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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Ended August 31, 1998 Commission File Number: 1-9852
CHASE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 11-1797126
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
26 Summer Street, Bridgewater, Massachusetts 02324
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 279-1789
Securities registered pursuant to section 12(b) of the Act:
Common Stock, $.10 par value American Stock Exchange
(Title of class) (Name of each exchange on which registered)
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.10 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of October 31, 1998, the Company had outstanding 3,905,566 shares of common
stock, $.10 par value, which is its only class of common stock; and the
aggregate market value of the voting stock held by non-affiliates of the
registrant was $51,749,000.
DOCUMENT INCORPORATED BY REFERENCE
The registrant's definitive proxy statement (the "Definitive Proxy Statement")
to be filed in connection with the Annual Meeting of Shareholders to be held on
January 26, 1999, is incorporated by this reference into items 10-13 hereof.
Item 1. Business.
General Development and Industry Segment.
Chase Corporation (the "Company") is a multi-divisional advanced
manufacturing company providing industrial products to a wide variety of
industries including wire and cable, construction and electronics. During
fiscal 1991, the Company implemented a strategy of maximizing the core
businesses while seeking future opportunities through selective acquisitions.
As a result we divested or discontinued products or services that did not fit
our model and began to reposition the Company. During 1992, a facility that
manufactures tape and related products in Webster, Massachusetts became
operational. In April 1992, the Company acquired certain tape product lines
and associated assets for cash from The Stewart Group, Ltd. This division,
Chase Canada, maintains manufacturing operations in Winnipeg, Manitoba,
Canada. As of September 16, 1993, the Company was appointed the exclusive
distributor of "Megolon " by Lindsay & Williams, Ltd. of Manchester, England.
This agreement has been terminated as of October 30, 1998. Effective May 25,
1994, the Company purchased the electrical cable insulation tape product lines
and certain associated assets from Haartz Mason, Inc. and these products were
folded into the Chase & Sons division. On June 5, 1995, the Company formed a
joint venture with The Stewart Group, Ltd. which was called The Stewart
Group, Inc. This venture produced a variety of dielectric strength members
from composite materials and sold into the fiber optic cable market. The
original investment was increased on February 1, 1996 and at that time the
Company owned 42% of the venture. It was announced on May 16, 1997 that the
majority of the assets related to the original business were sold to Owens
Corning. The venture will continue to provide consulting services for several
years to Owens Corning while pursuing other market opportunities. On June 29,
1995, certain assets of Fluid Polymers, Inc. of Las Vegas, Nevada were
acquired and then relocated to the Royston facility. On August 7, 1996 the
Company announced the purchase of a 20% interest in DC Scientific, Inc., which
provides circuit board assembly services to electronic goods manufacturers.
This investment was increased to 51% at which time DC became a subsidiary of
Chase. There have not been any other material changes or developments since
September 1, 1998.
As of October 31, 1998, the Company employed approximately 222 people, of
which 55 individuals were associated with our subsidiary.
Products and Markets.
The Company's principal products are protective coatings and tape
products that are sold by Company salespeople and manufacturers'
representatives. These products consist of: (i)insulating and conducting
materials for the manufacture of electrical and telephone wire and cable, and
electrical splicing, terminating and repair tapes which are marketed to wire
and cable manufacturers and public utilities; (ii)protective pipe coating
tapes and other protectants for valves, regulators, casings, joints, metals,
concrete, and wood that are sold to oil companies, gas utilities, and pipeline
companies; (iii)protectants for highway bridge deck metal surfaces sold to
municipal transportation authorities; (iv)thermo-electric insulation for
transformers, motors, and other electrical equipment that are sold to original
equipment manufacturers; (v)moisture protective coatings that are sold to the
electronics industry; and (vi)its subsidiary, DC Scientific, Inc., provides
circuit board assembly service to electronic goods manufacturers. There are
no material seasonal aspects to the Company's business and the Company has
introduced no new products or segments requiring an investment of a material
amount of the Company's assets.
Backlog, Customers and Competition.
As of October 31, 1998, the backlog of orders believed to be firm was
approximately $1,430,000, all of which are expected to be filled in fiscal
year 1999. As of October 31, 1997 the backlog was approximately $1,913,000.
In addition, the backlog at October 31, 1998 for our subsidiary, DC
Scientific, Inc. was $1,306,000. The backlog is not seasonal. The Company
does not do business with any customer the loss of which would have a material
adverse effect on the Company and no material portion of the Company's
business is subject to renegotiation or termination of profits or contracts at
the election of the government.
There are other companies which manufacture or sell protective coatings
and tape products similar to those made and sold by the Company. Many of those
companies are larger and have greater financial resources than the Company.
Competition is principally based on technical performance, service
reliability, quality and price.
Raw Materials.
The Company obtains raw materials from a wide variety of suppliers with
alternative sources of all essential materials available within reasonable
lead times.
Patents, Trademarks, Licenses, Franchises and Concessions.
Other than Humiseal , a trademark for moisture protective coatings sold
to the electronics industry, Chase BLH2OCK , a trademark for water blocking
compound sold to the wire and cable industry, and Rosphalt50 , a trademark for
an asphalt additive used predominantly on bridge decks for waterproofing
protection, there are no material trademarks, licenses, franchises, or
concessions. The Company holds various patents, but believes that at this
time they are not material to the success of the business.
Working Capital and Research and Development.
There are no special practices followed by the Company relating to
working capital. Approximately $574,000, $540,000 and $502,000 was spent for
Company-sponsored research and development during the fiscal years 1998, 1997
and 1996, respectively.
Environmental.
The Pennsylvania Department of Environmental Protection ("Pennsylvania
DEP") had previously notified the Company that it could be a person
responsible for clean up costs associated with a site in Bruin, Pennsylvania
where an affiliate of the Company had sponsored research in experimental oil
and coal-based fuels in the early 1980's. In August 1991, a spill of the
affiliate's stored material occurred at the Bruin site, apparently due to
vandalism of the storage tanks. Upon learning of the spill, the Company
provided notice of the release to appropriate authorities and undertook to
remedy the spill. The remedy was completed in October 1992 under plans
approved by the Pennsylvania DEP. In September of 1998, the Company reached a
settlement in the amount of $259,468 with the Pennsylvania DEP. As part of
the settlement, the Company resolved its liability to the Pennsylvania DEP and
received protection from third-party lawsuits regarding the Site. The amount
of the settlement had been previously reserved.
See also Legal Proceedings Caption.
Financial Information about Foreign and Domestic Operations and Export Sales.
Export sales from continuing domestic operations to unaffiliated third
parties were $5,207,000, $4,592,000 and $3,594,000 for the years ended August
31, 1998, 1997 and 1996, respectively. The Company does not anticipate any
material change to export sales during fiscal 1999. The Company's products
are sold world-wide with no foreign geographic area accounting for more than
10% of revenues. The Company's Canadian operations accounted for 7.6% of
consolidated sales and 4.1% of its assets.
The Company has very limited currency exposure since all invoices, except
those from the Canadian operation to Canadian customers, are denominated in US
dollars. The Company maintains minimal cash balances in Canada and, other
than the currency conversion effects on the fixed assets in Canada, which are
deferred and recorded directly in equity per FAS52, there are no significant
assets held in foreign currencies. The Company does not engage in hedging
activities. Foreign currency transaction gains or losses have not been
material.
Item 1A. Executive Officers of the Registrant.
The following table sets forth information concerning the Company's
executive officers. Each officer is selected by the Company's Board of
Directors and holds office until his successor is elected and qualified.
Name Age Offices Held and Business Experience during
Past Five Years.
Peter R. Chase 50 Chief Executive Officer of the Company since
September 1993 and President of the Company
since April 1992; Chief Operating Officer of
the Company since September 1988.
Everett Chadwick, Jr. 57 Treasurer of the Company since September 1993
and Chief Financial Officer since September,
1992; Director of Finance of the Company from
April 1991 to August 1993 and Controller of the
Company from September 1988 to August 1993.
ITEM 2. Properties
The Company has recently purchased a building containing about 5,200
square feet and during November, 1998 moved its principal executive office
into this space in Bridgewater, Massachusetts. The Company also rents a
modern one-story building of approximately 5,000 square feet in Woodside, New
York, which is used by the conformal coatings division.
A division of the Company engaged in the manufacture and sale of
electrical protective coatings and tape products uses offices and plants owned
by the Company that are located on seven acres in Randolph, Massachusetts and
consist of a three-story building containing about 10,500 square feet and ten
one-story buildings, aggregating about 67,000 square feet. This division also
currently leases about 25,000 square feet of manufacturing space in a new
building in Webster, Massachusetts. This plant manufactures tape and related
products for the electronic, telecommunication and high technology industries.
Another division of the company uses offices and a plant, owned by the
Company, that are located on three acres in Pittsburgh, Pennsylvania and
consist of thirteen buildings, three of which are used for offices, one of
which is rented as a residence and the rest of which are used as manufacturing
and warehouse facilities. These facilities, excluding the residence, contain
about 44,000 square feet and are used in the manufacture and sale of
protective coatings and tape products.
