneration or benefits not set forth in the Plan or such Award Agreement or Notice of Award, or to interfere with or limit either the right of the Company or an Affiliate to terminate the employment of such Participant at any time or the right of the stockholders of the Company to remove him or her as a member of the Board with or without cause. Nothing contained in the Plan or in any Award Agreement or Notice of Award shall be construed as entitling any Participant to any rights of a stockholder as a result of the grant of an Award until such time as shares of Common Stock are actually issued to such Participant pursuant to the exercise of a Stock Option or Stock Appreciation Right. SECTION 19. EFFECTIVE AND TERMINATION DATES (a) EFFECTIVE DATE. This Plan, as amended and restated, was approved by the Compensation Committee of the Board of Directors on February 11, 1999 and becomes effective upon adoption by the affirmative vote of the holders of a majority of the voting power of the Company represented by the shares of Common Stock present and eligible to vote, in person or by proxy, at any annual or special meeting of stockholders at which a quorum is present. The Plan, as amended and restated, shall be deemed to be adopted on the date of such stockholder meeting. (b) TERMINATION DATE. This Plan will continue in effect until midnight on May 1, 2007; provided, however, that Awards granted on or before that date may extend beyond that date and restrictions and other terms and conditions imposed on Restricted Stock or any other Award granted on or before that date may extend beyond such date. EX-10.10 4 EX-10.10 IAM AGREEMENT 1998 - 2001 ARTICLE I - RECOGNITION 1 ALTEC International (hereinafter referred to as the "Company") recognizes Local Lodge 2191 of District Lodge 66 of The International Association of Machinists and Aerospace Workers, AFL-CIO (hereinafter referred to as the "Union") as the sole and exclusive bargaining agent for its employees at its La Crosse, Wisconsin manufacturing facility for the purpose of collective bargaining with respect to the wages, hours and working conditions of said employees. 2 As used in this Agreement, the terms "employee" and "employees" shall include all production and maintenance employees, including all craters, receiving clerks and toolroom employees, but shall exclude all administrative employees, factory office clerical employees, engineers and technical employees, standards and factory cost department employees, professional employees, guards, safety inspectors, nurses, student trainees and all supervisory employees as defined in the Labor Management Relations Act. 3 Employees in the above excluded jobs are not covered by this Agreement; but if employees currently in such jobs subsequently take other jobs within the coverage of this Agreement, then such employees shall be eligible to membership in the Union upon such notification to them by the Company. 4 This Agreement shall be binding on any and all successors and assigns, who by purchase, lease, transfer of stock or merger, acquire control of the Company's manufacturing facility in La Crosse, Wisconsin. ARTICLE II - UNION SECURITY 5 Employees eligible for Union membership as defined in this Agreement shall be required at the expiration of their probationary period to become and remain members of the Union in good standing with respect to the payment of uniformly levied initiation fee and periodic dues as a condition of employment. ARTICLE III - HOURS REGULAR WORK DAY AND WEEK 6 Eight (8) hours shall constitute a regular day's work and not more than forty (40) hours shall constitute a regular week's work. The regular work week will begin at 11:00 p.m. on Sunday and will end on Friday. 1 SHIFT HOURS 7 The shifts may consist of one day and two night shifts. The regular working hours are as follows: 3rd Shift 11:00 P.M. to 7:00 A.M. 1st Shift 7:00 A.M. to 3:00 P.M. 2nd Shift 3:00 P.M. to 11:00 P.M. Third shift weekly start will be 11:00 P.M., Sunday. 8 Regular Lunch Periods. 1st Shift 11:30 A.M. or 12:00 Noon 2nd Shift 8:30 P.M. or 9:00 P.M. 3rd Shift 4:00 A.M. or 4:30 A.M. All employees are assigned to a three shift basis and will have a paid 15 minute lunch period starting at one of the times listed above in this paragraph. ARTICLE IV - OVERTIME GENERAL 9 Union members will cooperate in working of necessary overtime; however, an employee shall have the right to refuse to perform overtime work where the Company is able to secure someone else who is experienced to perform the work. 10 An employee shall have the right to refuse to accept overtime work whenever they have a reasonable excuse or where the length of time is so excessive so as to endanger their health. 11 It shall be the policy of the Company to ask for overtime before 12 o'clock for the day shift - 9 o'clock for the second shift and the day before for the third shift for daily overtime. In no event shall a first or second shift employee be required to work Saturday when notification is given later than the end of the employee's Thursday shift nor where the Saturday shift is more than five (5) hours. For first and second shift employees, the Company will schedule consecutive 5-hour shifts on Saturday and/or Sunday except production needs require another schedule. When two shifts are being scheduled, the first and second shifts will be scheduled for the same number of hours. Third shift employees will not be required to work Saturday when notification is given later than one hour after the beginning of the Thursday shift. The normal Saturday or Sunday shift for third shift employees is eight (8) consecutive hours. If a change in schedule is necessary, the area committeeman will be notified and given the reason for such deviation - this will be done before the deviation whenever possible. 1st and 2nd shifts will have the right to work five (5) hours starting on their regular Saturday and Sunday shift, since the regular shift on weekends is five (5) hours. 2 OVERTIME PREMIUM 12 All hours worked in excess of eight (8) in a work day will be paid at one and one-half (1-1/2) times the regular straight time hourly rate. 13 When an employee works hours prior to or after their normal shift they will be paid overtime at time and one-half. The exception to this is when an employee requests earlier starting and stopping time and the Management agrees, then the Company is not obligated to pay overtime hours before or after their regularly scheduled shift. 14 The Management has agreed to pay double time for all overtime hours worked which exceed sixteen (16) hours in any one week with the understanding with the Shop Committee that the Management has a right to replace the employee that is working and has put in sixteen (16) hours overtime. The Management will make the transfers in such cases. The Management will replace the employee with an employee from within the department as follows: 1. With an employee from the same department and shift. 2. If possible with an employee from the same department on another shift. 3. Where employees for replacement are not available within the department, employees capable of performing the work will be transferred in from other Departments. Hours worked on a day observed as a holiday under this Agreement will be included in such sixteen (16) hours under this paragraph. SATURDAY AND HOLIDAY PAY 15 All Saturday work shall be paid for at the rate of one and one-half (1-1/2) times the hourly rate including third shift Saturday work which starts at 11:00 p.m. on Friday. All work done on Sunday and legal holidays shall be paid for at the rate of double time except where a regular third shift starts on a Sunday or a holiday and then the regular working hours shall be compensated at the applicable regular rate. OVERTIME CHARGING 16 An employee's overtime record shall be credited with overtime when they are asked whether they work or not. If the department works overtime, an absent employee's overtime record shall be charged with any overtime for which they would have been eligible had they not been absent, including an employee on vacation or sick leave. An employee on a day-at-a-time vacation when overtime is scheduled but who returns before the overtime is worked shall be asked for that overtime if such employee is eligible and qualified. If such employee replaces another employee, the employee being replaced is not charged for that overtime. An employee's absence on Thursday will not jeopardize that employee's rights to weekend overtime if they return to work on Friday. However, it will be the employee's responsibility to communicate with management no later than the start of the lunch period of their Friday shift to determine if weekend overtime is available. 3 Where the applicable rate of pay is time and one-half, the employee will be charged with one and one-half hours overtime for each overtime hour. Where the applicable rate of pay is double time, the employee will be charged with two hours overtime for each overtime hour. An employee asked to work overtime after the deadlines defined in Paragraph 11, where the overtime is in a department or shift other than their own, will not be charged with such overtime refused but will be charged if they work such overtime. An employee who is asked to work additional overtime while working a weekend overtime shift, will not be charged for such additional overtime if refused, but will be charged if they work such additional overtime. Telephone offers of overtime where management reaches the employee are charged whether or not the overtime is worked. Where a message is left with someone other than the employee, and the employee fails to work, the overtime will not be charged. All work, or refusal of work, on a day observed as a holiday under this Agreement is charged. An employee who accepts an overtime assignment but fails to report for and work such assignment without being excused by management will be charged at double the rate charged if the overtime were worked, starting with the second such instance. Starting with the third such instance, the employee will be charged triple the rate charged if the overtime were worked. No double charge or triple charge will be made for an overtime assignment missed due to hospitalization of the employee or death or hospitalization of a member of the employee's immediate family. 17 When an employee is transferred to a different Department, they will get the average overtime for that Department. When they are transferred back to their Home Department, they will receive the overtime average of their Home Department. OVERTIME DISTRIBUTION 18 The supervisor will keep daily records of all overtime worked by the employees. In order that the overtime within the various departments is distributed as evenly as possible, those with the least amount of overtime shall be asked to work first among those qualified to do the work. It is recognized that an employee may be qualified to do the overtime work without holding the applicable job classification. If an employee is eligible for overtime but declines the hours that are offered, the overtime may be offered to the next qualified employee. The foreman's copy of the overtime record will be posted at the foreman's desk and kept as current as possible. The names and work centers, where applicable, of those scheduled for weekend overtime work in the department and shift will be displayed in the department area by the supervisor prior to the overtime work to permit checking by employees so they may determine before the overtime is worked if any errors in selection have been made. This information is to be used by employees to point out any overtime assignment errors to the supervisor before the overtime is worked, wherever possible. When an entire shift in a department is scheduled for weekend work, a notice displayed to that effect need not include names and work centers. 4 19 The Company will continue its practice of distributing overtime as equally as possible on the shift in a department. It is further agreed that the Company will maintain as close a balance of overtime hours among the shifts within a department as production necessities and individual skills allow. OVERTIME ENTITLEMENT ON TRANSFER OR PROBATION 20 A transferred employee shall have to work five (5) days before they are entitled to overtime. However, they may work if all other people in the Department have been asked. 21 Probationary employees will not be asked to work until all employees with seniority working in the department and on the shift, including transferred employees, have been asked to work; except that when all employees in the department on all shifts who are qualified for the work involved have been asked to work and more employees are needed, qualified probationary employees may be asked. ARTICLE V - HOLIDAYS PAID HOLIDAYS 22 All employees on the seniority list shall receive eight (8) hours pay at their regular straight time hourly rate inclusive of shift premiums for the following holidays: New Year's Day, Good Friday, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, day after Thanksgiving Day, December twenty-fourth, Christmas Day and December thirty-first, providing the employee has worked a major part of their last scheduled work day before and the major part of their first scheduled work day after the holiday, providing such days are in the same work week as the holiday; except where this work requirement is specifically waived by the Company for reasons of personal urgency. 23 When December twenty-fourth and December thirty-first fall on Saturday or Sunday, the holidays will be observed on the preceding Friday. When any other holiday listed above falls on Saturday, it will be observed on the preceding Friday. ON LAYOFF AND SICK OR MILITARY LEAVE 24 Employees who have been laid off in a reduction of force during the work week prior to or during the week in which the holiday falls shall receive pay for such holiday. In the event one of the paid holidays falls during an employee's vacation, they have the option of substituting the day(s) before or the day(s) after their vacation for said holiday(s). 25 Employees who go on sick leave during the work week prior to or during the week in which the holiday falls shall receive pay for such holiday. Employees who go on military leave during the first or second work week prior to or during the week in which the holiday falls shall receive pay for such holiday. 5 ARTICLE VI - OTHER PAY PROVISIONS CALL BACK PAY 26 Any employee called back for work outside their regularly scheduled hours shall receive not less than two (2) hours pay at their applicable rate. REPORTING PAY 27 When an employee reports for work and no work is available, they shall be paid up to four (4) hours at their regular straight time rate for the time lost during the first half of their shift unless they were notified in advance of the starting time of their shift not to report for work. However, if stoppage of work is due to fire, lightning, failure of power lines or other causes beyond the Company's control no payment for lost time shall be made. 28 The Management agrees that an employee shall be notified when not to report for work by either, the supervisor of their department, the Personnel Department or the Management, provided the employee has furnished the correct phone number to the Company. If the correct phone number is not provided and the employee cannot be contacted, no reporting pay will be paid. TIME LOST DUE TO INJURY 29 If it has been established that an injury to an employee has arisen out of and in the course of their employment with the Company, and the employee is instructed by the Medical Department to receive outside treatment for the injury during the current shift, they will be paid for time necessary to obtain such treatment. If follow-up outside treatment is required which cannot be scheduled outside the employee's regular working hours, the employee will be paid up to two (2) hours at their regular straight time hourly rate for time lost from their regular working hours for any such follow-up visits. 30 In the event an employee is instructed by the Medical Department to receive subsequent outside treatment during their regular shift because of their inability to continue work due to the original injury, they will be paid for time necessary to obtain such treatment. 31 In any case in which an employee believes outside treatment for the injury is necessary during their regular working hours even though the Medical Department has refused to instruct them to receive such outside treatment, the employee may at their option leave work to receive outside treatment. Should it be determined that the treatment was necessary in order the employee continue work or if it is determined that they are unable to continue work, the employee will be paid for the time lost from their regular working hours in accordance with Paragraphs 29, 30, and 32. 6 32 If the employee loses time and the attending physician determines they is physically unable to work the balance of the shift on which they received outside treatment due to the severity of the injury, they shall be paid for the balance of that regular shift, but not to exceed eight (8) regular hours, upon furnishing proof of the physician's determination. If an employee is injured while working in the plant and such injury arises out of and in the course of their employment, and the injury is of such nature as to prevent the employee's return to work for an initial period of three (3) or more consecutive calendar days excluding Sunday or paid holiday or vacation following the day of injury, then the Company will pay such employee a sum equal to the current sickness and accident daily benefit rate for each of such three (3) days; provided however, that such payment shall not be made if the Workmen's Compensation carrier of the Company is required to pay the employee Workmen's Compensation for the three (3) day period following the day of injury. 