The Canadian division of the Company is engaged in the process of
laminating and slitting film, foils and papers primarily by the wire and cable
industry. This division leases about 14,000 square feet of manufacturing
space in Winnipeg, Manitoba, Canada.
DC Scientific, Inc., a subsidiary of the Company provides circuit board
assembly services to electronic manufacturers and leases 35,700 square feet of
manufacturing space in West Bridgewater, MA.
The above facilities range in age from new to about 100 years. They
generally are in good condition and, in the opinion of management, adequate
and suitable for present operations. The company also owns equipment and
machinery that is in good repair and, in the opinion of management, adequate
and suitable for present operations. The Company could significantly add to
its capacity by increasing shift operations. Availability of machine hours
through additional shifts would provide expansion of current product volume
without significant additional capital investment.
Item 3. Legal Proceedings.
The Company has been named as a third party defendant in eighteen
personal injury lawsuits filed in state court in Jackson County, Mississippi.
These lawsuits, each of which has multiple plaintiffs and defendants, arose
out of alleged asbestos exposure by the plaintiffs as a result of their work
at the Ingalls Shipyard. The Company was sued as a third-party defendant by
USX Corporation, General Cable Corporation and G.K. Technologies, Inc., each
of whom is a primary defendant in these actions. USX, General Cable and G.K.
are alleged to have supplied wire and cable products containing asbestos to
the shipyard. The third-party complaints allege that tape products containing
asbestos were manufactured by the Company, sold to USX, General Cable and
G.K., and then incorporated in their wire and cable products sold for use in
the ships. USX, General Cable, and G.K. are seeking indemnification from the
Company for damages that may be assessed against them and expenses including
legal fees.
The third-party claims against the Company, along with all other third-
party and crossclaims, were severed from the trial of the primary actions.
USX, General Cable and G.K. were each dismissed by the plaintiffs prior to the
commencement of trial of nine of the primary actions, which took place in the
summer of 1993. It is not known how much, if anything, each paid to settle
these claims. To date, no effort has been made by USX, General Cable or G.K.
to pursue the third-party claims against the Company arising out of the
resolution of any of the cases tried in the summer of 1993. Some of the
remaining primary actions remain pending, but it is not now known when those
cases will be tried, whether the plaintiffs will proceed against any of the
wire and cable manufacturers, including USX, General Cable or G.K., and
whether any of these defendants will, in turn, pursue their claims against the
Company.
The Company's liability insurer has assumed defense of these claims
subject to reservation of its rights as to coverage for any underlying
liability assessed.
In July 1994, the Company received a notice letter from General Cable and
G.K. that they have been sued in fourteen additional asbestos personal injury
lawsuits, ten of which are pending in Mississippi, two in Pennsylvania and two
in Texas. Each of these cases involves multiple plaintiffs and defendants.
This notice letter is an effort to bind the Company to the factual
determination made in these cases, if General Cable or G.K. brings an action
against the Company for indemnification arising out of these cases. No such
action for indemnification has been brought and the Company is not now a party
in any of these fourteen additional cases. The Company's liability insurer has
been informed that the Company has been notified of these potential claims.
The Company is investigating the defenses available to it in connection
with all these matters and its rights against its supplier. Although the
company cannot predict whether any of these claims will be pursued, management
believes that such claims will not have any material financial impact of the
Company.
See also Environmental Disclosure Caption.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the Company's last fiscal year.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock is traded on the American Stock Exchange
(symbol CCF). The approximate number of record holders of the Company's
common stock on October 31, 1998 was 820.
The quarterly high and low sales prices for the Company's common stock
over the last two years were as follows:
Year ended August 31, 1998 Year ended August 31, 1997
Sales Price Sales Price
Quarter Ended High Low High Low
November 30 15 10 1/2 9 3/16 5 1/4
February 28 16 1/2 12 1/2 9 3/8 7 1/4
May 31 19 13 1/8 8 1/4 7
August 31 14 3/4 8 7/8 12 3/8 8
Item 6. Selected Financial Data.
1998 1997 1996 1995 1994
Net Sales and other $46,639,338 $40,991,125 $34,366,029 $32,734,893 $28,654,421
operating revenues
Income from operations 4,101,643 2,811,460 2,194,985 1,907,884 1,608,621
Equity in earnings 195,000 195,375 82,965 19,951 -
of unconsolidated
joint venture
Minority Participation 107,585 303,680 - - -
in Subsidiary
Gain in sale of assets
from unconsolidated
joint venture 1,718,425 - - - -
Net Income 6,122,653 3,312,515 2,277,950 1,927,835 1,608,621
Total Assets 25,261,786 22,635,761 19,786,824 20,002,586 18,134,618
Long-term debt and 682,576 3,020,708 4,481,071 6,464,260 2,897,976
capital leases
Per Common Share:
Diluted 1.56 .84 .61 .43 .35
Basic 1.58 .84 .61 .43 .35
Cash dividends* .28 .21 .15 .10 .08
*Single annual payments declared and paid subsequent to fiscal year end.
Includes a non-recurring gain of $1,718,425 ($0.44 per share) related to the sale
of certain assets by The Stewart Group, Inc. joint venture.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED
STATEMENTS OF OPERATIONS
Years Ended August 31,
1998 1997 1996
(Dollars in thousands)
Net revenue..............................$46,639 $40,991 $34,366
Net Income...............................$ 4,894 $ 3,313 $ 2,278
Increase in net revenue from previous
year......................
Amount............................ $ 5,648 $ 6,625 $ 1,631
Percentage........................ 14% 19% 5%
Increase(Decrease) in net income from
previous year........... $ 1,581 $ 1,035 $ 350
Percentage of net revenue:
Net revenue....................... 100.0% 100.0% 100.0%
Expenses:
Cost of Sales................ 64.3 65.5 66.0
Selling, general and
administrative expenses.... 20.8 21.5 22.1
Other expenses............... 0.5 1.3 1.9
Income from operations
before income taxes.......... 14.3 11.7 10.0
Provision for income taxes........ 5.5 4.8 3.6
Income from operations............ 8.8% 6.9% 6.4%
Minority participation in subsidiary .2 .7 -
Equity in earnings of unconsolidated
joint venture................ .4 .5 .2
Gain on sales of assets by
Unconsolidated joint venture.... 3.7 - -
Net Income....................... 13.1% 8.1% 6.6%
Results of Operations.
Total revenues for fiscal 1998 increased $5.6 million to $46.6
million, a 13.8%improvement over the prior year. The Company's strategic
plan, which was adopted several years ago, remains a focus for growth.
The continued focus on the plan during fiscal 1998 and, to some extent,
generally strong domestic and Canadian economies, assisted all of our
divisions with growth in their traditional markets. This sales
improvement along with new product development and the benefit received by
the inclusion of a full year of sales by our subsidiary, DC Scientific,
Inc., which has now been consolidated with Chase since January 1997, were
all important to our revenue improvement last year. Also, despite a
difficult world economy, international revenue growth improved by 13%, but
still represents only 11% of our total revenue for the fiscal year.
Fiscal 1997 revenue increased 19% to $41 million when compared to
1996. The majority of this growth came from our traditional products,
although DC Scientific, Inc. became a subsidiary in January 1997 and, as a
result, their sales were then consolidated with ours. International sales
increased 28% to $4.6 million during fiscal 1997.
The dollar value of cost of products was higher in fiscal 1998
compared to both 1997 and 1996. These increases were volume related. As
a percent of sales, cost of products decreased to 64.9% in 1998 as
compared to 66.4% and 66.8% in 1997 and 1996 respectively. Raw material
cost decreases during the periods were a significant part of the gross
margin improvement. These improvements were somewhat offset by some
direct manufacturing expenses. Gross profit margins during the past three
years were relatively stable and we would expect continued solid margins
during the current fiscal year as long as current market trends prevail.
However, no assurances can be given in this regard. Competitive pressures
prevent the Company from recovering any significant amount of related cost
increases.
Selling and administrative expenses in 1998 increased by $930,000 and
$1,200,000 respectively when compared to 1997 and 1996. However, as a
percent of sales, 1998 was lower, 0.9% and 0.6% respectively, in
comparison with 1997 and 1996. The dollar increases relate to the
expenses associated with the higher levels of sales and costs related to
investments in people that would be required in order to continue our
ability to improve revenues and profitability.
Interest expense decreased to $258,000 in 1998 as compared to
$470,000 in 1997 and $595,000 in 1996. The interest decrease relates to a
continuous reduction in bank debt. A significant amount of the bank debt
reduction during 1998 was a result of the cash dividend declared and paid
by The Stewart Group, Inc., as a result of the previously announced sale
of certain assets to Owens Corning, which was concluded during the first
quarter of fiscal 1998. The Company also continues to benefit from solid
earnings and low borrowing rates from its lender.
Sales increases in our traditional products, compared with lower
manufacturing costs mostly associated with raw material cost improvements,
beneficial changes in product mix and productivity improvements have
assisted in our profit improvement over the past few years. Management
will continue this approach of seeking to maximize and expand our current
business while at the same time seeking future opportunities through
selective acquisitions.
The effective tax rate for 1998 is lower than the applicable tax
rate. This is largely due to the increased export sales through our Chase
Export Corporation subsidiary. During 1997 the tax rate was about equal
to the applicable rate. However, the benefit received from the export
sales increase was offset by the losses of DC Scientific, Inc. which were
reserved against and were not consolidated for tax filings. The 1996 tax
rate was somewhat lower because of the export sales improvement.
Minority participation in subsidiary represents the minority
shareholders 49.9% equity in the losses of DC Scientific, Inc.
The equity in earnings of unconsolidated joint ventures over the past
few years relates to our ownership position in The Stewart Group, Inc.,
Toronto, Canada.
Our gain on sales of assets by unconsolidated joint venture during
fiscal 1998 is a non-recurring gain and the result of the sale of certain
assets by The Stewart Group, Inc. joint venture to Owens Corning. The
transaction was concluded on November 17, 1997.
Liquidity and Sources of Capital.
Cash flow generated from operations was $5,237,000 in 1998 as compared to
$3,538,000 and $4,419,000 during 1997 and 1996 respectively. Receivable and
inventory increases relative to the increased level of business were more than
offset by the cash dividend received from The Stewart Group, Inc. that was
related to the sale of assets to Owens Corning. In 1997, a significant part of
the inventory and receivable build up was related to the consolidation of DC
Scientific, Inc. The majority of the 1996 cash flow improvement was related to
reductions in inventory.
The ratio of current assets to current liabilities was 1.9 at the end of
fiscal 1998 as compared to 1.6 at the end of both 1997 and 1996.
The unused available long-term credit amounted to $5,840,000 at August,
1998, as compared to $4,440,000 at August, 1997. Current financial resources
and anticipated funds from operations are expected to be adequate to meet
requirements for funds in the year ahead.
Year 2000
The year 2000 issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from
the application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions.
Management established an executive committee to review the year 2000 issue as
well as our entire system. The committee completed an assessment of the
Company's computer systems and the embedded systems contained in its
manufacturing processes. Machinery and equipment used in key production
processes utilizing imbedded chips were purchased over the last two - five
years and are Y2K compliant. However, many of the Company's programs have time
sensitive software which could result in a system failure. It was determined
that our internal computer operation, both hardware and software, needed
upgrading. A decision was made to update and upgrade our entire informational
system. We anticipate that the entire cost of this conversion will be in the
range of $600,000 and that these costs will be expensed or will be amortized
over five years in accordance with generally accepted accounting practices.
Management has put in place a plan to complete our conversion by June 30, 1999.
The Company also understands that there are risk factors associated with
year 2000 that it cannot directly control, primarily the readiness of its key
suppliers, distributors, and vendors. We will work diligently on these
concerns although there can be no assurance that the systems of any third party
will be timely converted and which will not have a material adverse effect on
the Company. During the first half of calendar 1999, the Company will address
contingency plans that will address our key issues in the event that problems
arise.
Forward-Looking Information.
From time to time, the Company may publish, verbally or in written form,
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
research and development activities and similar matters. In fact, this Form
10-K (or any other periodic reporting documents required by the 1934 Act) may
contain forward-looking statements reflecting the current views of the Company
concerning potential future events or developments. The Private Securities
Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-
looking statements. In order to comply with the terms of the "safe harbor,"
the Company cautions investors that any forward-looking statements made by the
Company are not guarantees of future performance and that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties which may affect the
operations, performance, development and results of the Company's business
include, but are not limited to, the following: uncertainties relating to
economic conditions; uncertainties relating to government and regulatory
policies; uncertainties relating to customer plans and commitments; the pricing
and availability of equipment, materials and inventories; technological
developments; performance issues with key suppliers and subcontractors;
worldwide political stability and economic growth; regulatory uncertainties;
delays in testing of new products; rapid technology changes and the highly
competitive environment in which the Company operates. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date the statement was made.
Impact of Inflation.
Inflation has not had a significant long-term impact on earnings. In the
event of significant inflation, the Company's efforts to cover cost increases
would be hampered as a result of the competitive nature of the products.
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary financial information required to
be filed hereunder may be located through the List of Financial Statements and
Schedules attached to this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable.
PART III
Item 10.Directors and Executive Officers of the Registrant.
Information with respect to the names, ages, positions with the Company,
terms of office, periods of service, business experience, and other
directorships of the Company's Directors and Executive Officers is incorporated
herein by reference to Item 1A of the report and to the Definitive Proxy
Statement (under the caption "Election of Directors").
Item 11. Executive Compensation
The information required in Item 11 is contained in the Definitive Proxy
Statement (under the caption "Executive Compensation"). Such information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding the ownership of the Company's common stock by
certain beneficial owners and by management is incorporated herein by reference
to the Definitive Proxy Statement (under the captions "Principal Holders of
Voting Securities" and "Election of Director's").
Item 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions with
the Company's Directors and Executive Officers is incorporated herein by
reference to the Definitive Proxy Statement under the captions "Election of
Directors" and "Remuneration of Directors and Executive Officers."
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
See the List of Financial Statements and Schedules included in this report
for a list of the financial statements and schedules included with this report
and see the Exhibit Index included in this report for a list of the exhibits
required to be filed with this report. The Company did not file any reports on
Form 8K during the fourth quarter of its most recent fiscal year. Copies of any
of the exhibits are available to beneficial shareholders as of the record date
(December 1, 1998) without charge upon written request to the Investor Relations
Department, Chase Corporation, 50 Braintree Hill Park, Braintree, Massachusetts
02184.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHASE CORPORATION Date
By /s/ Peter R. Chase President and November 24, 1998
Peter R. Chase Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Capacity Date
By /s/ Peter R. Chase President, Chief November 24, 1998
Peter R. Chase Executive Officer and
Director (Principal
Executive Officer)
By /s/ Everett Chadwick, Jr. Treasurer and Chief November 24, 1998
Everett Chadwick, Jr. Financial Officer
(Principal Financial
and Accounting Officer)
By /s/ Edward L. Chase Director November 24, 1998
Edward L. Chase
By /s/ Sarah Chase Director November 24, 1998
Sarah Chase
By /s/ William H. Dykstra Director November 24, 1998
William H. Dykstra
By /s/ George M. Hughes Director November 24, 1998
George M. Hughes
By /s/ Ronald Levy Director November 24, 1998
Ronald Levy
By /s/ Ernest E. Siegfriedt, Jr. Director November 24, 1998
Ernest E. Siegfriedt, Jr.
EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Organization (incorporated by reference from Exhibit 3 to the
Company's annual report on Form 10-K for the fiscal year ended August 31,
1988)
3.2 By-Laws (incorporated by reference from Exhibit 3 to the Company's annual
report on Form 10-K for the fiscal year ended August 31, 1988)
3.3 Amendment to By-Laws (adding Article IV, Section 7) (incorporated by
reference from Exhibit 3.3 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1990)
10.1 Split Dollar Insurance Agreement dated December 2, 1983 by and between the
Company and Edward L. Chase (incorporated by reference from Exhibit 10.1 to the
Company's annual report on Form 10-K for the fiscal year ended August 31, 1990)
10.2 Split Dollar Insurance Agreement dated December 2, 1983 by and between the
Company and Francis M. Chase (incorporated by reference from Exhibit 10.2 to the
Company's annual report on Form 10-K for the fiscal year ended August 31, 1990)
10.11 Purchase and Sale Agreement dated October 26, 1990 by and between the
Company and Avon Custom Mixing Service, Inc. (incorporated by reference from
Exhibit 2.1 to the Company's Current Report on Form 8-K dated October 26, 1990)
10.17 Amendment dated April 30, 1992 to Split Dollar Insurance Agreement dated
December 2, 1983 by and between the Company and Edward L. Chase (incorporated by
reference from Exhibit 10.17 to the Company's annual report on Form 10-K for the
fiscal year ended August 31,1992)
10.18 Amendment dated April 30, 1992 to Split Dollar Insurance Agreement dated
November 10, 1987 by and between the Company and Edward L. Chase and Claire
Chase (incorporated by reference from Exhibit 10.18 to the Company's annual
report on Form 10-K for the fiscal year ended August 31, 1992)
10.20 Amendment dated August 31, 1992 to Split Dollar Insurance Agreement dated
December 2, 1983 by and between the Company and Francis M. Chase (incorporated
by reference from Exhibit 10.20 to the Company's annual report on Form 10-K
for the fiscal year ended August 31, 1992)
10.21 Amendment dated August 31, 1992 to Split Dollar Insurance Agreement dated
November 10, 1987 by and between the Company and Francis M. Chase and Barbara
Chase (incorporated by reference from Exhibit 10.21 to the Company's annual
report on Form 10-K for the fiscal year ended August 31,1992)
10.25 Endorsement Split-Dollar Agreement dated June 8, 1995 by and between the
Company and Edward L. Chase and Claire Chase.
10.26 Amendment to and Confirmation of Split Dollar Insurance Agreement dated
June 8, 1995 by and between the Company and Edward L. Chase and Claire Chase.