33 Under the following circumstances the Company will pay for up to two and one-half (2-1/2) hours for working time lost by an employee on Monday: 1. An employee is injured at work on a Saturday and obtains outside treatment. 2. An injured employee is instructed by their doctor to report for medical evaluation on the following Monday morning before going to work. 3. The employee notifies their supervisor in advance that they won't be in on time. 4. The employee reports for work on the Monday involved before 9:30 a.m. BEREAVEMENT 34 An employee with seniority, who is working at the time, will be granted three (3) regular working days off with pay in the event of a death in the employee's immediate family. Immediate family is defined as the employee's wife, husband, father, mother, son, daughter, brother, sister, father-in-law or mother-in-law. An employee may take the time off with pay later than the day of death or funeral if circumstances warrant and are a direct result of the death. An employee with seniority, who is working at the time, will be granted one (1) regular work day off with pay to attend the funeral of a grandparent or grandchild of the employee. JURY DUTY 35 An employee with seniority shall be excused from work on a work day on which they are called to perform jury service in a court of record, provided they give prior notice to the Company. 36 An employee with seniority who is excused from work for jury service and who furnishes the Company with a statement from the court with regard to jury pay received and time spent on jury service will be reimbursed by the Company as follows: 1. All employees will receive eight (8) hours pay at their regular straight time rate including all applicable premium pay less the amount received as jury pay for each day they are called to serve as a juror. 2. A day of jury duty is defined as any day for which the employee is required to appear regardless of having served, certified by written statement from the court. 7 ARTICLE VII - SENIORITY 37 It shall be the policy of the Company to recognize seniority. To accomplish this, there shall be one seniority list covering all employees in all production departments. Where two or more employees gain seniority on the same day, their relative seniority shall be determined by last name alphabetical sequence with, for example, an employee whose last name begins with "A" being regarded as senior to one whose last name begins with "B". Last name changes due to marriage, etc. which occur after the day on which an employee gains seniority shall not affect seniority. In the event that, before June 1, 1988, a person who, as of the effective date of this agreement, is an employee of the Trane Company temporarily assigned to ALBRAZE International (ALTEC International) the ALBRAZE (ALTEC) seniority date of said person will be January 5, 1986. Notwithstanding the provisions of Paragraph 39, above, the relative seniority of employees whose ALBRAZE (ALTEC) seniority date is January 5, 1986 shall be determined by the among of Trane Company seniority which they possessed as of the effective date of this Agreement. PROBATIONARY PERIOD 38 An employee shall have no seniority rights until the completion of their probationary period. The probationary period shall consist of sixty (60) actual days worked. This calculation does not include overtime outside the normal schedule. The date given the employee for their seniority standing will be the day following the end of their probationary period. 39 An employee shall lose their seniority rights for the following reasons: 1. If they shall voluntarily terminate their employment with the Company. 2. If they have been discharged for just cause. 3. After being laid off, if an employee fails to report for work within five (5) days after being notified by the Company, through the Personnel Department by Certified letter, provided, however, that no employee shall lose their seniority rights if their failure to so report is the result of sickness or causes beyond their control, in which case the employee shall furnish written proof as to that fact. 4. If for any reason an employee has had twenty-four (24) consecutive months of unemployment with the Company or a period equal to one-half (1/2) of their seniority, whichever is greater. 8 LAYOFF 40 When it becomes necessary to reduce the working forces, the last employee on the plant seniority list shall be the first employee laid off, etc., and the last employee laid off shall be the first employee recalled, etc., except as hereinafter provided. Before any layoffs or recalls of any employees occur, a list of employees to be laid off or recalled will be presented to the Shop Committee as to the employees laid off or recalled and the effect on seniority; but this shall not in any way interfere with the right of the Company to reduce its force. EXEMPTIONS AND DEVIATIONS FROM LAYOFF 41 All welders, electricians, and toolroom employees are exempt from the seniority clause as to layoff as long as they are needed on their exempted jobs. It is understood that an exempted employee must have demonstrated the capability to perform the required job. If the Company replaces an employee exempted in one of the above jobs with an older qualified employee, the exempted employee will be laid off. 42 Deviations from straight plant seniority in addition to those listed above can only be made for justifiable reasons, that is, when an employee's qualifications are essential on available work and no senior employee not subject to layoff has the necessary qualifications. The Company will specify such exemptions to the Shop Committee sufficiently in advance of the layoff giving the specific reasons for such deviations in each case. The Company will endeavor to find alternate qualified employees not subject to layoff for such exempted employees to replace those so exempted. The Company will not be required to make more than two transfers to replace one employee under this paragraph. 43 The parties may discuss from time to time the problem of deviations from seniority on layoff. 44 If the Union does not agree with certain exemptions, the Company and the Shop Committee shall make every effort to resolve their differences before resorting to the grievance procedure. LAYOFF NOTICE 45 When layoffs, because of lack of work, are in accordance with straight seniority, the employees affected shall be given three (3) working days notice before being laid off for a period of two (2) weeks or more. It is further agreed that in case of material shortages resulting from conditions beyond the Company's control, the three (3) days' notice provision will be waived. Employees exempted from layoff who are to be laid off because they are no longer needed on the work for which they are exempted may be laid off without notice. However, first and second shift exempted employees will work to the end of the shift in which layoff notice is given. Paragraph 27 will apply to third shift exempt employees who are to be laid off without notice. 9 ONE DAY LAYOFFS 46 Layoffs, due to lack of work or material shortages, will be made by seniority in a department, provided such a layoff does not exceed eight (8) hours in any one week. For any layoff in excess of eight (8) hours in any one week, the procedure set forth in Paragraphs 40-44 will be followed. This paragraph is not intended to be used to establish a regular work week of less than five (5) days for the employees in any department, and shall be applied in such a way that no employee is affected in their department more than six (6) times nor more than three (3) consecutive weeks in a twelve (12) month period. The Union Committee will be notified in advance of any layoff under this paragraph. INVENTORY 47 In the event that production is interrupted due to the taking of inventory, the parties will meet to discuss appropriate work assignments. ARTICLE VIII - TRANSFER REQUESTS FOR TRANSFER 48 All requests for permanent transfers by employees may be granted by the mutual consent of the Shop Committee and Management. The selection of employees shall be based upon the Job Selection Guidelines. 49 When an employee is granted a job or department transfer at their own request they shall have a trial period of up to thirty (30) days. The exception to the foregoing sentence is in cases where an extension of a trial period, due to skills is requested by the Company or the Union, and such extension is agreed to by the Company and the Union. they will receive the rate of the job they are performing while on transfer if they are qualified. If it is decided to make the transfer permanent, the employee will be given a rating for which they are qualified. 1. When such request is made, the Union and the employee and the supervisor will receive a written notification. 2. In the event that an employee is accepted for training on a job with a labor grade higher than their present job they shall, when they complete the trail period, be paid the time and grade rate of the new job which is closest to but not less than their time and grade rate on their former job. 3. It is agreed that in cases where an employee has upgraded to a higher skilled job and as a result would receive lower progression rate, such employee would not receive less in the new posting (upgrade) than they would in their old position. This inconsistency results from the increases to the maximum rate level for each position. Each situation would be dealt with individually. No change will be made to the progression levels in the rate structure. 10 FORCED TRANSFERS 50 When an employee is forced to accept a permanent job or department transfer due to a shortage of work, material, manpower, etc., such employee shall carry their present classification rate for a period of six months. An employee will receive the rate of the job they are performing while on transfer if they are qualified and if the rate is higher. After six (6) months the employee will be given a rating in the new department for which they are qualified. If, up to three (3) months from the employee's date of forced transfer a position opens up in their home department, the employee will have the option to return to their home department, if they are qualified for the position. SENIORITY PRINCIPLE 51 It shall be the policy of the Company to follow the principle of seniority whenever skill is not a consideration when moving transferred employees out and returning employees to their home department. Employees will be transferred from their home department by inverse seniority regardless of shift assignment provided the remaining employees are qualified to perform the work. When it is necessary to transfer employees and the position to be transferred to is a job of a higher labor grade than in the department, employees are to be transferred by seniority. Senior employees will be offered said transfer prior to junior employees being forced to transfer, provided the remaining employees are qualified to perform the work. Transferred employees will be returned to their home department on the basis of seniority whenever skill is not a consideration. EXCEPTION FOR UNION REPRESENTATIVES 52 1. A department steward or a member of the Shop Committee will not be transferred from their home department nor subject to being replaced on their shift. This provision shall not be construed to give extra seniority to such representative in the event of a layoff, nor to prevent such Union Representative from exercising their seniority. 2. In the event the selection of a safety steward is other than a department steward, the language of paragraph #1 above will apply to said safety stewards. CALLING BACK TRANSFERRED EMPLOYEES 53 When it is established that there is a need for additional personnel for ten (10) working days or more in a Department, with employees out on transfer such employees will be returned to their Home Department to fill the need in accordance with Paragraph 51 unless such need is being met temporarily by an employee with physical limitations who is unable to perform their normal duties. Such needed employees will be returned to their home department as soon as possible but not later than thirty (30) calendar days. Presence of a physically limited employee in a Department will not result in a senior employee on transfer losing their rate or job. 54 Except where production needs reasonably require otherwise, employees shall not be placed in a department where employees are transferred out prior to returning those on transferred back to their home department by seniority. 11 It is recognized that in order to use the work force efficiently and keep people working in so far as possible, the company requires flexibility in farming or transferring employees for a period of time, due to the reduction of work in the Home Department, or their specific skill is needed in another department, or because of the production need of another department. The farming of an employee shall be by inverse seniority by shift, and will not exceed 10 working days. WAGE RATE HANDLING 55 When an employee is transferred into a job classification they previously carried, they shall receive the rate for that job retroactively, after accumulating five (5) full days, provided such a rate is higher than they are carrying. If they continue on the job for a period of six (6) months, their short term rate shall become their new classification. NOTICE OF TRANSFER 56 The Company will endeavor to give each employee a Notice to Report Form on the day preceding the transfer or shift change by 12:00 P.M. (noon) on the first shift, 9:00 P.M. on the second shift and 4:45 A.M. on the third shift. NEW TECHNOLOGY, PRODUCT TRANSFER OR DISCONTINUANCE 57 The Company and the Union agree that it is to both their mutual benefit and a sound economic and social goal to utilize the most efficient machines, processes, methods and/or materials. In this way, the Company will be able to compete effectively in the market place and, thereby, provide economically secure jobs for its employees. 58 When the Company changes technology, transfers a product line or a portion thereof from La Crosse, or discontinues the manufacture of a product line or portion thereof at La Crosse, or merges two or more departments and as a result of such action a department is dissolved or a major portion of the regular employees in such department are no longer needed on their jobs, each employee in the department whose job is abolished because of this action will be subject to the following procedure: 1. Prior to the implementation of any of the above, the Company will meet with the Union to discuss the impact. 2. The Company agrees to train displaced employees within a reasonable period of time (6 months or less) for available positions. 3. Employees in classifications and areas will be handled in a manner consistent with marginal paragraph 50 of the agreement. 12 NEW DEPARTMENT 59 A new department is created when a new product line is originally manufactured in a separate plant area, and such department is assigned a new department number. When a new department is created, the Company and the Union will agree upon a procedure for the distribution of information regarding the department and the minimum requirements therefore. The selection of the employees will be made in accordance with Paragraphs 48 and 64 and the provisions of Paragraph 49 shall also apply. The Job Selection Guidelines will be the determining factor when making the selection. UPGRADING 60 1. The Company will continue to upgrade employees to higher skilled jobs where possible to do so. The fact that an employee is proficient on their current job will not in itself be the cause to prevent their being upgraded to a higher skilled job. 2. When a successful bidder is selected to report to the posted/notice job they can be held up to thirty (30) days in their current job. If it is necessary to hold the employee beyond the thirty (30) days, the employee will be reimbursed for any monetary loss upon the successful completion of the training/trial period for the new job. TRANSFER TO LIGHTER WORK AND INCAPABILITY 61 When a senior employee, who is at the time working, requests a transfer to light work, or the Company determines that such an employee can no longer perform their job due to advanced age, physical incapacity or is incapable of performing their regular job, the Company and the Union will discuss the problem with the intent of: 1. Assigning them to available work which they are able to perform and which needs to be performed, and 2. Paying for such work at the wage rate of the job they would be performing. It is understood that the above does not obligate the Company to make work for an employee or to assign an employee to work which they cannot perform satisfactorily. LEAVING OR RETURNING TO BARGAINING UNIT 62 Any member of the bargaining unit who has been promoted or transferred or is promoted or transferred to a position outside the bargaining unit described to a position outside the bargaining unit described in Article I shall maintain the amount of seniority they had at the time of such promotion or transfer and will not continue to accumulate seniority within the bargaining unit. 13 Should such employee request to return to the bargaining unit or should the Company decide to return such employee to the bargaining unit, they will be reinstated with the amount of seniority they maintained at the time of their promotion or transfer. The Company agrees that it will not return employees to the bargaining unit for the purpose of temporarily reducing the staff of non-bargaining unit employees. When such employee returns to the bargaining unit, their job and department assignment will be at the discretion of the Company. The Union will be notified of the job and department assignment five (5) days prior to such assignment wherever possible. However, they will not be placed in a department where their assignment would cause the transfer of a regular department employee then working in the department or where there are employees out of such department on transfer, or where there is not a need for them in the department for at least ten (10) working days. Furthermore, upon return to the bargaining unit, such an employee will be assigned a labor grade no higher than the highest they held in the three-year period just prior to their promotion from the bargaining unit. 63 Nothing, however, contained in Paragraph 61 shall be construed as limiting the Company's right to discharge any employee promoted or transferred from the bargaining unit for cause. Should any employee who has been promoted or transferred from the bargaining unit and then returned to the bargaining unit under the above procedures, be subsequently again promoted or transferred from the bargaining unit, they will lose all seniority status ion the bargaining unit on the date of such promotion or transfer. An initial temporary vacation replacement assignment of up to 3 months outside the bargaining unit will not be counted toward the limitations of this paragraph. TRANSFERS NOT COVERED 64 All transfers not covered elsewhere in this Agreement shall be discussed with the Shop Committee before such transfers are made. ARTICLE IX - SHIFT TRANSFERS VOLUNTARY SHIFT EXCHANGE (UP TO 1 WEEK) 65 Voluntary shift exchanges which are approved by management will be permitted between two (2) employees in the same department on a temporary basis (up to 1 week) if such exchange conforms to the Walsh-Healey Act and does not cause overtime payments. No changes in night shift premium will be made for either employee involved in temporary shift exchange under this paragraph. VOLUNTARY SHIFT EXCHANGE (MORE THAN 1 WEEK) 66 A request for an exchange of shifts - for up to one (1) year by two employees in the same department will be permitted providing: 14 1. Neither employee puts in more than eight (8) hours in a 24-hour period in making the exchange, to conform with the Walsh-Healey Act. 2. Neither of the employees making the exchange may do so again within a period of one (1) year. 3. The qualifications and experience of both employees are relatively equal. 4. Such request must be in writing to the Company, signed by the employees involved, specifying the duration of the voluntary shift exchange, with a copy to the Union. 5. With respect to this paragraph, all other provisions of this Agreement shall apply. SHIFT PREFERENCE 67 An employee upon attaining seniority may replace a junior employee in the same skill on a different shift in the same department subject to the following: 1. When an employee gains seniority they can be replaced by a senior employee. 2. Where the senior employee is replacing an employee in the same or a lower rated labor grade, the Company will in all instances where possible train a replacement within three (3) months for the senior employee so that they will be able to exercise their shift transfer. The training period will start within a one (1) week period after the employee's written request is acted on at the regular meeting. 3. Employees shall have the right to change shifts under this Section no more than (4) times within each calendar year. TRANSFER TO NIGHT SHIFT 68 When it is necessary to transfer a first shift worker to the second or third shift or a second shift worker to the third shift or the starting of a second or third shift, the youngest employee by seniority in the Department capable of doing the work involved shall be so transferred, unless a senior employee has preference to be transferred to the shift involved. ARTICLE X - POSTED VACANCIES 69 Should a vacancy occur within the Department due to retirement, termination, promotion, etc., the Company will discuss with the Union if said vacancy needs to be filled. 1. Employees from within the department where the opening is, will be offered said openings by seniority before moving to step #2 of this paragraph. 2. When a vacancy exists, the posting shall indicate the department, shift and for information purposes only, an identification of the major department functions(s), and a listing of typical labor grades in the department. 15 3. If the posted vacancy is filled by an employee from the posted department from another shift, this transfer may result in a vacancy on their shift, which in that event will be posted. No further transfer or postings will be made. 4. If the posted vacancy is not filled by someone from the posted department, it may be filled by a bidder from another department. 5. If an employee, after having received a posted vacancy, returns to their home department, a second employee from the original list of bidders may be selected to fill the vacancy. 6. If an employee is selected for a posted vacancy and subsequently returns to their Home Department at their own request, they shall be restricted from bidding on another posting for a period of six (6) months from the date of transfer to the posted vacancy. 7. Vacancies will be filled based on the Job Selection Guidelines established and agreed to by the Union and Company. 8. When additional personnel are required the Company will post a notice. 9. The Company and Union will review notices prior to publication. When an employee is selected for a position and completes the training period, said employee will be restricted from bidding on another posting or notice for four (4) months. This is not intended to prevent an employee from bidding on a higher skilled job during this four (4) month period. ARTICLE XI - RULES AND REGULATIONS 70 1. Pilfering, which includes the stealing or taking away of any Company property (including scrap) without the written permission of the Production Manager or their agent is prohibited. 71 2. Falsification by an employee of their own starting and stopping time is prohibited. 72 3. Carelessness of an employee which contributes to the injury of a fellow employee; any act of an employee which does or might contribute to the serious injury of an employee, which includes fighting on Company property; or any intentional act which results in the destruction, the defacing of Company property, or the writing of indecent language, drawing obscene drawings on cards, bulletin boards, walls, or any other part of the Company property, is prohibited. 73 4. The use or possession of intoxicants or controlled substances on the Company's premises or on Company's premises or on Company time is prohibited. 74 A VIOLATION OF ANY OF THE RULES AND REGULATIONS NUMBERED ONE (1), TWO (2), THREE (3), OR FOUR (4) WILL BE CAUSE FOR IMMEDIATE DISCHARGE. 75 5. Those employees who are capable of performing their assigned job efficiently and capably, but who fail to do so, will receive a written warning, a copy of which will be given to the Shop Committee. The employee will be given at least thirty (30) days to show satisfactory improvement. If following receipt of the written warning, the employee fails to show satisfactory improvement, they will, not earlier than thirty (30) days and not later than sixty (60) days following such receipt, be given a one (1) week suspension. Where an employee's previous service record has been good, the length of the suspension may be modified. If the employee receives a second written warning with six (6) months of the beginning of their suspension, they will be given at least thirty (30) additional days to show satisfactory improvement. If, following receipt of the second written warning, the employee fails to show satisfactory improvement, they may, not earlier than thirty (30) days and not later than sixty (60) days following such receipt, be discharged. In all cases under this rule, an employee's previous Company service record shall be given consideration before the discharge penalty is invoked. The time periods given in this paragraph are understood to be periods "of working time". 16 "WORKING TIME" DEFINED 76 The phrase "working time" referred to in Paragraph 75 of this Agreement shall include periods during which the employee is actually working, vacations, time lost due to bona fide illness or injury, military training, and a consecutive absence of six (6) months or more for any reason. Each period of time three (3) months, one (1) year, etc. followed by "working time" will in every case terminate no later than eighteen (18) months after the date it begins. REPORTING ABSENCE 77 6. All employees must call into the Central Reporting System when they are unable to report for work, unless their absence has been approved in advance by their supervisor. Employees calling in to the Central Reporting System must give a reason, i.e., personal business, sick, injury..., for their absence and the date they expect to return to work. Whenever possible, the call to the Central Reporting System should be made prior to the start of the employee's shift. EXCUSED ABSENCE DEFINED 78 The following absences will be excused when approved by the Company and will not be subject to the progressive discipline procedure: 1. Jury duty, military duty, funeral leave, occupational illness/injury, supervisory pre-approved leaves of absence, vacation, paid holidays, not scheduled for work, Union business, sickness, and situations that are caused by extenuating circumstances not preventable by the employee. 2. Employee must provide medical proof acceptable to the Company upon returning to work, if they have excessive absenteeism, as defined in Par. 81-3. THE FOLLOWING LANGUAGE WILL APPLY WHEN AN EMPLOYEE HAS REACHED THE THIRD STEP OF THE UNEXCUSED ABSENCE - DISCIPLINE AS DEFINED IN PARAGRAPH 81 OF THE CURRENT LABOR AGREEMENT. UNEXCUSED ABSENCE DEFINED Unexcused absence is defined as: 1. Failure to notify the Company before the absence or on the first day of absence prior to the start of the employees shift except where the employee furnishes proof that it was impossible to give such required notice, the absence will be unexcused. 2. Absence which is not excused by the Company even though it is reported on time. An employee having an excessive absentee record must furnish proof acceptable to the Company that their absence was the result of sickness or causes beyond their control to be excused for such absence. UNEXCUSED ABSENCE LIST REVIEW 79. Six (6) months after an employee is placed on the unexcused absence list, a review of their attendance record will be made. If the employee has demonstrated a substantial improvement in their attendance record during the six (6) month period, they will be removed from the list. 80 In deciding whether an employee with an excessive absentee record shall be removed from or continued on the unexcused absence list, the Company will not consider those absences properly supported by proof acceptable to the Company as required above as reason for continuing the employee on the unexcused list. 17 UNEXCUSED ABSENCE - DISCIPLINE 81 Unexcused absences will be subject to the following schedule of discipline: 1. An unexcused absence for any violation for any regular workday will result in a documented verbal warning to the employee for the first violation. 2. A second unexcused absence within a period of six (6) months from the date of the first violation will result in a second documented verbal warning. 3. A third unexcused absence within a period of six (6) months from the date of the second documented verbal warning will result in a written warning. 4. A fourth unexcused absence within a period of six (6) months from the second documented verbal warning will result in a three (3) day suspension without pay. 5. A fifth unexcused absence within a period of six (6) months from the second documented verbal warning will result in a five (5) day suspension without pay. 6. A sixth unexcused absence within a period of one (1) year from the second documented verbal warning will subject the employee to immediate discharge. CONSECUTIVE REGULAR WORKING DAYS OF UNEXCUSED ABSENCE WILL BE CONSIDERED AS A SEPARATE VIOLATION. 82 7. 1) Insubordination. 2) The refusal of any employee to obey the work orders of their immediate supervisor(s) is prohibited. 3) Extreme insubordination will be cause for discharge. 83 8. Any employee who directly or indirectly willfully slows down or limits production of himself or another employee, or machine, will have violated these Rules and Regulations. 84 ANY VIOLATION OF THE RULES AND REGULATIONS NUMBERED SEVEN (7), OR EIGHT (8) SHALL SUBJECT THE EMPLOYEE TO ONE (1) WEEK'S LAYOFF WITHOUT PAY FOR THE FIRST VIOLATION AND DISCHARGE FOR THE SECOND VIOLATION WITHIN A PERIOD OF ONE (1) YEAR OF WORKING TIME. 85 9. Being under the influence of intoxicants or controlled substances while on the job is prohibited. 86 10. The employees agree not to loaf during regular working hours. 87 11. Employees are prohibited from doing other than Company work during working hours, and from using machinery, tools and equipment or Company materials for personal use. 88 ANY VIOLATION OF THE RULES AND REGULATIONS NUMBERED NINE (9) THROUGH ELEVEN (11) SHALL SUBJECT THE EMPLOYEE TO A ONE (1) WEEK'S LAYOFF WITHOUT PAY AND TWO (2) VIOLATIONS WITHIN THREE (3) MONTHS OF WORKING TIME OR THREE (3) VIOLATIONS WITHIN A YEAR OF WORKING TIME WILL SUBJECT THE EMPLOYEE TO DISMISSAL. 18 89 12. Employees shall be at their work at the designated starting and stopping times. Washing up except when designated by the supervisor or for safety or hygienic purposes shall be done after the designated stopping times. 90 13. Employees shall observe designated starting and stopping times. 91 14. Leaving the plant without permission. 92 If an employee's attendance record is good, permission to leave for personal reasons will be granted by their supervisor provided the request is made not later than one-half (1/2) hour after the beginning of their work shift. It is agreed that the intent of this paragraph is to enable an employee with a good attendance record to leave work to attend to pressing matters not readily attended to outside their regular working hours. Any abuse of this intent by an employee will be a violation of Rule 14. Permission shall be automatically granted in cases of extreme emergency (death, serious illness or accident in family, etc.). However, in such emergency cases, the employee shall notify their supervisor wherever possible before their departure. 93 FOR THE FIRST VIOLATION OF THE RULES AND REGULATIONS NUMBERED TWELVE (12) THOUGH FOURTEEN (14), THE EMPLOYEE WILL BE SUBJECT TO A WRITTEN WARNING. FOR A SECOND OFFENSE WITHIN SIX (6) MONTHS OF WORKING TIME, THE EMPLOYEE WILL BE SUBJECT TO SUSPENSION FOR ONE (1) WEEK. FOR A THIRD OFFENSE WITHIN ONE (1) YEAR OF WORKING TIME, THE EMPLOYEE WILL BE SUBJECT TO DISCHARGE. 94 The general rules of safety must be observed. Failure to do so will incur the penalties as set forth in the Safety Code. The Company will cooperate to see that these rules of safety are observed by all employees. TARDINESS 95 If an employee is tardy, they will be excused provided they have a reason for their tardiness acceptable to the Company. In deciding on the acceptability of such reason, the Company will not act in an arbitrary manner. An employee who has an unexcused tardy two (2) time or more in a calendar month will receive a written warning slip from the Company. Receipt of three (3) warning slips within one (1) year will subject an employee to a three (3) day disciplinary suspension. Receipt of three (3) warning slips within six (6) months of the date of the three (3) day suspension warning will result in a five (5) day suspension. Receipt of three (3) warning slips within six (6) months of the five (5) day suspension warning will subject the employee to immediate discharge. 19 DISCIPLINE OR DISCHARGE 96 When it is necessary to discipline or discharge an employee for just cause, the Company will issue a written notification to the employee and to the Union within four (4) working days after the Production Manager or designated Company representative has knowledge of the improper conduct or performance, unless special investigation is required and the Union is so notified. A disciplined or discharged employee must file a written grievance within five (5) working days of the foregoing notification otherwise the discipline or discharge will be final. WHEN UNION REPRESENTATION IS REQUIRED 97 If a Union employee is summoned into the office to answer a charge of violating the rules and regulations, they shall have Union representation. The Company will maintain an employee assistance program which is mutually acceptable to the Company and the Union. ARTICLE XII GRIEVANCE PROCEDURE AND ARBITRATION GRIEVANCE PROCEDURE PREAMBLE 98 It is the conviction of the Parties that prompt and fair handling of complaints of employees and charges of violation and provisions of this Agreement will lead to more efficient operations and more harmonious relations among the employees, the Union and the Company. If order to be considered within the grievance procedure a complaint of an employee or a charge of violation of this Agreement must be brought to the attention of the Company within ten (10) calendar days of the event causing the complaint or charge or within ten (10) calendar days after the date on which such event should reasonably have become known. STEPS 99 STEP 1: Before any complaint of an employee or charge of violation of any provisions of this Agreement shall be considered a grievance, there shall be a discussion of such complaint or charge between the employee and the supervisor or these two and the department steward with an attempt to settle it. It is understood that no settlement at Step 1 can establish a precedent for future cases. It is further understood that no settlement at any Step of the grievance procedure can be inconsistent with the provisions of this Agreement. 