22 Subsidiaries of the Company
List of Financial Statements and Schedules
Report of Independent Certified Public Accountants................... 17
Consolidated Balance Sheets as of August 31, 1998 and
August 31, 1997................................................. 18
Consolidated Statements of Operations for each of the three
fiscal years in the period ended August 31, 1998................ 20
Consolidated Statements of Shareholders' Equity for each of
the three fiscal years in the period ended August 31, 1998...... 21
Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended August 31, 1998................ 22
Notes to Consolidated Financial Statements........................... 23-37
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Chase Corporation
Braintree, Massachusetts
We have audited the consolidated balance sheets of Chase
Corporation and subsidiaries as of August 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity
and cash flows for each year in the three year period ended August
31, 1998 and the Schedule II, Valuation and Qualifying Accounts and
Reserves. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Chase Corporation and subsidiaries at August 31, 1998 and
1997, and the consolidated results of their operations and cash flows
for each year in the three year period ended August 31, 1998, in
conformity with generally accepted accounting principles, and the
schedule referred to above presents fairly, in all material respects,
when read in conjunction with the related financial statements, the
information therein set forth.
/s/ Livingston & Hayes, P.C.
Wellesley, Massachusetts
October 16, 1998
CHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998 AND 1997
ASSETS
1998 1997
CURRENT ASSETS
Cash and cash equivalents $ 2,296,384 $ 158,881
Trade receivables, less allowance for doubtful
accounts of $201,135 and $152,500, at August 31,
1998 and 1997, respectively 7,320,022 7,121,218
Inventories:
Finished and in process 1,671,770 1,209,960
Raw materials 3,064,684 3,069,372
4,736,454 4,279,332
Prepaid expenses 352,652 40,964
Other current assets 27,410 127,321
Note receivable from related parties 46,406 92,517
Deferred income taxes 90,294 119,561
TOTAL CURRENT ASSETS 14,869,622 11,939,794
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 332,536 332,536
Buildings 2,385,647 2,255,684
Machinery and equipment 11,763,321 11,211,621
Construction in progress 532,628 244,173
15,014,132 14,044,014
Less allowances for depreciation 9,904,243 9,131,813
5,109,889 4,912,201
OTHER ASSETS
Excess of cost over net assets of acquired
businesses, less amortization of $321,720
and $238,695 at August 31, 1998 and 1997,
respectively 1,106,462 1,189,487
Patents, agreements and trademarks, less
amortization of $596,319 and $408,368 at
August 31, 1998 and 1997, respectively 1,044,404 1,142,818
Cash surrender value of life insurance, net of
loans of $158,049 and $154,268 at August 31,
1998 and 1997, respectively 2,423,851 1,962,849
Deferred income taxes 72,266 70,814
Investments in minority interests 486,795 1,410,798
Other 148,497 7,000
5,282,275 5,783,766
$25,261,786 $22,635,761
=========== ===========
See accompanying notes to the consolidated financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY
1998 1997
CURRENT LIABILITIES
Accounts payable $ 2,848,199 $ 2,386,390
Notes payable to bank 1,136,000 662,063
Accrued payroll and other compensation 1,406,909 1,383,776
Accrued pension expense - current 289,478 316,714
Other accrued expenses 1,821,028 1,437,285
Federal taxes payable (134,809) 208,916
Deferred compensation 41,999 258,000
Current portion of long-term debt 287,317 952,878
TOTAL CURRENT LIABILITIES 7,696,121 7,606,022
LONG-TERM DEBT, less current portion 682,576 3,020,708
DEFERRED COMPENSATION 199,131 66,518
ACCRUED PENSION EXPENSE 201,369 222,702
MINORITY INTEREST IN SUBSIDIARY 58,923 166,508
COMMITMENTS (See Note G) - -
CONTINGENCIES (See Note L) - -
SHAREHOLDERS' EQUITY
First Serial Preferred Stock,
par value $1.00 a share:
Authorized 100,000 shares; none issued - -
Common Stock, par value $.10 a share:
Authorized 10,000,000 shares;
issued and outstanding 4,977,650 and
4,873,797 shares at August 31, 1998
and 1997, respectively 497,765 487,380
Additional paid-in capital 3,370,066 3,191,328
Treasury Stock, 1,072,084 and 1,040,473
shares of Common Stock at August 31,
1998 and 1997, respectively (4,535,476) (4,017,850)
Cumulative effect of currency translation (238,728) (122,121)
Retained earnings 17,330,039 12,014,566
16,423,666 11,553,303
$25,261,786 $22,635,761
=========== ===========
CHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
1998 1997 1996
Revenue:
Sales $46,228,818 $40,473,809 $33,948,292
Commissions and other income 331,354 481,881 349,103
Interest 79,166 35,435 68,634
46,639,338 40,991,125 34,366,029
Costs and expenses:
Costs of products and services sold 30,003,343 26,868,127 22,695,744
Selling, general and administrative
expenses 9,731,083 8,798,549 7,590,223
Bad debt expense - net of recoveries (5,807) 68,544 42,731
Interest expense 258,476 469,878 594,746
39,987,095 36,205,098 30,923,444
INCOME FROM OPERATIONS
BEFORE INCOME TAXES 6,652,243 4,786,027 3,442,585
Income taxes 2,550,600 1,974,567 1,247,600
INCOME FROM OPERATIONS 4,101,643 2,811,460 2,194,985
Minority participation in subsidiary 107,585 303,680 -
Equity in earnings of unconsolidated
joint venture 195,000 197,375 82,965
Gain on sales of assets by
unconsolidated joint venture 1,718,425 - -
NET INCOME $ 6,122,653 $ 3,312,515 $ 2,277,950
=========== =========== ===========
Net income per share of Common Stock
Basic $1.58 $ .84 $ .61
===== ===== =====
Fully diluted $1.56 $ .84 $ .61
===== ===== =====
See accompanying notes to the consolidated financial statements.
CHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31,
1998
CUMULATIVE
ADDITIONAL EFFECT OF
COMMON STOCK PAID-IN TREASURY STOCK RETAINED
CURRENCY SHAREHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS
TRANSLATION EQUITY
Balance at August 31,
1995 4,459,848 $445,985 $2,674,897 1,037,693 $(3,990,400) $ 7,352,900 $
(79,030) $ 6,404,352
Cash dividend paid,
$0.10 per share - - - - - (357,271) - (357,271)
Currency translation
adjustment - - - - - - (29,070) (29,070)
Compensatory stock
issuance 150,000 15,000 56,250 - - - - 71,250
Exercise of stock
options 66,549 6,655 84,069 - - - - 90,724
Net income - - - - - 2,277,950 - 2,277,950
Balance at August 31,
1996 4,676,397 467,640 2,815,216 1,037,693 (3,990,400) 9,273,579
(108,100) 8,457,935
Cash dividend paid,
$0.15 per share - - - - - (571,528) - (571,528)
Currency translation
adjustment - - - - - - (14,021) (14,021)
Exer.of stock options 97,400 9,740 287,675 - - - - 297,415
Compensatory stock
issuance 100,000 10,000 88,437 - - - - 98,437
Purchase of Treasury
Stock - - - 2,780 (27,450) - - (27,450)
Net income - - - - - 3,312,515 - 3,312,515
Balance at August 31,
1997 4,873,797 487,380 3,191,328 1,040,473 (4,017,850) 12,014,566
(122,121) 11,553,303
Cash dividend paid,
$0.21 per share - - - - - (807,180) - (807,180)
Currency translation
adjustment - - - - - - (116,607) (116,607)
Exercise of stock
options 103,853 10,385 80,301 - - - - 90,686
Compensatory stock
issuance - - 98,437 - - - - 98,437
Purchase of Treasury
stock - - 31,611 (517,626) - - (517,626)
Net income - - - - - 6,122,653 - 6,122,653
Balance at August 31,
1998 4,977,650 $497,765 $3,370,066 1,072,084 $(4,535,476) $17,330,039
$(238,728) $16,423,666
========= ======== ========== ========= ===========
=========== ========= ===========
See accompanying notes to the consolidated financial statements.
CHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $6,122,653 $3,312,515 $ 2,277,950
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 844,237 849,266 775,571
Amortization 181,442 155,946 103,921
(Gain) on sale of assets (1,718,425) - (40,000)
Stock issued for compensation 98,437 98,437 56,250
Increase in provision for losses
on trade receivables 48,635 - 32,000
Tax effect of option exercise - 297,415 105,724
Deferred federal tax 27,815 22,511 70,227
Revaluation of investments in
minority interests 470,000 - -
Change in assets and liabilities:
Trade receivables (247,439) (1,351,066) 6,489
Inventories (457,122) (606,679) 1,119,679
Prepaid expenses (311,688) 63,898 197,329
Other current assets 99,911 40,443 (67,181)
Accounts payable 461,809 15,774 (540,677)
Accrued expenses 358,307 693,469 362,560
Federal taxes payable (343,725) 141,655 109,771
Deferred compensation (83,388) (195,237) (150,411)
TOTAL ADJUSTMENTS (571,194) 225,832 2,141,252
NET CASH FROM OPERATIONS 5,551,459 3,538,347 4,419,202
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds of note receivable 46,111 63,172 207,133
Proceeds of asset sales - - 122,649
Capital expenditures including patents
and agreements (1,158,535) (1,506,636) (352,352)
Investment in trusteed assets (141,497) - -
(Increase) in net cash surrender value (461,002) (304,561) (260,466)
Investments in minority interests - 32,389 (1,645,465)
Note received from joint venture - 362,319 -
Dividend received from joint venture 1,757,693 - -
Cash received on options exercise 23,595 - -
Investment in subsidiary - (550,000) -
66,365 (1,903,317) (1,928,501)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 200,000 4,952,967 4,300,000
Payments of principal on debt (2,829,452) (6,683,630) (6,268,737)
Net borrowing under line-of-credit 473,937 662,063 (81,851)
Cash dividends paid (807,180) (571,528) (357,271)
Purchase of Common Shares for Treasury (517,626) (27,450) -
(3,480,321) (1,667,578) (2,407,859)
NET CHANGE IN CASH 2,137,503 (32,548) 82,842
CASH AT BEGINNING OF YEAR 158,881 191,429 108,587
CASH AT END OF YEAR $2,296,384 $ 158,881 $ 191,429
========== ========== ===========
See Note M for supplemental cash flow data.
See accompanying notes to the consolidated financial statements.
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE A - ACCOUNTING POLICIES
The principal accounting policies of Chase Corporation ("the
Company") and its subsidiaries are as follows:
Basis of Presentation
The financial statements include the accounts of the Company, DC
Scientific, Inc., its majority owned contract manufacturing subsidiary and
its wholly-owned foreign sales corporation subsidiary. Investments in
unconsolidated companies which are at least 20% owned are carried at cost
plus equity in undistributed earnings since acquisition. All significant
intercompany transactions and balances have been eliminated in
consolidation. The Company uses the U.S. dollar as the functional currency
for financial reporting.
Products and Markets
The Company's principal products are protective coatings and tape
products that are sold in national and international markets. These
products consist of: (i) insulating and conducting materials for the
manufacture of electrical and telephone wire and cable, and electrical
splicing, terminating and repair tapes which are marketed to wire and cable
manufacturers and public utilities; (ii) protective pipe coating tapes and
other protectants for valves, regulators, casings, joints, metals,
concrete, and wood that are sold to oil companies, gas utilities and
pipeline companies; (iii) protectants for highway bridge deck metal
surfaces which are sold to municipal transportation authorities; (iv)
thermo-electric insulation for transformers, motors, and other electrical
equipment that are sold to original equipment manufacturers, and (v)
moisture protective coatings that are sold to the electronics industry.
The Company's DC Scientific, Inc. subsidiary provides assembly and contract
manufacturing services to the electronics industry.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash
For the purpose of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE A - ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at first-in, first-out cost, which is not
in excess of market.
Investment in Minority Interests
The Company makes investments in closely held companies. These
investments are recorded on the equity method reflecting the Company's
original investment and a proportional interest in the net operations of
these companies since no public quotations exist for these investments.
The carrying values of these investments are periodically reviewed based
upon estimated market values.
Property, Plant and Equipment
These assets are reflected at cost. Provisions for depreciation
of property, plant and equipment were computed by both straight-line and
accelerated methods.
Expenditures for maintenance repairs and minor renewals have been
charged to expense as incurred. Betterments and major renewals have been
capitalized. Upon retirement or other disposition of assets, related
allowances for depreciation and amortization have been eliminated from the
accounts and any resulting profit or loss reflected in consolidated net
income. The annual provisions for depreciation have been computed
principally in accordance with the following range of rates:
Buildings - 4% to 7%
Machinery and equipment - 10% to 20%
Excess of Cost Over Net Assets of Acquired Businesses
The excess of cost over the fair value of net assets of acquired
businesses is being amortized over periods from fifteen to forty years or
until the disposal of the acquired business. The carrying value of
goodwill is periodically reviewed for impairment whenever events or changes
in circumstances indicate that the carrying value may not be recoverable.
Patents and Agreements
The Company capitalizes costs related to patent applications and
technology agreements. The costs of these assets are amortized using the
straight-line method over the lesser of the useful life of the asset or its
statutory life. Capitalized costs are periodically reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable.
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE A - ACCOUNTING POLICIES (Continued)
Pension Plan
The projected unit credit method is utilized for measuring net
periodic pension cost over the employee's service life.
Stock-Based Compensation
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 stock-based compensation
plans, rather than the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation". Grants of restricted stock are recorded as
compensation expense over the vesting period at the fair market value of
the stock at the date of grant. No compensation expense is recorded for
options granted in which the exercise price equals or exceeds the market
price of the underlying stock on the date of grant.
Deferred Compensation
The net present value of the estimated payments to be made under
agreements for deferred compensation is accrued over the period of active
employment from the time of the agreement to the anticipated date of
retirement.
Translation of Foreign Currency
The financial position and results of operations of the Company's
Canadian branch are measured using the Canadian dollar as the functional
currency. Revenues and expenses of the branch have been translated at
average exchange rates. Assets and liabilities have been translated at the
year-end exchange rate. Translation gains and losses are being deferred
as a separate component of shareholders' equity, unless there is a sale or
liquidation of the underlying foreign investments. The Company has no
present plans for the sale or liquidation of its foreign investment.
Aggregate foreign currency transaction gains and losses are included in
determining net income. The amounts of gains and losses were immaterial
in 1998, 1997 and 1996.
Income Taxes
The Company has adopted the method of accounting for income taxes
of SFAS No. 109. This method compares the tax basis and financial
reporting basis of the Company's assets and liabilities and recognizes the
related tax benefits and liabilities under enacted tax law. Assets arising
from future tax benefits are recognized when it is more likely than not
that the Company will have sufficient future taxable income or has had
sufficient taxable income in the available carryback period to allow
realization of the tax asset. A valuation allowance is provided for
potential limitations on the realization of future benefits.
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE A - ACCOUNTING POLICIES (Continued)
Income Per Share of Common Stock
Income per share is computed based upon the weighted average number
of shares outstanding, after giving effect to the number of shares
purchased for Treasury and the dilutive effect of stock options. The
number of shares used in the computation of basic income per share was
3,874,896 at August 31, 1998, 3,938,123 at August 31, 1997 and 3,759,467
at August 31, 1996. Fully diluted income per share was computed based upon
3,935,919 shares at August 31, 1998, 3,955,509 shares at August 31, 1997
and 3,765,913 shares at August 31, 1996.
NOTE B - NOTE RECEIVABLE
The Company has a note receivable from Avon Custom Mixing Service,
Inc., the purchaser of its Avon Custom Mixing Division, secured by the
assets of the purchaser. Effective May 1993, the note provides for monthly
payments of $8,333 with interest payable at First National Bank of Boston
base rate (8.5% at August 31, 1998).
During April 1996, the Company sold the real estate formerly leased
to Avon Custom Mixing Service, Inc. for $122,649 and recorded a gain on the
sale of $40,000. The assets sold consisted of land and buildings with a
cost of $835,488 and accumulated depreciation of $760,393, with expenses
related to the sale of $7,554.
NOTE C - CASH SURRENDER VALUE OF LIFE INSURANCE
The Company recognizes cash surrender value in life insurance
policies, net of loans secured by the policies, with Aurora National Life
Assurance Company, the Manufacturers' Life Insurance Company, Sun Life
Assurance Company of Canada, Metropolitan Life Insurance, Security Life
of Denver and other carriers of $380,187; $1,080,737; $292,791; $409,327,
$159,428, and $101,381 respectively. Subject to periodic review, the
Company intends to maintain these policies through the lives of the
insureds.
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following at August 31, 1998 and 1997:
1998 1997
Note payable to bank. $ - $1,400,000
Note payable to bank in quarterly installments
of $160,000 through July 2000 with interest
at LIBOR plus two percent, currently at
7.65%. - 1,600,000
Capitalized lease obligation with monthly
payments of $15,418, including interest at
7.514% through May 1999, secured by
production equipment with a cost of $951,707
and accumulated depreciation of $330,098. 119,940 315,982
Capitalized lease obligation with monthly
payments of $1,988, including interest at
7.602% through November 1997. - 3,939
Capitalized lease obligation with monthly
payments of $142, including interest at
7.44% through February 1998. - 698
Term note payable to bank in 60 quarterly
payments commencing February 23, 1999 with
interest at the bank's cost of funds rate
plus 2%. 200,000 -
Term notes payable to bank with principal
payments of $12,267 per month with interest
at LIBOR plus two percent secured by all
assets of DC Scientific, Inc. 559,967 561,000
Mortgage note payable to a bank secured
by land and building of DC Scientific,
Inc. payable in monthly installments
of $950 plus interest at prime plus
two percent, currently 10.5% 89,986 91,967
969,893 3,973,586
Less portion payable within one year
classified as a current liability. 287,317 952,878
$ 682,576 $3,020,708
========== ==========
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE D - LONG-TERM DEBT (Continued)
The Company has long-term credit available up to a maximum amount
of $6,000,000 at the bank's base lending rate or, at the option of the
Company, at the effective London Interbank Offered Rate (LIBOR) for ninety
days plus two percent. The line of credit is secured by all assets and is
limited to 50% of inventory and 85% of current receivables. The unused
available long-term credit amounted to $5,840,000 at August 31, 1998.