20 100 The supervisor will give their answer to the complaint or charge within two (2) working days. If the complaint or charge (hereinafter referred to as a "grievance") is not carried to Step 2 within three (3) working days from the time of the foreman's answer, it shall be considered settled. 101 In investigating a grievance and in discussing it with the foreman, the department steward will take only such time as is reasonably necessary. 102 STEP 2: If a grievance is not settled at Step 1, the department steward shall notify the Shop Chairman. The Shop Chairman may then enter the department to investigate the grievance and may discuss it with the Production Manager or designated Company representative. If not settled, the grievance will then be reduced to writing, signed by the aggrieved employee and presented to the Production Manager or their designated representative. The Production Manager or their designated Company representative will forward their written answer on the grievance to the Shop Chairman within three (3) working days after their receipt of the written grievance. 103 STEP 3: If the grievance is not settled in Step 2, the Union will present the grievance to the Manager of Operations within five (5) working days after receipt of the Production Manager's or designated Company representative's answer. If the grievance is not presented to the Manager of Operations within the five (5) working day time limit, it shall be considered settled. Any grievance involving disciplinary time off or discharge may be initiated by the Shop Chairman directly at Step 3. Within ten (10) working days after the grievance is presented to the Manager of Operations a meeting will be held between the Manager of Operations and the Shop Chairman. A representative of the IAMAW may be present and participate in this meeting. The Manager of Operations will forward their written answer on the grievance to the Shop Chairman within five (5) working days after the Step 3 meeting. 104 STEP 4: If the grievance is not settled in Step 3, the Union will present the grievance to the President of the Company within five (5) working days after the receipt of the Manager of Operations' answer. If the grievance is not presented to the President of the Company within the five (5) working day time limit, it shall be considered settled. Within ten (10) working days after the grievance is presented to the President of the Company a meeting will be held between the President of the Company and another management representative, and a representative of the IAMAW and the President of the Local Union. The President of the Company will forward their written answer on the grievance to the IAMAW representatives within five (5) working days after the Step 4 meeting. 21 105 STEP 5: If no settlement is reached at Step 4, the following will apply: 1. If the grievance involves a potentially continuing liability to the Company a request for arbitration must be made within seven (7) working days following receipt by the Union of the President of the Company's Step 4 answer. Such request must be made in writing by the IAMAW representative to the President of the Company. If no such request is made within the seven (7) working day time limit, the grievance will be considered settled. 2. If the grievance does not involve a potentially continuing liability to the Company, a request for arbitration must be made within sixty (60) calendar days following receipt by the Union of the President of the Company's Step 4 answer. Such request must be made in writing by the IAMAW representative to the President of the Company. If no such request is made within the sixty (60) calendar day time limit, the grievance will be considered settled. MONETARY ADJUSTMENT LIMITATION 106 If any Step 1 settlement, grievance settlement, or arbitration decision involves monetary adjustment, such adjustment shall be made effective on the date the complaint or charge was presented to the supervisor at Step 1 or directly initiated at Step 3 and shall not be made retroactive for any period prior to said date. TIME LIMITS 107 The time limits set forth in the grievance procedure may be extended by mutual agreement. ARBITRATION SELECTION OF ARBITRATOR 108 The parties will make every reasonable effort to agree upon a permanent arbitrator. In the event a grievance is appealed to arbitration before a permanent arbitrator has be selected, the parties will make every reasonable effort to agree upon an arbitrator to decide said grievance. If the parties cannot reach mutual agreement to the American Arbitration Association to select an arbitrator in accordance with normal AAA procedures. ARBITRATION ARRANGEMENTS 109 The arbitrator chosen shall be notified of their selection and advise the parties of their fee in advance of the hearing of the hearing. Expenses and charges by the arbitrator shall be borne equally by the Company and the Union. 110 A date mutually satisfactory to the parties shall be agreed upon and the dispute or grievance shall be submitted to the arbitrator. After all facts and testimony have been presented by both parties, the arbitrator shall render their award as soon as reasonably possible. 22 GENERAL 111 A question raised by either party as to the arbitrability of a grievance shall be subject to arbitration. The function of the arbitrator shall be of judicial nature. The decision of the arbitrator will be final and binding upon the parties, but they shall not have the power to add to, subtract from or modify the terms of this Agreement and shall decide only the issues properly before him. An arbitrable grievance must involve a question of interpretation or application of the terms of this agreement. The decision of the arbitrator will be complied with as soon as possible. ARTICLE XIII - UNION REPRESENTATIVES GENERAL 112 The Union will inform the Company of the names of all Union officials including stewards. It is agreed that no employee will be discriminated against because of elected status in the Union. The Company will agree to such arrangements as may be necessary for the Shop Chairman and/or Union stewards to carry on their Union duties. Such arrangements shall include permission for the Union representatives to leave their department and go to any other department within the bargaining unit to investigate and/or bring about a proper and expeditious disposition of a grievance or complaint. The Company will pay the Shop Chairman and/or Union stewards for working time lost in processing grievances, and joint Union-Company conferences. The number of Union stewards may be adjusted by mutual agreement of the Company and Union. The view of the Company's agreement above to compensate Union representatives for working time lost, the Union agrees that such time will be limited to that which is reasonably necessary to accomplish the Union duties described above. ABSENCE FOR UNION BUSINESS 113. Regular members of the Shop Committee who are to be absent on legitimate business of the Union will be excused for such absence, providing advance notification is given to their supervisor. Upon advance notice from a designated officer of the Union to the Production Manager or their designated representatives, employees other than Union representatives will be excused from work to perform legitimate Union business provided the number requested does not interfere with production requirements. Any time spent on Union business in accordance with this paragraph is considered as time worked in qualifying for vacations, pension, profit sharing and holidays. It is understood that the Union will not abuse this privilege. 23 PASS PROCEDURE 114. None of the department stewards nor representatives of the Union shall leave their department, except on Company business until they have notified their foreman. ARTICLE XIV - LEAVE OF ABSENCE GENERAL 115 An employee must receive permission through their supervisor for time off up to one week. Any time off in excess of one week must be supported by a leave of absence. It is understood that an employee shall not deliberately falsify reasons for requesting a leave. 116 The privilege of leave of absence not to exceed (60) days in a year may be granted to any employee if the application for such leave of absence is approved by the Company and the Financial Secretary of the Union prior to the time off requested. The Union will be notified of leaves approved by the Company. In case of sick leaves and emergencies, prior approval is not necessary. 117 Extension of a leave of absence may be granted by the Company and the Financial Secretary of the Union for good cause shown. 118 Leave of absence not to exceed sixty (60) days in a year will be allowed for up to two (2) employees total at any one time for personal reasons providing such leaves of absence are approved in advance of the requested time off by the Company and the Financial Secretary of the Union. No employee will receive leave of absence for the purpose of trying another job. PUBLIC OFFICE OF UNION POSITION 119 Leave of absence will be granted to an employee elected or appointed to Public Office or elected or appointed to a Union position with the Local Lodge, the IAMAW, or such other labor organization as the parties may mutually agree, upon proper application of the Company. Such leave shall be granted for a period of one ear, and will be extended from year to year, but only for the same purpose for which the leave was granted. 120 Notwithstanding the provisions of Paragraph 39, an employee elected or appointed to Public Office may renew their leave from year to year for a period equal to their total seniority with the Company, except that they will not accrue seniority or service beyond a period equal to one-half their total seniority when they went on leave. 24 EDUCATIONAL LEAVE - VETERAN 121 Leave of absence up to eighteen (18) cumulative months of such leave will be granted upon request to a military service veteran for the purpose of furthering their education providing they are eligible for such educational benefits under applicable law and has submitted proof of enrollment in an institution authorized to conduct such training. Such leave of absence may be extended at the discretion of the Company for a period of up to an additional eighteen (18) cumulative months of such leave subject to the above conditions. RETURNING FROM LEAVE 122 An employee who returns to work within the leave of absence shall be reinstated according to their position on the seniority list at their former rate of pay plus increases or minus decreases that may have become effective during their absence, provided they give at least three (3) days notice of their intention to return. RETURNING FROM SICK LEAVE 123 An employee must present to the HUMAN RESOURCE COORDINATOR, documentation acceptable to the Company for return from Sick Leave to full-time work at full capacity or part-time work at limited capacity as denoted, if warranted by the employee's seniority standing and qualifications, will be offered an assignment to return effective no later than the second regular working day following the date of such presentation of medical approval. Failure to meet such offer deadline will require the Company to pay the employee a sum equal to the current sickness and accident daily benefit rate for each regular working day following the date of presentation of such medical evidence and continuing until the date such offer of work is made available to the employee. PHYSICAL EXAM REQUIREMENT 124 When an employee who is on a leave of absence for medical reasons (non-industrial) desire to return to work, they may be required to take and pass a physical examination to prove that they are capable of performing their regular work or the equivalent thereof. ARTICLE XV - JOB RATING 125 The Job Rating Committee shall consist of two (2) members of the Union, and at least two (2) members of the Company. Continuity of experience in job rating is intended so that proper administration of the plan will result. When a new job develops, or the requirements of an old job changes the job content, the job shall first be standardized as to methods of production, tooling and equipment etc. Within thirty (30) calendar days after the job is standardized and is functioning satisfactorily as to quality and quantity, the Job Rating Committee will rate out the job. The Job Rating Committee will schedule its regular meeting dates in advance on a monthly frequency. Based on the number and the urgency of pending ratings, the parties may schedule an interim meeting by mutual agreement. 25 DISAGREEMENT ON RATING 126 In the event of a disagreement between the Company and Union members of the Job Rating Committee on the job content of a new job or the job content change of an existing job they will conduct a floor review within thirty (30) calendar days. If, after the floor review is completed, a disagreement still exists a grievance will be filed. Any grievance over a job rating to be considered timely must be filed in Step 3 of the grievance procedure within thirty (30) calendar days following the floor review. Any settlement of such a grievance will be effective on the date of the floor review. NEWLY CREATED JOB 127 On a newly-created job, no permanent assignment will be made until thirty (30) days after the date of the Committee's rating or the date the Company-determined rate is put into affect, whichever is the earlier. If the employee performing the job has a higher rate than that put into effect, they may accept the lower rate for the job or, within the thirty (30) days, decide to return to their previous job. However, the Company may retain them on the new job at their current rate for a period of time adequate for training a replacement. EFFECTIVE DATE - GRIEVANCE 128 Where a job is re-rated and the labor grade is increased, an employee performing the job will receive the higher rate effective on the date of the floor review, provided a timely grievance concerning the rating of the job was presented to the Company and, provided they have completed the job progression. 129 In the event that the labor grade of a job is to be decreased, the parties will meet to determine the appropriate means of handling the situation. ARTICLE XVI - VACATION 130 The vacation period will run from January 1 through December 31 of each year during the term of this Agreement. One week of vacation entitlement may be carried over from one year to the next; however, each year's vacation may not exceed the annual entitlement plus 1 week carryover and then only if the employee qualifying for and requesting such consideration meets the scheduling requirements of Paragraph 135. Accident and Sickness weekly benefits will not be paid for the same period as vacation except with advance Company approval. 26 VACATION ENTITLEMENT
131 Years of Service As Of January 1 Vacation Entitlement ------------------- -------------------- 1 but less than 5 2 weeks 5 but less than 10 2.5 weeks 10 but less than 12 3 weeks 12 but less than 20 3.5 weeks 20 or more 4 weeks
In the calendar year during which an employee reaches their 5th, 12th, and 20th anniversary date they shall be entitled to an additional 1/2 week of vacation. With Company approval, said week may be taken up to one month prior to the employee's anniversary date. WORK REQUIREMENTS 132 In order for an employee to qualify for a vacation in any vacation period they must have worked at least six (6) months during the previous vacation period. For the purpose only of calculating such work requirements, time lost from work due to a compensable work-related injury during the vacation period in which the injury occurs, will be considered as time worked. An employee who has worked for the Company less than one year prior to January 1 of a given year shall, upon reaching their first anniversary date, become entitled to a two (2) week vacation during such year provided they have worked at least six (6) of the twelve (12) months preceding their first anniversary date. In the event that such employee's anniversary date falls between December 15 and December 31 their vacation may, with Company approval, be scheduled to commence up to two (2) weeks prior to their first anniversary date. IF WORK REQUIREMENTS NOT MET 133 An employee who, as of the beginning of a vacation period has one (1) or more years' service and has worked during the preceding year but does not meet the six (6) months' work requirement set forth in marginal Paragraph 132 above shall not be entitled to a vacation during said vacation period. they shall, instead, receive an in-lieu-of vacation payment based upon the following formula:
# of Straight Time Years of Service Earnings During Preceding As Of January 1 Year ---------------- -------------------------- 1 but less than 5 4% 5 but less than 10 5% 10 but less than 12 6% 12 but less than 20 7% 20 or more 8%
27 VACATION PAY 134 An employee will be paid prior to their vacation of one week or more for the appropriate number of hours to be taken at this regular rate subject to the above requirements and appropriate advance scheduling. In order to receive vacation pay in advance of their vacation, notification must be received by the Company before 9:00 a.m. of the second Thursday which precedes the week in which their vacation is to be taken. SCHEDULING PROCEDURE 135 The procedure to be followed in scheduling vacations shall include the following: 1. The number of weeks of vacation eligibility is determined for each department. 2. Based on this number, the vacation quota(s) are established for the departments. The Company follows the policy of allowing vacation weeks to be taken between January 1 and December 31. 3. During October of each year, employees are asked their vacation preference for the coming vacation year. The principle of seniority in asking vacation preference is followed within each department and shift, insofar as possible. 4. At Company option, operations may be shut down for vacation for up to four (4) working days each year and vacation pay will be given to employees who elect to take such time as vacation. Such days must be scheduled in conjunction with Christmas, and/or New Year's Day, and/or July 4 holidays. 5. An employee may take a day at a time vacation up to their full entitlement of such vacation. 6. Three existing days of current vacation can be taken in 1/2 day increments . . . not to be coupled with personal business. 7. Regular vacations plus day-at-a-time vacations on the last regular work day prior to and the first regular work day after a holiday(s) and the Friday prior to deer season cannot exceed the department or shift group established quota plus 50%. 8. Requests for day-at-a-time vacations should be made PRIOR TO THE START OF THEIR SHIFT ON THE DAY REQUESTED. If an employee is sick and calls in on time, they may specify that day as a day of vacation to a maximum of their full entitlement. 9. The use of day-at-a-time vacation cannot disrupt production operations. 28 PAY IN LIEU OF VACATION 136 An employee who is quitting or retiring will be entitled to pro-rate vacation pay based on the appropriate percentage for their length of service for all regular straight time earnings from the beginning of the vacation period until their termination if they satisfy the work requirements listed in Paragraph 134 and if they gives the Company at least five (5) working days notice of their intention to quit or retire. Payment in lieu of vacation may be made to any employee for a vacation not taken by the individual, if they are eligible for a vacation in accordance with the above paragraphs, but has not actually worked ten (10) months during the qualifying period. Upon an employee's death, their beneficiary, as shown in the Group Life Insurance Record, will be entitled to pro-rate vacation pay based on the appropriate percentage for the employee's length of service for all regular straight-time earnings from the beginning of the vacation period until their death. RETURN FROM MILITARY SERVICE 137 When an employee returns to work from a duly authorized leave of absence to the armed services, their vacation rights will be determined as follows: 1. If the employee returns to work between January 1st and June 30th inclusive, they shall be entitled to full vacation rights for the vacation period in which they return and must take their vacation. 2. If the employee returns to work between July 1st and December 31st inclusive, they shall be depending upon their years of service, entitled to 4%, 5%, 6%, or 8% of their regular straight time hourly earnings between July 1st and December 31st in lieu of a vacation for the vacation year during which they return. 3. All time spent in the armed services which is supported by a duly authorized leave of absence shall be considered the same as work time for computing vacation rights for the vacation period which follows the vacation period during which the employee returns to work. ARTICLE XVII - WAGES NEW HIRE RATE AND PROGRESSION 138 The new hire rate shall be in accordance with the Wage Rate Schedule below; but, after consultation with the Shop Committee, the Company may employ applicants with significant experience at a higher rate than the new hire rate. Upon attaining seniority, an employee shall receive a seniority rate in accordance with the annual rate schedules following this paragraph, (unless they were employed at a higher rate) and be assigned a home department. The rate increases for 12 months, 24 months, etc., shown on the rate schedules below shall become effective once the employee in question has actually worked 52 calendar weeks, 104 calendar weeks, etc. on the job in question. 29 WAGES 139 SICKNESS AND ACCIDENT (S&A) SHORT TERM DISABILITY Benefits to be paid at 43.75% of the base rate with a minimum benefit rate of $225.00 and a maximum benefit rate of $275.00. The above rates to be applied at all steps of the progression rates in the wage schedule. LONG TERM DISABILITY Long-term Disability benefits will be paid at 60% of employee's monthly base wage upon completion of the benefit waiting period. The benefit waiting period will be 180 days of continuous disability. A period of disability will be considered continuous even if the employee returns to work for up to a total of 30 days during the benefit waiting period. The benefit waiting period will be extended by the number of days the employee temporarily returned to work. Long-term Disability benefits will continue until the earlier of the following dates: date the employee ceases to be disabled; or the date of the employee's 65th birthday. 140 Effective February 8, 1998, the Company will increase all levels of the progression rates for each job .40/hr for each of the 3 years of the Labor Agreement per the effective date of the Contract. 401K SAVINGS PLAN 141 401K match in Chart Stock will be based on the following EBIT level progression up to the first 6% of employee's base wage. Minimum EBIT for Company match is "0" EBIT. 0 - $1,999,999 EBIT (25%) of 1st 6% saved $2,000,000 EBIT and over (50%) of 1st 6% saved Base Wages The 401K match will be made on the employee's annual base wage except for exclusions noted in subparagraph 6, paragraph 142 - Compensation Excluded for Profit Sharing and 401K Match. PROFIT SHARING 142 Profit sharing for the ALTEC personnel shall be on the following basis, for 1998 - 2000. 1. 10% common pool for all ALTEC employees. 2. Minimum EBIT for profit sharing. 2,000,000 each year for the duration of the agreement DISTRIBUTION OF EBIT PROFIT SHARING POOL 1. The profit sharing distribution will be made as a % of individual annual base wages except for exclusions noted in sub-paragraph 6. The base wage distribution % is determined as follows; Base Wage Profit Sharing % = EBIT Pool $ -------------------------- Total ALTEC Annual Base Wage Payroll 30 2. Actual distribution will occur in August of the current year and February of the following year for current year profit sharing. The August distribution will be 50% of the estimated common EBIT profit sharing pool based on mid-year EBIT. The reason for a reduced distribution at mid-year is to allow for possible variations in profit in the last half of the year. Profit sharing will be a 100% distribution of the Common EBIT Pool as a % of base wage. 3. The Profit Sharing Payment Schedule will be as follows; 1998 Pool $ August 1998 February 1999 1999 Pool $ August 1999 February 2000 2000 Pool $ August 2000 February 2001 COMPENSATION BASIS FOR PROFIT SHARING 4. PARTIAL YEAR DISTRIBUTION It is agreed that those individuals who retired during a current year would receive a pro-rata distribution based on that current year's base wages earned. The same will also apply to individuals who left the hourly work force during the duration of this agreement. For employees terminated for disciplinary reasons, no pro-rata distribution will be made. PROBATIONARY EMPLOYEES 5. Probationary employees will be paid profit sharing on a pro-rata basis for base wages earned in a given year. Payment will be made after the probationary employee achieves seniority. Determination of base wages will be based on wages from the start date. COMPENSATION EXCLUDED FOR PROFIT SHARING AND 401K MATCH 6. Compensation excluded from the wage base for purposes of calculating profit sharing and 401k Match are: Overtime Service Trip Premium S&A Benefits Worker's Compensation Profit Sharing All other compensation is included in the wage base for determination of profit sharing AND 401k Match. SHIFT PREMIUMS 143. The second shift shall receive twenty-seven ($.27) cents per hour over the day shift and the third shift shall receive thirty-two ($.32) cents per hour over the day shift. 31 APPRENTICESHIP PROGRAM 144 The Apprenticeship Committee shall consist of two from the Company and two from the Union. One representative of the Union will be from the Apprenticeship category required, the second representative shall be the Local Lodge President or a designated appointee. Before any changes are implemented in the Apprenticeship Program, the Company and the Union Shop Committee will discuss such change. ARTICLE XVIII - CHECK-OFF 145 Upon receipt of a signed authorization of the employee involved, the Company shall deduct from the employee's pay the initiation fee and regular monthly dues payable by them to the Union during the period provided for in said authorization. The amount will be certified by the Financial Secretary of the Local Lodge. 146 Deductions shall be made on account of the initiation fee and regular monthly dues payable from the first paycheck of the employee after receipt of the authorization and monthly thereafter from the second paycheck of the employee in each month. 147 Deductions provided in Paragraphs 145 and 146 shall be remitted to the Financial Secretary of the Union no later than the fifth (5th) day following the deduction and shall include all amounts due and those dues not deducted in the previous month. The Company shall furnish the Financial Secretary of the Union, monthly, with an alphabetical record of those for whom deductions have been made and the amounts of the deduction. 148 The parties agree that check-off authorizations shall be in the following form: 149 "Name of Employee _________________________________________ Dept. No. ____________________________ Clock No. ____________________________ Date _________________________________ I hereby authorize and direct the Company to deduct from my pay beginning with the current month, the initiation fee and regular monthly membership dues in the IAMAW. I submit this authorization with the understanding that it will be effective and irrevocable for a period of one (1) year from this date, or up to the termination date of the current collective bargaining agreement between the Company and the IAMAW, whichever occurs sooner. 32 This authorization shall continue in full force and effect for yearly periods beyond the irrevocable period set forth above unless revoked by me within fifteen (15) days prior to the end of any such period. I shall also have the right to revoke this authorization at any time within a period of fifteen (15) days prior to the termination date of any collective bargaining agreement between the Company and the Union if such termination shall occur within one of the aforenoted yearly periods. Such revocation shall be effected by written notice, sent by Registered Mail, Return Receipt Requested, to the Company and the Union within such fifteen (15) day period. Signature: _____________________________________________________". 150 The Union agrees to indemnify and save the Company harmless against any and all claims, demands, suits or other forms of liability that may arise out of, or by reason of, action taken or not taken by the Company in complying with the provisions of this Article, in reliance upon the Check-Off Authorizations which have been furnished it. ARTICLE XIX CLAUSES RELATING TO PENSION PLAN SECTION I: ALTEC PENSION PLAN 151 Subject to the provisions of Section 4 of this Article, and unless the parties otherwise agree, the Pension Plan for Hourly Rated Employees of ALTEC International (hereinafter referred to as the "Pension Plan") which was effective January 4, 1986, will continue to be maintained pursuant to the terms of the Pension Plan, except that the Pension Plan will be frozen and no further contributions shall be made to the Pension Plan after March 31, 1998. The Company may continue to make such changes in the Pension Plan as, in the opinion of the Company, are required for compliance with the Employer Retirement Income Security Act of 1974, as amended, and any rules and regulations promulgated thereunder (hereinafter collectively referred to as the "Act"), provided that if any such changes diminish benefits under the Pension Plan, the Company shall attempt to minimize such effect. To be effective, written notice of proposed change(s) must be served by one party upon the other no less than sixty (60) days prior to any modification or change in the Pension Plan, except such as may be required to conform with the Act or Section 401(a) of the Internal Revenue Code of 1954, shall be prospective in its application and shall be made effective as of the date on which agreement with respect to such modification or change is reached by the Company and the Union. SECTION II: FUNDING OF BENEFITS 153 The Company will continue to make contributions to the ALTEC Pension Plan to fund obligations for past service credit. 154 Neither the Company nor the Union, except under the conditions specified in Paragraph 151 of this section, shall demand any change in the Pension Plan nor shall either be requested to bargain with respect to any change in the Pension Plan, nor during the term of the Pension Plan, nor shall any modification, alteration, or amendment of said Pension Plan, be an objective of, or reason for, any strike or lockout or other exercise of economic force or threat by either the Union or the Company. 33 SECTION 3: AGREEMENT RETIREMENT DATE 155 The normal retirement date of each employee will be the first day of the month following the month in which the employee's 65th birthday occurs. An employee who retires after their normal retirement date shall receive a retirement pension, payable commencing at their actual retirement date, consisting of the following: 1. An amount determined as if they had retired on their normal retirement date; plus 2. For service accrued after their normal retirement date, an amount determined in accordance with the respective benefit rates in effect for each year or portion thereof in which such service was accrued. 34 OTHER 156 RETIREMENT DEATH BENEFIT For those employees retiring after February 4, 1995, the retiree death benefit is $4,000. 157 MEDICARE PLAN "B" SUPPLEMENT Actual cost up to a maximum of $50.00/month, life of agreement 158 IAM NATIONAL PENSION FUND - NATIONAL PENSION PLAN A. The Employer shall contribute to the I.A.M. National Pension Fund, National Pension Plan as shown below for each hour for which employees in all job classifications covered by this Agreement are entitled to receive pay under this Agreement as follows: $.45 per hour effective February 8, 1998 $.45 per hour effective February 7, 1999 $.50 per hour effective February 6, 2000 B. The Employer shall continue contributions based on a forty (40) hour work week while an employee is off work and being compensated for any such time by the employer. C. Contributions for a full-time employee are payable from the first day of employment. D. The I.A.M. Lodge and the Employer adopt and agree to be bound by, and hereby assent to, the Trust Agreement, dated May 1, 1960, as amended, creating the I.A.M. National Pension Fund and the Plan rules adopted by the Trustees of the I.A.M. National Pension Fund in establishing and administering the foregoing Plan pursuant to the said Trust Agreement, as currently in effect and as the Trust and Plan may be amended from time to time. E. The parties acknowledge that the Trustees of the I.A.M. National Pension Fund may terminate the participation of the employees and the Employer in the Plan if the successor collective bargaining agreement fails to renew the provisions of this pension Article or reduces the Contribution Rate. The parties may increase the Contribution Rate and/or add job classifications or categories of hours for which contributions are payable. F. This Article contains the entire agreement between the parties regarding pensions and retirement under this Plan and any contrary provision in this Agreement shall be void. No oral or written modification of this Agreement shall be binding upon the Trustees of the I.A.M. National Pension Fund. No grievance procedure, settlement or arbitration decision with respect to the obligation to contribute shall be binding upon the Trustees of the said Pension Fund. HEALTH INSURANCE (HEALTH AND DENTAL INSURANCE) 159 The Company will offer individuals retiring after December 21, 1990, the opportunity to participate in the ALTEC International Health Care Plan for an additional 18 months beyond the 18 month period allowed by COBRA (Consolidated Omnibus Budget Reconciliation Act), by paying 100% of the premium cost for coverage of similarly situated individuals. The applies to individuals retiring at age 62 or later. This offer is effective from December 21, 1990 through February 3, 2001 on a non-precedent setting basis. Actual cost of this plan may change on a year-to-year basis as determined by the health care provider. This provision is no longer applicable when an individual reaches age 65 or is eligible for Medicare. Cost experience and impact of this group on Health Insurance costs is to be followed. 