NOTE E - NOTES PAYABLE TO BANK
The Company has a short-term credit facility at one half percent
over prime with a Canadian bank secured by a letter of credit.
The Company's DC Scientific, Inc. subsidiary has a revolving line
of credit at one half percent over prime or LIBOR plus 2%, secured by the
assets of the subsidiary.
The weighted average interest rate on short-term borrowings was
7.75% and 9.0% at August 31, 1998 and 1997, respectively.
NOTE F - INCOME TAXES
A reconciliation of federal income taxes computed at applicable
rates of income from continuing operations before income taxes to the
amounts provided in the consolidated financial statements is as follows:
Year Ended August 31,
1998 1997 1996
Federal income taxes at applicable
rates $2,260,405 $1,627,249 $1,170,479
Adjustments resulting from the tax
effect of:
Increase in cash surrender value
of life insurance (191,722) (143,100) (120,625)
Benefit plans not qualified for
deduction from federal tax 231,374 154,038 121,060
Net loss of subsidiary not
consolidated for tax 43,034 146,671 -
State and local taxes net of
federal tax effect 408,144 289,172 151,314
Foreign dividend received net
of foreign tax credit (172,878) - -
Other (27,757) (99,463) (74,628)
INCOME TAXES $2,550,600 $1,974,567 $1,247,600
========== ========== ==========
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE F - INCOME TAXES (Continued)
Year Ended August 31,
1998 1997 1996
Deferred (benefit):
Pension expense (19,425) 19,078 20,819
Depreciation (21,910) 5,480 14,427
Allowance for doubtful accounts 19,455 - (12,800)
Market valuation of investments 188,000 110,000 -
Deferred compensation (73,267) 39,294 59,781
Deferred state taxes (120,668) 119,707 -
Reserve - (32,000) (12,000)
Total Deferred (27,815) 261,559 70,227
(Benefit) of option exercises
credited to shareholders' equity (77,180) (297,415) (105,724)
========== ========== ==========
The timing differences that give rise to the components of net tax
assets are as follows at August 31, 1998 and
1997:
1998 1997
Assets:
Reserve for bad debt $ 70,455 $ 51,000
Patents and agreements 35,200 35,200
Pension accrual 91,425 110,850
State tax accrual 19,839 140,507
Deferred compensation 40,546 113,813
Investments marked to market 298,000 110,000
555,465 561,370
Less valuation allowance 12,000 12,000
543,465 549,370
Liabilities:
Depreciation 380,905 358,995
Net Assets $ 162,560 $ 190,375
========== ==========
NOTE G - OPERATING LEASES
The following is a schedule for the next five years of future minimum
rental payments required under operating leases that have initial or
remaining noncancellable lease terms in excess of one year as of
August 31, 1998:
Year Ending August 31, Buildings
1999 $147,191
2000 68,024
2001 68,024
2002 22,510
2003 -
$305,749
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE G - OPERATING LEASES (Continued)
Total rental expense for all operating leases amounted to $563,375,
$494,435, and $353,265 for the years ended August 31, 1998, 1997 and 1996,
respectively.
NOTE H - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for 1998, 1997 and
1996, is as follows:
Quarter
1998 First Second Third Fourth Year
Net sales $11,557,583 $10,166,586 $11,830,508 $12,674,141 $46,228,818
Gross profit $4,212,072 $3,253,702 $4,006,118 $4,753,583 $16,225,475
Net income $2,676,264* $720,565 $1,080,714 $1,645,110 $6,122,653*
Net income per
common share $.68 $.18 $.28 $.44 $1.58
==== ==== ==== ==== =====
* Includes gain on sales of assets by a non-consolidated subsidiary of $1,718,425
Quarter
1997 First Second Third Fourth Year
Net sales $9,003,995 $9,162,770 $11,263,033 $11,044,011 $40,473,809
Gross profit $3,073,420 $2,883,176 $ 3,856,522 $ 3,792,564 $13,605,682
Net income $695,293 $556,082 $823,976 $ 1,237,164 $3,312,515
Net income per
common share $.18 $.14 $.21 $.31 $.84
==== ==== ==== ==== ====
Quarter
1996 First Second Third Fourth Year
Net sales $8,232,459 $7,664,955 $8,673,573 $9,377,305 $33,948,292
Gross profit $2,604,003 $2,362,980 $2,792,048 $3,493,517 $11,252,548
Net income $507,440 $374,561 $511,139 $884,810 $2,277,950
Net income per
common share $.14 $.10 $.14 $.23 $.61
==== ==== ==== ==== ====
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE I - EXPORT SALES AND FOREIGN OPERATIONS
Export sales from continuing domestic operations to unaffiliated
third parties were $5,207,413, $4,591,695 and $3,594,317 for the years
ended August 31, 1998, 1997 and 1996, respectively. The Company's products
are sold world-wide with no foreign geographic area accounting for more
than 10 percent of revenues from continuing operations. The Company's
Canadian operations accounted for 7.6 percent of consolidated sales and 4.1
percent of assets.
NOTE J - RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense amounted to approximately
$573,978, $540,467, and $501,964 for the years ended August 31, 1998, 1997
and 1996, respectively.
NOTE K - BENEFITS
401(K) Plan
The Company has a deferred compensation plan adopted pursuant to
Section 401(k) of the Internal Revenue Code of 1986. Any qualified
employee who has attained age 21 and has been employed by the Company for
at least six months may contribute a portion of their salary to the plan
and the Company will match 50% of such contribution up to an amount equal
to three percent of such employee's yearly salary. The Company's
contribution expense was $112,418, $102,302 and $82,496 for the years ended
August 31, 1998, 1997 and 1996, respectively.
Non-Qualified Deferred Savings Plan
The Company has a non-qualified deferred savings plan covering
directors and selected employees. Participants may elect to defer a
portion of their compensation for future payment. The plan is funded by
trusteed assets that are restricted to the payment of deferred compensation
or satisfaction of the Company's general creditors. The Company's
liability under the plan was $141,497 at August 31, 1998.
Pension Plan
The Company has non-contributory defined benefit pension plans
covering substantially all employees. Net periodic pension cost was
$268,149, $311,447 and $332,458 for the years ended August 31, 1998, 1997
and 1996, respectively. The Company has a funded, qualified plan and an
unfunded supplemental retirement plan designed to maintain benefits for all
employees at the plan formula level. The plans provide for pension
benefits determined by a participant's years of service and final average
compensation. The qualified plan assets consist of separate pooled
investment accounts with an insurance company.
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE K - BENEFITS (Continued)
Net pension expense components: Year Ended August 31,
1998 1997 1996
Service cost of benefits earned
during the period $237,130 $220,639 $196,790
Interest cost on projected benefit
obligations 321,667 295,285 255,690
Return on plan assets (94,718)(506,142) (200,988)
Net amortization and deferral (195,930) 301,665 80,966
Net periodic pension cost $268,149 $311,447 $332,458
======== ======= ========
The following table sets forth the actuarial present value of benefit
obligations and funded status:
August 31,
1998 1997 1996
Accumulated benefit obligations,
including vested benefits of
$2,843,506, $2,410,404 and
$2,138,788 at August 31, 1998,
1997 and 1996, respectively $ 2,874,059 $ 2,483,200 $ 2,182,250
=========== =========== ===========
Projected benefit obligations $(4,502,041) $(4,142,846) $(3,552,626)
Plan assets at fair value,
including prefunded amounts 3,273,542 3,096,643 2,215,085
Funded status (1,228,499) (1,046,203) (1,337,541)
Unrecognized net loss 496,164 264,888 461,280
Unrecognized prior service cost 255,484 262,894 286,965
Unamortized net transition assets (13,996) (20,995) (27,994)
(Accrued) pension expense $ (490,847) $ (539,416) $ (617,290)
=========== =========== ===========
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE K - BENEFITS (Continued)
The net transition assets amount is being amortized at a level rate
over 15 years. The actuarial calculations were based on assumptions of a
weighted average discount rate of 8.0% and a future rate of increase in
compensation levels of 5%. The expected rate of return on plan assets is
10%. Prior service cost arose from the amendment of the plan's benefit
schedules to comply with the Tax Reform Act of 1986 (TRA) and adoption of the
unfunded supplemental pension plan.
Deferred Compensation
The Company had deferred compensation agreements with a former
officer that provided for post retirement health benefits and annual payments
of $200,000 for the officer through August 31, 1998.
Additionally, life insurance is provided under a split dollar life
insurance agreement whereby the Company will recover the premiums paid from
the proceeds of the policies. The Company recognizes an offset to expense
for the growth in the cash surrender value of the policies.
The Company also has an agreement with its former Chairman of the
Board, who retired August 31, 1991, that the Company will make ten annual
payments of $58,000 to him or his beneficiaries.
Stock Option Plans
1989 Non-Statutory Plan - Options to purchase 612,000 shares of
Common Stock were granted to officers, senior employees, and independent
directors. Options on 28,000 shares of Common Stock are currently
outstanding. The options are exercisable at the fair market value of the
shares at the date of grant adjusted for stock dividends. All options are
fully vested.
1995 Stock Option Plan - Effective July 18, 1995, the Company
adopted, and the stockholders subsequently approved, a stock award plan and
an incentive plan which permit the issuance of options and restricted stock
to selected employees and independent directors of the Company. The plans
reserve 600,000 shares of Common Stock for grant.
Under the terms of the 1995 stock option plan, options granted may
be either nonqualified or incentive stock options and the exercise price may
not be less than the fair market value of a share at the date of grant. The
board of directors approved issuance of 450,000 options (at $3.375, based
upon the market value at July 18, 1995). The options vest ratably over ten
years. In addition, the board of directors granted 250,000 shares of
restricted Common Stock to the Company's CEO, Mr. Peter Chase. Compensation
expense of $98,437 per year is being recognized over nine years. Other than
the restrictions which limit the sale and transfer of these shares, Mr. Chase
is entitled to all rights of a shareholder. The grants vest at the end of
nine years. If Mr. Chase is not providing services to the Company prior to
vesting, the shares revert to the Company.
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE K - BENEFITS (Continued)
Stock Option Plans (Continued)
Options at August 31, 1998:
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise Remaining Exercise
Outstanding Price Price Price Life Exercisable Price
28,000 $1.24 $1.24 $1.24 30 days 28,000 $1.24
373,474 3.51 3.375-4.625 3.51 7 years 53,574 3.52
24,500 5.25 5.09 -5.625 5.25 8 years 10,500 5.24
15,000 8.98 8.75 -9.09 8.98 9 years 6,000 9.03
Stock option plan activity was as follows:
Weighted Weighted
Average Officers Average
Exercise and Exercise
Directors Price Employees Price
Outstanding August 31, 1995 77,000 $1.32 622,500 $2.94
Grants at market price 62,500 4.72 - -
Exercises (11,000) 1.43 (82,500) 1.51
Outstanding August 31, 1996 128,500 2.96 540,000 3.16
Exercisable 70,165 120,000 1.74
Grants at market price 10,000 9.08 15,000 5.625
Exercises (21,500) 1.29 (101,000) 1.74
Outstanding August 31, 1997 117,000 3.79 454,000 3.55
Exercisable 71,500 96,920
Grants at market price - - 5,000 8.75
Exercises (16,500) 1.43 (86,526) 3.68
Exercises (30,000) 4.63 (2,000) 5.63
Outstanding August 31, 1998 70,500 4.00 370,474 3.59
Exercisable 40,500 2.92 57,573 3.43
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE K - BENEFITS (Continued)
Proforma Disclosures - The Company accounts for stock options
issued to directors, officers and employees under Accounting Principles
Board Opinion No. 25 (see Note A). The proforma net income and earnings
per share, based upon a Black-Scholes pricing model, using a volatility of
26.57%, a risk-free interest rate of 7.5%, a dividend yield of 4% and an
expected life of 5 years. Financial Accounting Standards Board Statement
No. 123 been applied, is as follows:
August 31,
1998 1997 1996
Net income $6,043,212 $3,257,837 $2,232,410
Basic net income per share $1.56 $ .83 $ .60
NOTE L - CONTINGENCIES
Environmental
The Pennsylvania Department of Environmental Protection
("Pennsylvania DEP") had notified the Company that it could be a person
responsible for clean up costs associated with a site in Bruin,
Pennsylvania where an affiliate of the Company had sponsored research in
experimental oil and coal-based fuels in the early 1980's. In August 1991,
a spill of the affiliate's stored material occurred at the Bruin site,
apparently due to vandalism of the storage tanks. Upon learning of the
spill, the Company provided notice of the release to appropriate
authorities and undertook to remedy the spill. The remedy was completed
in October 1992 under plans approved by the Pennsylvania DEP. In September
of 1998, the Company reached a settlement in the amount of $259,468 with
the Pennsylvania DEP. As part of the settlement, the Company resolved its
liability to the Pennsylvania DEP and received protection from third-party
lawsuits regarding the site. The amount of the settlement had been
previously reserved.
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE L - CONTINGENCIES (Continued)
Legal
The Company has been named as a third-party defendant in eighteen
personal injury lawsuits filed in state court in Jackson County,
Mississippi. These lawsuits, each of which has multiple plaintiffs and
defendants, arose out of alleged asbestos exposure by the plaintiffs as a
result of their work at the Ingalls Shipyard. The Company was sued as a
third-party defendant by USX Corporation, General Cable Corporation and
G. K. Technologies, Inc., each of whom is a primary defendant in these
actions. USX, General Cable and G.K. are alleged to have supplied wire and
cable products containing asbestos to the shipyard. The third-party
complaints allege that tape products containing asbestos were manufactured
by the Company, sold to USX, General Cable and G.K., and then incorporated
in their wire and cable products sold for use in the ships. USX, General
Cable and G.K. are seeking indemnification from the Company for damages
that may be assessed against them and expenses including legal fees.
The third-party claims against the Company, along with all other
third-party and crossclaims, were severed from the trial of the primary
actions. USX, General Cable and G.K. were each dismissed by the plaintiffs
prior to the commencement of trial of nine of the primary actions, which
took place in the summer of 1993. It is not known how much, if anything,
each paid to settle these claims. To date, no effort has been made by USX,
General Cable and G.K. to pursue the third-party claims against the Company
arising out of the resolution of any of the cases tried in the summer of
1993. Some of the remaining primary actions remain pending, but it is not
now known when those cases will be tried, whether the plaintiffs will
proceed against any of the wire and cable manufacturers, including USX,
General Cable or G.K., and whether any of these defendants will, in turn,
pursue their claims against the Company.
The Company's liability insurer has assumed defense of these claims
subject to reservation of its rights as to coverage for any underlying
liability assessed.
In July 1994 the Company received a notice letter from General
Cable and G.K. that they have been sued in fourteen additional asbestos
personal injury lawsuits, ten of which are pending in Mississippi, two in
Pennsylvania and two in Texas. Each of these cases involves multiple
plaintiffs and defendants. This notice letter is an effort to bind the
Company to the factual determination made in these cases, if General Cable
or G.K. brings an action against the Company for indemnification arising
out of these cases. No such action for indemnification has yet been
brought and the Company is not now a party in any of these fourteen
additional cases. The Company's liability insurer has been informed that
the Company has been notified of these potential claims.
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1998
NOTE L - CONTINGENCIES (Continued)
The Company is investigating the defenses available to it in
connection with all these matters and its rights against its supplier.
Although the Company cannot predict whether any of these claims will be
pursued, management believes that such claims will not have any material
financial impact on the Company.
NOTE M - SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
1998 1997 1996
Income taxes $2,163,812 $1,509,125 $855,000
Interest $ 258,476 $ 477,768 $594,746
NOTE N - INVESTMENT IN MINORITY INTERESTS
The Company has formed a joint venture, The Stewart Group, Inc.,
with The Stewart Group, Ltd. of Canada, to produce various products for the
fiber optic cable market. Chase Corporation owns a 42% interest in the
joint venture at August 31, 1998.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES
CHASE CORPORATION AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E
BALANCE AT (1) (2) BALANCE AT
BEGINNING CHARGED TO COSTS CHARGED TO
END OF
DESCRIPTION OF PERIOD AND EXPENSES OTHER ACCOUNTS
DEDUCTIONS PERIOD
Year ended August 31, 1998:
Allowance for doubtful
accounts $152,500 $(5,807) $ 57,860 $ 3,418 $201,135
Year ended August 31, 1997:
Allowance for doubtful
accounts $127,500 $68,544 $ 25,000 $68,544 $152,500
Year ended August 31, 1996:
Allowance for doubtful
accounts $ 95,500 $42,731 $ - $10,731 $127,500
(1) Deductions are charged to accounts receivable when specific accounts are
judged to be uncollectible.
(2) $25,000 reserve acquired with majority interest in DC Scientific, Inc.
and $57,800 adjustment to insurance adjustment receivable recorded as
prepaid insurance.
EX-10.25
2
ENDORSEMENT SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT made and entered into as of
the 8th day of June, 1995, by and among Chase Corporation, of
Braintree, Massachusetts, a Massachusetts corporation (the
"Corporation"), Edward L. Chase, of Cohasset, Massachusetts ("ELC")
and Sarah Chase, in her capacity as the trustee of the ELC Irrevocable
Life Insurance Trust, an agreement of trust dated May 27, 1995
(referred to hereunder, together with any additional or successor
trustees serving under said agreement, as the "Trustee").
WITNESSETH THAT:
WHEREAS, ELC is employed as a consultant by the Corporation and
serves as a Director on its Board of Directors; and
WHEREAS, ELC wishes to provide life insurance protection for his
family in the event of his death under a policy of life insurance
insuring his life and the life of his wife, Claire E. Chase, (the
"Policy"), which is described in Exhibit A attached hereto and by this
reference made a part hereof, and which is being issued by
Metropolitan Life Insurance Company (the "Insurer"); and
WHEREAS, the Corporation is willing to pay the premiums due on
the Policy on the terms and conditions hereinafter set forth; and
WHEREAS, the Corporation and the Trustee share ownership of the
Policy, with rights as designated herein; and
WHEREAS, the Corporation wishes to retain such ownership rights
in order to secure the repayment of the amounts which it will pay
toward the premiums on the Policy;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. Purchase of Policy.