35 SECTION 4: EFFECTIVE DATE 160 Any modification agreed upon between the parties under Section 1, Paragraph 153 of this Article , resulting from negotiations commenced as a result of the sixty (60) day notice referred to therein shall take effect on the day after the Pension Plan expiration date which was in effect at the time the sixty (60) day notice was given. ARTICLE XX - INSURANCE BOOKLET 161 The new Health Insurance Booklet will be distributed to the membership within three (3) months of the policy effective date. INSURANCE COMMITTEE 162 The insurance committee shall consist of one (1) representative of the Company and one (1) representative of the Union. 36 DUTIES OF INSURANCE COMMITTEE 163 1. The insurance committee shall meet every six (6) months and the agenda shall be established prior to the date of the meeting. A representative of the insurance carrier shall be asked to attend the meetings. 2. The insurance committee shall be authorized to review all financial aspects of the insurance plan and be furnished complete expenditure and benefit data. 3. Members of the insurance committee shall be authorized to inquire on the status of any claim submitted by any member of the Union. GENERAL 164 1. The group insurance coverage will terminate on February 3, 2001. 2. There shall be no modification in the benefits provided under the insurance plans during the policy term except as mutually agreed by the parties or required by law. Any dividend paid on the insurance policy shall be paid in full to the Company. 3. In the event the insurance carrier does not pay full benefit as prescribed in the master policy without justifiable reasons, ALTEC International shall further process the claim on behalf of the employee with the insurance carrier. 4. Should alternate company health insurance plans become available, the Company and Union will meet to discuss the opportunity to participate in such plans. 5. The Company and Union agree that the Section 125 Plan is in effect for the duration of this agreement. HEALTH AND DENTAL INSURANCE COST SHARING 1. CHART BASIC Employee shares 10% of future premium increases or decreases for life of agreement. 2. CHART PLUS Employee shares 20% of future premium increases or decreases for life of agreement. 3. GLHP PLUS (HMO) Employee shares 30% of premium increases or decreases for life of agreement. $10/office visit payment. $450/$150 deductible will apply to hospitalization. 4. GLHP BASIC HMO Employee shares 30% of premium increases or decreases for life of agreement. 5. GUNDERSON LUTHERAN HMO Employee shares 30% of premium increases or decreases for life of agreement. 37 4. Employees who can provide proof of other medical plan coverage may opt out of Chart plans or HMO and receive a payment during the course of the plan year. The payment may be taken as either cash, which is taxable, or placed on a pre-tax basis in a flexible spending account in the employee's name. The payment for each year is as follows: 1st Year - $1,000.00 2nd Year - $1,000.00 3rd Year - $1,000.00 Payout will occur on a monthly basis (Ex: 12 mos X $83.34 = $1,000.08) 5. DENTAL Employee shares 20% of future premium increases or decreases for life of the agreement. 6. LIFE INSURANCE For the life of the agreement employees will be insured to a minimum of $23,000 or a maximum of one times annual base wage, whichever is greater. Employees may purchase up to three times base wage (minimum $23,000) ARTICLE XXI - COMPANY OWNED TOOLS 165 In an effort to provide safer and more effective production equipment, the Company and the Union, do hereby agree to the following: The Company shall loan to each employee, at no cost to him, a set of tools and tool container with lock (where needed) adequate for the proper and efficient performance of their duties subject to the following conditions: 1. The Company shall determine what tools are required for each job, and shall list against each job the normal tools required for it. Any tools which are to be required at the worker's expense shall be listed accordingly. 2. The Company shall replace worn tools which are broken through normal use at no cost to the worker. 3. The Company shall indelibly mark each tool and tool container so that it may be identified to the individual worker. 4. The Company shall, through its foreman, make such inspections of the tools and tool containers used by each worker as may be required. All inspections of the tools and tool containers shall be done in the presence of the employee to whom they are charged. No tool container shall be opened during the absence of the employee to whom they are charged. When inspection is being made in search of a missing tool, it shall be done in the presence of an authorized Union steward. 5. Each worker shall maintain a complete set of tools at all times and shall report any and all tools or tool containers missing, lost, or stolen from their set to their supervisor for replacement immediately. 38 6. Each worker shall reimburse the Company for replacement of Company tools or tool containers lost or stolen while charged to him. If payment is not made in cash to the crib clerk, the amount for which the worker is charged shall be deducted from their paycheck. If the cost is more than three dollars ($3.00), deduction can be made from more than one paycheck. If the missing, lost or stolen tool is recovered in good condition, suitable adjustment shall be made to the worker. In the event that a tool box equipped with tools is missing, lost or stolen, the Company will be responsible for the cost of such equipped tool box. 7. A worker shall only use personally owned tools when authorized by their foreman. 8. Any improperly identified tools found in a worker's possession shall be removed and placed in the tool crib. 9. Any tools or tool containers with identification markings found in any improper area shall be returned to the worker to whom they are then charged. 166 Any employee leaving the employ of the Company shall satisfy their tool account before receiving their final pay. SAFETY CREED 167 "One must not believe the SAFETY begins with your fellow employees, it begins with YOU! The Safety Program can do everything possible to protect you and your fellow employees, but if YOU disregard SAFETY, you not only endanger yourself, but those around you. SAFETY must be practiced twenty-four hours a day, as an accident requires less than one second to happen. That "second" may mean a costly and permanent injury to yourself or to a fellow employee, which you will think about for the rest of your life. It is far easier to live with SAFETY than the results of a careless "accident". ARTICLE XXII - ACCIDENT PREVENTION SAFETY COMMITTEE 168 The Safety Committee shall consist of the Shop Chairman department stewards, foreman, Production Manager and Manufacturing Engineering Manager of their designated representative and any other individuals deemed appropriate. 39 FUNCTION OF SAFETY ORGANIZATION 169 The function of the Safety Committee shall be to cooperate in reducing accidents by: 1. Reporting of hazards and unsafe practices from their respective departments. 2. Bringing about the cooperation of all employees both Union and Management to carry out the safety program. SAFETY PROBLEMS 170 If a safety problem arises in the department, the steward will call it to the attention of the foreman. Should the safety problem still not be solved within a reasonable period of time, the steward may call the shop Chairman to investigate the problem. The Shop Chairman may discuss the problem with the Production Manager. If the problem still exists, it shall be placed on the agenda of the next regular Safety Committee meeting. If the problem exists following consideration by the Safety Committee, the Union may call in an outside expert to review the problem and discuss it with the Shop committee and the Company with the objective of obtaining a mutually satisfactory solution. SAFETY COMMITTEE 171 The duties of the Safety Committee shall be: 1. To meet at least once during each month to consider and, if appropriate, implement safety recommendations of the Safety Committee or others. 2. To participate on inspection teams that will make quarterly inspection tours of the plant during the first full week of each quarter. the inspection team will consist of members of the Safety Committee or designated representatives. 3. To investigate reports of hazards and unsafe practices and effect correction. Reports made by the inspection team and any other reports from the Safety Committee will be reviewed at the monthly safety meeting and any unsafe conditions or practices will be called to the attention of the supervisor of the department involved. Every reasonable effort will be made to have the unsafe condition or practice corrected promptly. 4. Upon the request of the Shop Chairman or their designated representative where evidence exists that a chemical or substance to which an employee is exposed in the workplace may be toxic and hazardous, the Company will provide the Union and the employee with the Company's safety data sheets or their equivalent, including information about any available remedies and antidotes for such materials. 40 5. In case of a serious injury to an employee, the department steward will be notified promptly so that they can investigate the accident. 6. In the event of a disagreement as to the liability of the Company in the case of an injury of an employee, the Manager of Operations will, upon request, review the pertinent facts of the case with the Shop Chairman. The Company agrees to pay for the time lost by the Shop Chairman from regular working hours for such review with the understanding that this privilege will not be abused. No such review will be made if the case is given to an attorney. 7. The Safety Steward will be permitted to carry out their duties relating to safety and health. 8. The Safety Committee is responsible for making proper decisions on Safety, consistent with established safety practices. 9. The Company will be responsible for any and all discipline resulting from any safety violation. SAFETY COOPERATION 172 The Safety Committee realizes that a safe plant is an efficient one and will devote its energies to this accomplishment. In order to carry out this program, the Safety Committee will need 100% cooperation of all employees of ALTEC International. The committee encourages the making of suggestions. The Union and employees agree that they will cooperate in promoting safety and health programs and will comply with all safety rules and regulations and to use safety equipment as required by OSHA and the Company. SELECTION OF COMMITTEE 173 The Company and Union Safety Committee representatives will be chosen by the Production Manager and Shop Chairman respectively, and will serve for a period of one year. Stewards selected will serve the full period whether or not they continue as stewards for the full term. A replacement who fills a vacancy shall serve out the balance of the term of their predecessor and may serve the next full term, if selected. SAFETY CODES 174 The purpose of these safety rules is to protect the employees as they work and ensure that they work safely. By following these rules, they should avoid injury to themselves or fellow employees. Strict enforcement of these safety rules will materially reduce the possibility that someone else will commit an unsafe act which could endanger them. 41 1. The work place is to be keep clean and orderly. 2. The Safety equipment prescribed for any particular job shall be used in a proper manner at all times. 3. Safety glasses and/or approved eye protection are to be worn as prescribed, in all designated areas. 4. Rings, bracelets, wrist watches, loose garments or neckties should not be worn while operating a machine. Long sleeves and gloves may be worn for those jobs where it is appropriate. 5. Safety shoes are required by all employees on the shop floor. Safety shoes worn must comply with all current American National Standard Codes (A.N.S.I. Z41-1991 Directive) and O.S.H.A. guidelines that are in effect. 6. Complete instructions and permission must be obtained from a supervisor before operating any machine which an individual does not normally operate. All safety guards on machines must be in place and functional. 7. A lock-out on the power switch must be used while performing any maintenance work on a machine which requires placing any part of the body into or near its mechanism. 8. Individuals must not reach through or behind a safety guard while a machine is running. 9. Before cleaning, oiling, or adjusting the moving parts of a machine, it is mandatory that the machine be completely shut down and locked out. 10. Cranes must be operated only by individuals familiar with their operation. 11. Only authorized personnel are permitted to operate industrial power trucks or power hand trucks. Such authorized personnel will comply with the General Operating & Safety Rules for Power Vehicles. 12. Defective or damaged hand tools, mushroomed chisels, punches, etc., and files without handles are not to be used. 13. Aisles must not be blocked. If at any time anything is placed in a aisle, it must be moved. If the aisle is to be blocked for any period of time, the area supervisor will notify the appropriate personnel. 14. There will be no smoking during the period between the starting and stopping time of your designated shifts up to and including overtime worked. Smoking will be allowed during the employee's designated lunch period outside all ALTEC buildings. 42 15. Compressed air is to be used with caution. Never use compressed air for cleaning clothing, exposed parts of the body, or for cooling purposes. 16. Projecting nails in boxes, boards, or barrels, which are exposed, are to be bent over or removed. Other dangerous sharp projections should either be eliminated or protected. 17. Electrical apparatus should be repaired only by authorized personnel, regardless of how minor the problem seems to be. The supervisor is to be advised of the condition, they will secure proper assistance. Electrical cabinets are not to be used for storage. 18. Lift properly - with the knees and legs, and not the back. Get help rather than risk a strain. 19. All injuries, no matter how minor, are to be reported promptly to a supervisor and then to the appropriate medical facility. 20. Horseplay, scuffling, throwing of objects, and running is unsafe and it is forbidden. This applies to all Company premises, including the parking lots. 21. Industrial gases are to be stored in a safe manner, in keeping with standards established for their storage. 22. No employee shall remove, displace or damage any safety device or safeguard furnished and provided for use in any employment or place of employment, nor interfere in any way with the use thereof by any other person, nor shall any such employee interfere with the use of any method or process adopted for the protection of any employee in such employment or place of employment or frequenter of such place of employment, nor fail or neglect to do every other thing reasonable necessary to protect the life, health, safety or welfare of such employees or frequenters. (Extracted in part from the Wisconsin Industrial Commission statutes and provision). 23. The above safety rules are not meant to be inclusive nor do they supersede existing plant rules which may imply stricter measures. 24. No employee shall be disciplined or discharged for refusing to work on a job if refusal is based on a reasonable claim that said job is not safe or might unduly endanger the employee's health and safety. 25. $120.00 per person total, life of contract for the purchase of safety shoes. REPORTING VIOLATIONS 175 The reporting of violations will be conducted in the following manner: the supervisor will make out violation forms in quadruplicate, the supervisor will retain one (1) copy and send three (3) copies to the Manager of Operation's office. One completed copy will be sent to the Union. 43 PENALTIES 176 Penalties for the above violations will be as follows: 177 1ST VIOLATION: Violator will be presented with a violation slip, and instructed in accident prevention and warned against future violations. 178 2ND VIOLATION: Violator will be presented with a violation slip and be suspended for a period of five (5) hours. 179 3RD VIOLATION: Violator will be presented with a violation slip and be suspended for a period of two (2) days. 180 4TH VIOLATION: Violator will be presented with a violation slip and will be suspended for a period of one (1) week. 181 SUBSEQUENT VIOLATIONS: Violators shall be subject to further disciplinary action including discharge. 182 The above penalties are based on cumulative violations within any one year period. GENERAL SAFETY GUIDES 183 1. Employees are not required or expected to take any risks from which they cannot protect themselves by care and judgment. 184 2. Employees are not to rely on the watchfulness of others, but must protect themselves when and where their own safety is involved. 185 3. In view of the possible effect on safety, no employee shall change any customary safety method or work without first consulting the foreman. 186 4. Learn the location of fire extinguishers in the work area and be familiar with their use and purpose. FIRST AID 187 Trained first aid attendants will be provided at the facility. A list of authorized first aid attendants will be posted in a prominent place near each first aid office and will be revised as necessary, with a copy to the Union. REPORTING INJURIES 188 An employee shall not fail to report an injury immediately to their supervisor no matter how small it may seem. In case the supervisor is out of their department, the injured employee shall report the injury to the department steward or designated employee. 