The Corporation and the Trustee shall
purchase the Policy from the Insurer in the total face amount of
$4,123,000. The parties have taken all necessary action to cause the
Insurer to issue the Policy, and shall take any further action which
may be necessary to cause the Policy to conform to the provisions of
this Agreement. The parties agree that the Policy shall be subject
to the terms and conditions of this Agreement and of the endorsement
to the Policy filed with the Insurer.
2.Ownership of Policy.
The Corporation and the Trustee shall be the absolute owners of
the Policy, and may exercise their respective ownership rights granted
to them by the terms of the Policy and the terms of this Agreement,
as are provided herein. If any terms of the Policy and this Agreement
shall conflict, the terms of this Agreement shall control.
3.Election of Settlement Option and Beneficiary.
The Trustee may select the settlement
option for payment of the death benefit provided under the Policy and
the beneficiary or beneficiaries to receive the portion of Policy
proceeds to which the Trustee is entitled hereunder, by specifying the
same in a written notice to the Corporation. Upon receipt of such
notice, the Corporation and the Trustee shall execute and deliver to
the Insurer the forms necessary to elect the requested settlement
option and to designate the requested person, persons or entity as the
beneficiary or beneficiaries to receive the death proceeds of the
Policy in excess of the amount to which the Corporation is entitled
hereunder. The parties hereto agree to take all action necessary to
cause the beneficiary designation and settlement election provisions
of the Policy to conform to the provisions hereof. The Corporation
shall not terminate, alter or amend such designation or election
without the express written consent of the Trustee.
4.Policy Dividends.
Any dividend declared on the Policy shall be
applied to purchase paid-up additional insurance
on the lives of ELC and his wife, Claire E.
Chase. The parties agree that the dividend
election provisions of the Policy shall conform
to the provisions of this agreement.
5.Payment of Premiums.
On or before the due date of each Policy
premium, or within any applicable grace period, the Corporate shall
pay the full amount of the premium to the Insurer, and shall, upon
request, promptly furnish ELC, or his wife, Claire E. Chase, if he is
not living, and the Trustee evidence of that timely payment. The
Corporation shall annually furnish ELC, or his wife, Claire E. Chase,
if he is not living, and the Trustee a statement of the amount of
income reportable by ELC or his wife, Claire E. Chase, for federal and
state income tax purposes, if any, as a result of the insurance
protection provided.
6.Designation of Policy
Beneficiary/Endorsement.
Contemporaneously with the execution of
this Agreement, the Corporation and the Trustee have executed a
beneficiary designation for and/or an endorsement to the Policy, under
the form used by the Insurer for such designations, in order to secure
the Corporation's recovery of the amount of the premiums on the Policy
paid by the Corporation hereunder. Such beneficiary designation or
endorsement shall not be terminated, altered or amended by the
Corporation without the express written consent of the Trustee. The
parties hereto agree to take all action necessary to cause such
beneficiary designation or endorsement to conform to the provisions
of this Agreement.
7. Limitations on Corporation's Rights in Policy.
Except as otherwise provided herein, the
Corporation shall not sell, assign, transfer, surrender or cancel the
Policy, change the beneficiary designation provisions thereof, nor
terminate the dividend election thereof without, in any such case, the
express written consent of the Trustee.
8. Policy Loans.
The Corporation may pledge or assign the
Policy, subject to the terms and conditions of this Agreement, for the
sole purpose of securing a loan from the Insurer or from a third
party. The amount of such loan, including accumulated interest
thereon, shall not exceed the lesser of (I) the amount of the premiums
on the Policy paid by the Corporation hereunder, or (ii) the cash
surrender value of the Policy (as defined therein) as of the date to
which premiums have been paid. Interest charges on such loan shall
be paid by the Corporation. If the Corporation so encumbers the
Policy, other than by a Policy loan from the Insurer, then, upon the
death of ELC and his wife, Claire E. Chase, or upon the election of
the Trustee to purchase the Corporation's ownership interest in the
Policy, the Corporation shall promptly take all action necessary to
secure the release or discharge of such encumbrance.
9.Collection of Death Proceeds.
A. Upon the death of ELC and his wife,
Claire E. Chase, the
Corporation and the Trustee shall promptly take all action necessary
to obtain the death benefit provided under the Policy. When such
benefit has been collected and paid as provided herein, this Agreement
shall terminate.
B. Upon the death of ELC and his wife,
Claire E. Chase, the
Corporation shall have the unqualified right to receive a portion of
such death benefit equal to the total amount of the premiums paid by
it, reduced by any indebtedness against the Policy existing at the
death of ELC and his wife, Claire E. Chase, including any interest due
on such indebtedness. The balance of the death benefit provided under
the Policy, if any, shall be paid directly to the beneficiary or
beneficiaries designated by the Corporation and the Trustee, in the
manner and in the amount or amounts provided in the beneficiary
designation provision of the Policy. In no event shall the amount
payable to the Corporation exceed the Policy proceeds payable at the
death of ELC and his wife, Claire E. Chase. No amount shall be paid
from such death benefit to the beneficiary or beneficiaries designated
by the Trustee until the full amount due the Corporation has been
paid. The parties hereto agree that the beneficiary designation
provision of the Policy shall conform to the provisions of this
Agreement.
C. Notwithstanding any provision hereof
to the contrary, in the
event that, for any reason whatsoever, no death benefit is payable
under the Policy upon the death of ELC and his wife, Claire E. Chase,
and in lieu thereof the Insurer refunds all or any part of the
premiums paid for the Policy, the Corporation and the Trustee shall
have the unqualified right to share such premiums based on their
respective cumulative contributions thereto.
10.Option to Purchase Policy.
During such time as either one or both of
ELC and his wife, Claire E. Chase, is living, the Trustee shall have
the assignable option to purchase the Corporation's ownership interest
in the Policy from the Corporation. The purchase price for the Policy
shall be the total amount of the premium payments made by the
Corporation hereunder, less any indebtedness secured by the Policy
which remains outstanding as of the date of such termination,
including interest on such indebtedness. Upon receipt of such amount,
the Corporation shall transfer all of its right, title and interest
in and to the Policy to the Trustee or its assignee, by the execution
and delivery of an appropriate instrument of transfer.
11. Assignment.
Notwithstanding any provision hereof to
the contrary, the Trustee shall have the right to absolutely and
irrevocably assign by gift all of its right, title and interest in and
to this Agreement and to the Policy to an assignee. This right shall
be exercisable by the execution and delivery to the Corporation of a
written assignment. Upon receipt of such written assignment executed
by the Trustee and duly accepted by the assignee thereof, the
Corporation shall consent thereto in writing, and shall thereafter
treat the assignee as the sole owner of all of the Trustee's right,
title and interest in and to this Agreement and in and to the Policy.
Thereafter, the Trustee shall have no right, title or interest in and
to this Agreement or the Policy, all such rights being vested in and
exercisable only by such assignee.
12. Names Fiduciary, Determination of
Benefits, Claims, Procedure and
Administration.
The Corporation is hereby designated as
the named fiduciary under this Agreement. The named fiduciary shall
have authority to control and manage the operation and administration
of this Agreement, and it shall be responsible for establishing and
carrying out a funding Policy and method consistent with the
objectives of this Agreement.
13.Amendment.
The Agreement may not be amended, altered
or modified,
except by a written instrument signed by the parties hereto, or their
respective successors or assigns, and may not be otherwise terminated
except as provided herein.
14.Binding Effect.
This Agreement shall be binding upon and
inure to the
benefit of the Corporation and its successors and assigns, and ELC,
the Trustee, and their respective successors, assigns, heirs,
executors, administrators and beneficiaries.
15. Notice.
Any notice, consent or demand required or permitted to be
given under the provisions of this Agreement shall be in writing, and
shall be signed by the party giving or making the same. If such
notice, consent or demand is mailed to a party hereto, it shall be
sent by United States certified mail, postage prepaid, addressed to
such party's last known address as shown on the records of the
Corporation. The date of such mailing shall be deemed the date of
notice, consent or demand.
16. Governing Law.
This Agreement, and the rights of theparties hereunder, shall be
governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
in duplicate, as of the day and year first above written.
Chase Corporation
By s/s Peter R. Chase
President
s/s Edward L. Chase
s/s Sarah Chase
Sarah Chase, as trustee of the
ELC Irrevocable Life Insurance
Trust dated May 27, 1995.
EXHIBIT A
The following life insurance Policy is subject to the attached
Split-Dollar Agreement"
Insurer: Metropolitan Life Insurance Company
Insured: Edward L. Chase and Claire E. Chase
Policy Number: 950650078A
Face Amount: $4,123,000
Policy Date: June 8, 1995
Date of Issue: June 8, 1995