44 189 If it is necessary for an employee to go to the First Aid Room, they will notify their supervisor. In case of a injury requiring emergency attention, the employee should go to the First Aid Room immediately. 190 Medial attention for industrial injuries must be authorized by the Company prior to receiving attention, except in cases of emergency. EYE PROTECTION 191 In line with the Company's policy of providing the employee with a safe place in which to work, the Company will maintain a 100% comprehensive eye protection program. The type of eye protection that will be worn, depending on the job or operation, will be posted. The Company will provide such eye protection to all employees. In addition, the Company will provide equipment for protecting the eyes from damage due to grinding, burnishing, arc welding, etc. WHEN COMPANY FURNISHES PRESCRIPTION GLASSES 192 In the event it is determined that an employee with seniority needs corrective lenses in their safety glasses due to near-far vision problems, the employee will furnish a copy of the prescription and the Company will pay the cost of the glasses. 193 When it becomes necessary to replace prescription lenses after the first pair, because of a change in prescription needs, the employee will furnish a copy of the prescription and the Company will pay the cost of the lenses. 194 When it is necessary to replace an employee's prescription safety glasses because they are pitted to such an extent that they are no longer serviceable, the Company will pay for the cost of the new lenses if the employee has had the glasses for a period of more than two (2) years of working time. If the employee has had the glasses for less than two (2) years of working time, the Company will pay the cost of the new lenses unless there has been negligence on the part of the employee. DAMAGED GLASSES 195 Safety glasses damaged without the fault of the employee will be repaired or replaced at no cost to the employee; however, it will be the employee's responsibility to maintain the glasses in acceptable condition and to replace them if they are lost, or if they are damaged through misuse or improper care. 45 GENERAL 196 The Company will maintain adequate facilities for necessary minor repair of safety glasses. First aid attendants will perform these functions. 197 All prescription safety glasses will be purchased through the Company. (Any exceptions must be approved by the Production Manager.) ARTICLE XXIII - MISCELLANEOUS NON-DISCRIMINATION 198 The Company or the Union shall not discriminate against employees because of color, race, sex, religious affiliation, nationality, age, handicap or status as a disabled veteran or Vietnam ear veteran, as prescribed by applicable state or federal law. Pronouns in the male gender appearing in this Agreement are intended to include the female gender. LIMITATION ON SUPERVISOR DOING BARGAINING UNIT WORK 199 The policy of the Company is to have supervisor perform supervisory work. supervisor and other non-bargaining unit employees of the Company shall not perform the work of employees in the bargaining unit other than for instructive purposes, or in case of emergencies, and when attempting to eliminate trouble on a job when employees who can eliminate the trouble or handle the emergency are not readily available, but the work so performed shall not take away any work from any employee. NOTICES TO EMPLOYEES 200 All employees will be sent a notice by mail to their address, as it appears on the Company records. If it is necessary to contact an employee by telephone, the message will be given to the person answering the telephone. PHYSICAL EXAM AT COMPANY REQUEST 201 An employee will take a physical examination at Company expense upon the request of the Company. Before an employee is sent for such physical examination, the Company will inform the Union and discuss the reasons for the physical examination. The time spent for such an examination will be paid at the rate of straight time. WASH UP PERIOD 202 A three (3) minute wash up period before the stopping signal will be granted for fin press operators and also vacuum furnace operators to the extent that they have been working with graphite. 46 POSTED UNION NOTICES 203 The Shop Committee will submit to the Company all proposed notices prior to the posting on Company premises. EDUCATIONAL AID 204 An educational aid program will be made available to members of the bargaining unit. CELLULAR MANUFACTURING AND QUALITY IMPROVEMENTS 205 It is agreed between the Company and the Union that the parties will work together on the implementation of cellular manufacturing and quality improvement, and will meet whenever necessary to discuss issues relating to cellular manufacturing and quality improvement. SUB-CONTRACTING: 206 In cases where competition, schedule or workload require the transfer of work to outside vendors, the Company will advise the Union of such need and the reasons for doing such prior to the sub-contracting. OUT OF TOWN ASSIGNMENTS 207 The Company will inform the Shop Chairman when members of the bargaining unit have been sent on repair assignments outside La Crosse. Compensation while on such assignments will be based on the applicable provisions of the Fair Labor Standard Act and ALTEC International travel policy. The ALTEC International policy presently provides that an employee traveling on Company business outside la Crosse will receive an additional 20% (or more for certain international trips) added to their earnings applicable to paid travel time and work performed on the trip with the exception of authorized time off before and/or after a trip, travel for purposes of the employee's own training, and any trip completed within one day. Employees are considered first shift employees for purposes of determining normal working and sleeping hours while traveling. Travel, including time outside normal working hours, will be compensated according to the ALTEC International travel policy. ITEMS FOR DISCUSSIONS 208 The Company and Union will discuss the following items should future conditions warrant; 1. Method for handling National Health Care should it be instituted. 2. Catastrophic economic conditions creating hardships for either party. 47 ARTICLE XXIV - STRIKES AND LOCKOUTS NO STRIKE - NO LOCKOUT 209 Since the procedures set forth in this Agreement provide the means for peaceable settlement of all differences, disputes, complaints, and grievances that may arise between the Company and the Union, it is agreed that, during the term of this Agreement, neither the Union nor any of its members shall authorize, encourage, or participate in any strike or slowdown, and that there shall be no lockouts by the Company. VIOLATION OF CLAUSE 210 In the event of an illegal, unauthorized or uncondoned strike, sit down, slowdown or interference with the operation by an employee or employees in violation of this Agreement, the Union will undertake all reasonable means at its disposal to terminate such action. Employees who participate in or are responsible for such violation may be discipline or discharged, and such discipline or discharge shall be subject to the grievance procedure except as to employees who do not terminate the violation promptly. The question of whether an employee participated in or had any responsibility for such violation shall in every case be subject to the grievance procedure. In the event that the Union, using immediate action, is unable to induce the employee or employees to terminate such unauthorized action, the Company will not hold the local Union or its officers or the International Union or its officers financially responsible therefor. ARTICLE XXV DURATION OF AGREEMENT 211 This Agreement shall remain in full force and effect until 11:59 p.m. on February 3, 2001, and on a year-to-year basis thereafter unless on or before December 5, 2000 (or, in the event of a year-to-year extension, at least sixty (60) days prior to the Agreement expiration date), either the Company or the Union serves upon the other party a written notice of its desire to terminate this Agreement and negotiate a succeeding Agreement. 212 No other agreement can modify the terms of this Agreement unless entered into as a written amendment or supplement hereto. 213 It is understood that if any of the above articles or article or parts thereof, are in conflict with federal or state rulings, laws, or executive orders, such federal or state rulings, laws or executive orders shall apply. 48 Agreed to this ________ day of _________________________, 1998. ALTEC INTERNATIONAL LOCAL LODGE 2191 OF DISTRICT LODGE 66 OF THE INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS, AFL-CIO /S/ MICHAEL J. WAHLEN /S/ TOM O'HERON /S/ CARL L. GRIFFIN /S/ JAMES C. KALDUNSKI /S/ WILLIAM A. LOUNSBROUGH /S/ TODD A. HANSON /S/ GEORGE W. SNAPP, JR. /S/ KEVIN P. BIGLEY /S/ MAX C. GRAMLING /S/ JOEL A. GUBERUD - --------------------------------------- ---------------------------------- - --------------------------------------- ----------------------------------- - --------------------------------------- ------------------------------------ - --------------------------------------- ------------------------------------ - --------------------------------------- - --------------------------------------- 49 EX-10.13 5 EXHIBIT 10.13 SALARY CONTINUATION AGREEMENT THIS SALARY CONTINUATION AGREEMENT by and between Chart Industries, Inc., a Delaware corporation (the "Company"), and John T. Romain (the "Employee"), dated as of the 22nd day of May, 1996. WITNESSETH: WHEREAS, the Compensation Committee of the Board of Directors of the Company (the "Committee"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat, or occurrence of a Change of Control (as defined below) of the Company; and WHEREAS, the Committee believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Employee with compensation arrangements upon a Change of Control which provide the Employee with individual financial security and which are competitive with those of other corporations; and WHEREAS, in order to accomplish these objectives, the Committee has caused the Company to enter into this Agreement; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: Section 1. EFFECTIVE DATE OF THIS AGREEMENT. 1.1 (a) This Agreement shall become effective only upon the Effective Date (as defined in Section 1.1(b)). Until such time, the Employee shall have no rights against any person and no person shall have any obligations to the Employee under or by virtue of this Agreement. (b) The "Effective Date" shall be the first date during the "Agreement Period" (as defined in Section 1.1(c)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. 1 (c) The "Agreement Period" is the period commencing on the date hereof and ending on the earlier to occur of (i) the first anniversary of such date or (ii) the first day of the month next following the Employee's 65th birthday (the "Normal Retirement Date"); PROVIDED, HOWEVER, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Agreement Period shall be automatically extended so as to terminate on the earlier of (x) one year from such Renewal Date or (y) the first day of the month coinciding with or next following the Employee's Normal Retirement Date, unless at least 60 days prior to the Renewal Date the Company shall give notice that the Agreement Period shall not be so extended. 1.2 For the purpose of this Agreement, a "Change of Control" shall mean: (i) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, the Company or its subsidiaries, or any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (ii) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) Approval by the stockholders of the Company of a reorganization, merger, consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 60% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company. 2 Section 2. TERMINATION OF EMPLOYMENT. 2.1 TERMINATION BY THE COMPANY. (a) COMPANY'S RIGHT TO TERMINATE. Subject to the Company's obligations under Section 3 hereof subsequent to the Effective Date, the Employee's employment with the Company may be terminated at any time without cause. (b) DEATH OR DISABILITY. This Agreement shall terminate automatically upon the Employee's death. If the Company determines in good faith that the Disability of the Employee has occurred (pursuant to the definition of "Disability" set forth below), it may give to the Employee written notice of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" means disability which, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (c) CAUSE. The Company may terminate the Employee's employment for "Cause." For purposes of this Agreement, "Cause" means (i) an act or acts of personal dishonesty taken by the Employee and intended to result in substantial personal enrichment of the Employee at the expense of the Company or (ii) the conviction of the Employee of a felony. Section 2.2 TERMINATION BY THE EMPLOYEE. The Employee's employment may be terminated by the Employee at any time for any reason, in the Employee's sole discretion. Section 2.3 NOTICE OF TERMINATION. (a) NOTICE. Any termination by the Company or by the Employee shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 7(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) in the case of a termination for Cause, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). (b) DATE OF TERMINATION. "Date of Termination" means the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; PROVIDED, HOWEVER, that (i) if the Employee's employment is terminated by the Company other than for 3 death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination and (ii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. Section 3. OBLIGATIONS OF THE COMPANY UPON TERMINATION. 3.1 WITHOUT CAUSE. If, at any time prior to the earlier of (i) the date that is 12 months subsequent to the Effective Date, or (ii) the Employee's Normal Retirement Date (the "Salary Continuation Period"), the Company shall terminate the Employee's employment other than for Cause, Disability, or death or if the Employee shall terminate his employment: (a) the Company shall continue to pay to the Employee in accordance with its normal payroll practices the Employee's base salary at an annual rate equal to the greater of the Employee's (i) highest monthly base salary paid or payable by the Company during the twelve-month period immediately preceding the Effective Date, or (ii) the highest monthly salary paid or payable by the Company at any time from the 90-day period preceding the Effective Date through the Date of Termination (the "Highest Base Salary"), for the remainder of the Salary Continuation Period. (b) for the remainder of the Salary Continuation Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue to provide health insurance, life insurance and retirement benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its subsidiaries during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees and their families and for purposes of eligibility for retirement benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Salary Continuation Period and to have retired on the last day of such period. Notwithstanding the foregoing, the Employee shall have no right to participate in any bonus plan of the Company subsequent to the Date of Termination. 3.2 DEATH. If the Employee's employment is terminated by reason of the Employee's death, this Agreement shall terminate without further obligations to the Employee's legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including, for this purpose (i) the Employee's base salary at the Highest Base Salary rate through the Date of Termination, and (ii) any accrued vacation pay not yet paid by the Company (such amounts specified in clauses (i) and (ii) are hereinafter referred to as "Accrued Obligations"). All such Accrued Obligations shall be paid to the Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee's family shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Company and any of its subsidiaries to surviving 4 families of employees of the Company and such subsidiaries under such plans, programs, practices and policies relating to family death benefits, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect on the date of the Employee's death with respect to other key employees of the Company and its subsidiaries and their families. 3.3 DISABILITY. If the Employee's employment is terminated by reason of the Employee's Disability, this Agreement shall terminate without further obligations to the Employee, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including for this purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those provided by the Company and its subsidiaries to disabled employees and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries and their families. 3.4 CAUSE. If the Employee's employment shall be terminated for Cause, this Agreement shall terminate without further obligations to the Employee. Section 4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its subsidiaries and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program. Section 5. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the 5 Employee under any of the provisions of this Agreement, nor shall any amounts actually paid to the Employee by any person for services rendered during the Salary Continuation Period reduce the Company's payment obligations under Section 3.1(a) hereof. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. Section 6. SUCCESSORS. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Section 7. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EMPLOYEE: John T. Romain 2700 Coventry Road Shaker Heights, OH 44120 6 IF TO THE COMPANY: Chart Industries, Inc. 35555 Curtis Boulevard Eastlake, Ohio 44095 Attention: Chairman and Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (f) This Agreement contains the entire understanding of the Company and the Employee with respect to the subject matter hereof. (g) The Employee and the Company acknowledge that the employment of the Employee by the Company is "at will", and, prior to the Effective Date, may be terminated by either the Employee or the Company at any time without any obligation under or by virtue of this Agreement. Upon a termination of the Employee's employment or upon the Employee's ceasing to be an officer of the Company, in each case, prior to the Effective Date, there shall be no further rights under this Agreement. 7 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first above written. /s/ John T. Romain ------------------------------- John T. Romain Chart Industries, Inc. By: /s/ Arthur S. Holmes ---------------------------- Arthur S. Holmes, Chairman and Chief Executive Officer Attest: /s/ Thomas F. Mckee ----------------------------- Thomas F. McKee, Secretary 8 EX-10.13-1 6 EX-10.13-1 AMENDMENT NO. 1 TO SALARY CONTINUATION AGREEMENT This Amendment No. 1 to Salary Continuation Agreement ("Amendment No. 1") is made as of December 4, 1998 by and between Chart Industries, Inc., a Delaware corporation (the "Company"), and John T. Romain (the "Employee"). WITNESSETH: WHEREAS, the Compensation Committee of the Board of Directors has determined that modification of the Salary Continuation Agreement dated as of May 22, 1996 by and between the Company and the Employee (the "Agreement") is appropriate to ensure the continued dedication of the Employee to the Company, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in the Agreement), and to update certain information contained in the Agreement; and WHEREAS, the Compensation Committee has caused the Company to prepare this Amendment No. 1 to reflect such modifications and updated information; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. SALARY CONTINUATION PERIOD. Section 3.1(i) is restated in its entirety to read as follows: "(i) the date that is 24 months subsequent to the Effective Date,". 2. COMPANY ADDRESS. The address of the Company in Section 7(b) is amended to read as follows: Chart Industries, Inc. 5885 Landerbrook Drive Suite 150 Mayfield Heights, Ohio 44124. 3. NO OTHER PROVISION MODIFIED. Except as modified by Sections 1 and 2 hereof, all other provisions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first above written. /s/John T. Romain ---------------------------------- John T. Romain CHART INDUSTRIES, INC. By:/s/Arthur S. Holmes ------------------------------- Arthur S. Holmes Chairman and Chief Executive Officer Attest:/s/Thomas F. McKee -------------------------- Thomas F. McKee Secretary 2 EX-10.14 7 EX-10.14 SALARY CONTINUATION AGREEMENT THIS SALARY CONTINUATION AGREEMENT by and between Chart Industries, Inc., a Delaware corporation (the "Company"), and Don A. Baines (the "Employee"), dated as of the 22nd day of May, 1996. WITNESSETH: WHEREAS, the Compensation Committee of the Board of Directors of the Company (the "Committee"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat, or occurrence of a Change of Control (as defined below) of the Company; and WHEREAS, the Committee believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Employee with compensation arrangements upon a Change of Control which provide the Employee with individual financial security and which are competitive with those of other corporations; and WHEREAS, in order to accomplish these objectives, the Committee has caused the Company to enter into this Agreement; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: Section 1. EFFECTIVE DATE OF THIS AGREEMENT. 1.1 (a) This Agreement shall become effective only upon the Effective Date (as defined in Section 1.1(b)). Until such time, the Employee shall have no rights against any person and no person shall have any obligations to the Employee under or by virtue of this Agreement. (b) The "Effective Date" shall be the first date during the "Agreement Period" (as defined in Section 1.1(c)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. 1 (c) The "Agreement Period" is the period commencing on the date hereof and ending on the earlier to occur of (i) the first anniversary of such date or (ii) the first day of the month next following the Employee's 65th birthday (the "Normal Retirement Date"); PROVIDED, HOWEVER, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Agreement Period shall be automatically extended so as to terminate on the earlier of (x) one year from such Renewal Date or (y) the first day of the month coinciding with or next following the Employee's Normal Retirement Date, unless at least 60 days prior to the Renewal Date the Company shall give notice that the Agreement Period shall not be so extended. 1.2 For the purpose of this Agreement, a "Change of Control" shall mean: (i) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, the Company or its subsidiaries, or any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (ii) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) Approval by the stockholders of the Company of a reorganization, merger, consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 60% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company. 2 Section 2. TERMINATION OF EMPLOYMENT. 2.1 TERMINATION BY THE COMPANY. (a) COMPANY'S RIGHT TO TERMINATE. Subject to the Company's obligations under Section 3 hereof subsequent to the Effective Date, the Employee's employment with the Company may be terminated at any time without cause. (b) DEATH OR DISABILITY. This Agreement shall terminate automatically upon the Employee's death. If the Company determines in good faith that the Disability of the Employee has occurred (pursuant to the definition of "Disability" set forth below), it may give to the Employee written notice of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" means disability which, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (c) CAUSE. The Company may terminate the Employee's employment for "Cause." For purposes of this Agreement, "Cause" means (i) an act or acts of personal dishonesty taken by the Employee and intended to result in substantial personal enrichment of the Employee at the expense of the Company or (ii) the conviction of the Employee of a felony. Section 2.2 TERMINATION BY THE EMPLOYEE. The Employee's employment may be terminated by the Employee at any time for any reason, in the Employee's sole discretion. Section 2.3 NOTICE OF TERMINATION. (a) NOTICE. Any termination by the Company or by the Employee shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 7(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) in the case of a termination for Cause, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). (b) DATE OF TERMINATION. "Date of Termination" means the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; PROVIDED, HOWEVER, that (i) if the Employee's employment is terminated by the Company other than for 3 death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination and (ii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. Section 3. OBLIGATIONS OF THE COMPANY UPON TERMINATION. 3.1 WITHOUT CAUSE. If, at any time prior to the earlier of (i) the date that is 12 months subsequent to the Effective Date, or (ii) the Employee's Normal Retirement Date (the "Salary Continuation Period"), the Company shall terminate the Employee's employment other than for Cause, Disability, or death or if the Employee shall terminate his employment: (a) the Company shall continue to pay to the Employee in accordance with its normal payroll practices the Employee's base salary at an annual rate equal to the greater of the Employee's (i) highest monthly base salary paid or payable by the Company during the twelve-month period immediately preceding the Effective Date, or (ii) the highest monthly salary paid or payable by the Company at any time from the 90-day period preceding the Effective Date through the Date of Termination (the "Highest Base Salary"), for the remainder of the Salary Continuation Period. (b) for the remainder of the Salary Continuation Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue to provide health insurance, life insurance and retirement benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its subsidiaries during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees and their families and for purposes of eligibility for retirement benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Salary Continuation Period and to have retired on the last day of such period. Notwithstanding the foregoing, the Employee shall have no right to participate in any bonus plan of the Company subsequent to the Date of Termination. 3.2 DEATH. If the Employee's employment is terminated by reason of the Employee's death, this Agreement shall terminate without further obligations to the Employee's legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including, for this purpose (i) the Employee's base salary at the Highest Base Salary rate through the Date of Termination, and (ii) any accrued vacation pay not yet paid by the Company (such amounts specified in clauses (i) and (ii) are hereinafter referred to as "Accrued Obligations"). All such Accrued Obligations shall be paid to the Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee's family shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Company and any of its subsidiaries to surviving 4 families of employees of the Company and such subsidiaries under such plans, programs, practices and policies relating to family death benefits, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect on the date of the Employee's death with respect to other key employees of the Company and its subsidiaries and their families. 3.3 DISABILITY. If the Employee's employment is terminated by reason of the Employee's Disability, this Agreement shall terminate without further obligations to the Employee, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including for this purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those provided by the Company and its subsidiaries to disabled employees and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries and their families. 3.4 CAUSE. If the Employee's employment shall be terminated for Cause, this Agreement shall terminate without further obligations to the Employee. Section 4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its subsidiaries and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program. Section 5. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the 5 Employee under any of the provisions of this Agreement, nor shall any amounts actually paid to the Employee by any person for services rendered during the Salary Continuation Period reduce the Company's payment obligations under Section 3.1(a) hereof. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. Section 6. SUCCESSORS. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Section 7. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EMPLOYEE: Don A. Baines 7915 Skylineview Drive Concord Township, OH 44060 6 IF TO THE COMPANY: Chart Industries, Inc. 35555 Curtis Boulevard Eastlake, Ohio 44095 Attention: Chairman and Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (f) This Agreement contains the entire understanding of the Company and the Employee with respect to the subject matter hereof. (g) The Employee and the Company acknowledge that the employment of the Employee by the Company is "at will", and, prior to the Effective Date, may be terminated by either the Employee or the Company at any time without any obligation under or by virtue of this Agreement. Upon a termination of the Employee's employment or upon the Employee's ceasing to be an officer of the Company, in each case, prior to the Effective Date, there shall be no further rights under this Agreement. 7 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first above written. /s/ Don A. Baines ----------------------------------- Don A. Baines Chart Industries, Inc. By: /s/Arthur S. Holmes -------------------------------- Arthur S. Holmes, Chairman and Chief Executive Officer Attest: /s/Thomas F. Mckee -------------------------------- Thomas F. McKee, Secretary 8 EX-10.14-1 8 EX-10.14-1 AMENDMENT NO. 1 TO SALARY CONTINUATION AGREEMENT This Amendment No. 1 to Salary Continuation Agreement ("Amendment No. 1") is made as of December 4, 1998 by and between Chart Industries, Inc., a Delaware corporation (the "Company"), and Don A. Baines (the "Employee"). WITNESSETH: WHEREAS, the Compensation Committee of the Board of Directors has determined that modification of the Salary Continuation Agreement dated as of May 22, 1996 by and between the Company and the Employee (the "Agreement") is appropriate to ensure the continued dedication of the Employee to the Company, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in the Agreement), and to update certain information contained in the Agreement; and WHEREAS, the Compensation Committee has caused the Company to prepare this Amendment No. 1 to reflect such modifications and updated information; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. SALARY CONTINUATION PERIOD. Section 3.1(i) is restated in its entirety to read as follows: "(i) the date that is 24 months subsequent to the Effective Date,". 2. COMPANY ADDRESS. The address of the Company in Section 7(b)is amended to read as follows: Chart Industries, Inc. 5885 Landerbrook Drive Suite 150 Mayfield Heights, Ohio 44124. 3. NO OTHER PROVISION MODIFIED. Except as modified by Sections 1 and 2 hereof, all other provisions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first above written. /s/ Don A. Baines ---------------------------------- Don A. Baines CHART INDUSTRIES, INC. By:/s/ Arthur S. Holmes ---------------------------------- Arthur S. Holmes Chairman and Chief Executive Officer Attest: /s/Thomas F. McKee ----------------------------- Thomas F. McKee Secretary 2 EX-21.1 9 EX-21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT AND JURISDICTION OF INCORPORATION ORGANIZATION ALTEC, Inc. (Non-Operating)................................. Wisconsin ALTEC International Limited Partnership..................... Delaware CHD, Inc. (Non-Operating)................................... Delaware Caire, Inc.................................................. Delaware Chart Cryogenic Services, Inc............................... Ohio Chart Europe GmbH........................................... Germany Chart Holdings, Inc......................................... Delaware Chart, Inc.................................................. Delaware Chart Industries Foreign Sales Corporation.................. Virgin Islands Chart International, Inc.................................... Delaware Chart Management Company, Inc............................... Ohio* Chart Marston............................................... England Chart Pacific, Inc.......................................... Delaware Chart UK Investments Limited Partnership.................... England Cryenco, Inc................................................ Colorado Cryenco Sciences, Inc....................................... Delaware Cryenex, Inc................................................ Delaware Ferox AS.................................................... Czech Republic MVE Australia Pty LTD....................................... Australia MVE International Holdings, Inc............................. Delaware Northcoast of America Cryogenics, Inc....................... Ohio Process Systems International, Inc.......................... Massachusetts Zhangjiagang MVE Gases Equipment Company.................... China
* General partner for ALTEC International Limited Partnership, a Delaware limited partnership and Chart UK Investments Limited Partnership, an English limited partnership. EX-23.1 10 EX-23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-58446 and No. 333-08665) pertaining to the Chart Industries, Inc. Key Employees Stock Option Plan, (Form S-8 No. 33-92340) pertaining to the Chart Industries, Inc. 1994 Stock Option Plan for Outside Directors and 1995 Stock Option Plan for Outside Directors, (Form S-8 No. 333-08667) pertaining to the Chart Industries, Inc. 1996 Stock Option Plan for Outside Directors, (Form S-8 No. 333-32535) pertaining to the Chart Industries, Inc. 1997 Stock Option and Incentive Plan and the Chart Industries, Inc. 1997 Stock Bonus Plan, (Form S-3 No. 333-35321) pertaining to the Chart Industries, Inc. registration for sale of 2,800,000 shares of Common Stock, and (Form S-3/A No. 333-44621) pertaining to the Chart Industries, Inc. registration for resale of 89,715 shares of Common Stock of our report dated February 7, 2000, with respect to the consolidated financial statements of Chart Industries, Inc. and subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 1999. /s/ ERNST & YOUNG LLP Cleveland, Ohio March 14, 2000 EX-27.1 11 EX-27.1
5 1,000 YEAR YEAR DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 DEC-31-1999 DEC-31-1998 2,314 2,169 0 0 62,093 37,336 1,857 775 50,578 29,803 143,350 76,111 100,024 61,738 25,267 21,202 424,570 158,205 93,263 50,785 259,336 10,894 0 0 0 0 244 243 55,268 92,911 424,570 158,205 292,937 229,423 292,937 229,423 213,458 151,766 215,556 151,766 86,612 33,502 0 0 15,854 901 (25,085) 43,254 3,106 15,039 (28,191) 28,215 0 0 (7,809) 0 0 0 (36,280) 28,215 (1.53) 1.17 (1.53) 1.16
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