SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMMENDED
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: March 31, 1999
Commission file number: 1-448
MESTEK, INC.
Pennsylvania Corporation
I.R.S. Employer Identification No.
25-0661650
260 North Elm Street
Westfield, Massachusetts 01085
Telephone: (413) 568-9571
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
The number of shares of Common Stock outstanding as of April 30,1999, was
8,873,105.
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MESTEK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1998
INDEX
PART I - FINANCIAL INFORMATION Page No.
- --------
Condensed consolidated balance sheets at March 31, 1999
and December 31, 1998 3 - 4
Condensed consolidated statements of income for the three
months ended March 31, 1999 and 1998 5
Condensed consolidated statements of cash flows for the three
months ended March 31, 1999 and 1998 6
Condensed consolidated statement of changes in shareholders' equity
for the period from January 1, 1998 through March 31, 1999 7
Notes to the condensed consolidated financial statements 8 - 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II - OTHER INFORMATION
Statement of Computation of Per share Earnings 14
SIGNATURE 14
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations. All such adjustments are of a normal
recurring nature.
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, Dec. 31,
1999 1998
----------- ----------
(Dollars in thousands)
ASSETS
Current Assets
Cash $ 2,633 $ 3,777
Accounts Receivable - less allowances of,
$3,813 and $3,443 respectively 56,439 55,443
Unbilled Accounts Receivable 298 286
Inventories 56,349 52,980
Other Current Assets 5,886 5,103
--------- ---------
Total Current Assets 121,605 117,589
Property and Equipment - net 67,199 55,841
Other Assets and Deferred Charges - net 7,731 7,148
Excess of Cost over Net Assets of Acquired Companies 31,177 24,565
--------- ---------
Total Assets $ 227,712 $ 205,143
========= =========
See the Notes to Condensed Consolidated Financial Statements.
Continued on next page
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MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
March 31, Dec. 31,
1999 1998
------------- ----------
(Dollars in thousands)
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $ 36,442 $ 12,750
Accounts Payable 15,321 20,126
Accrued Compensation 3,944 6,187
Accrued Commissions 3,832 3,985
Progress Billings in Excess of Cost
and Estimated Earnings 3,085 3,150
Customer Deposits 5,531 5,746
Other Accrued Liabilities 19,393 16,230
---------- ----------
Total Current Liabilities 87,548 68,174
Long-Term Debt 415 438
Other Liabilities 355 370
---------- ----------
Total Liabilities 88,318 68,982
---------- ----------
Minority Interests 2,911 2,863
---------- ----------
Shareholders' Equity
Common Stock - no par, stated value $0.05 per share,
9,610,135 shares issued 479 479
Paid in Capital 15,434 15,434
Retained Earnings 128,782 125,263
Treasury Shares, at cost, (737,030 and 719,830
common shares, respectively) (7,129) (6,790)
Cumulative Translation Adjustment (1,083) (1,088)
---------- ----------
Total Shareholders' Equity 136,483 133,298
---------- ----------
Total Liabilities, and Shareholders' Equity $ 227,712 $ 205,143
========== ==========
See the Notes to Condensed Consolidated Financial Statements.
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MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
1999 1998
-------- --------
(In thousands, except for share amounts)
Net Sales $ 77,562 $ 71,634
Net Service Revenues 4,464 4,015
---------- ----------
Total Revenues 82,026 75,649
Cost of Goods Sold 55,969 51,888
Cost of Service Revenues 3,022 2,589
---------- ----------
Gross Profit 23,035 21,172
Selling Expense 10,719 9,753
General and Administrative Expense 4,031 3,707
Engineering Expense 2,152 1,988
---------- ----------
Operating Profit 6,133 5,724
Interest Expense (259) (159)
Other Income (Expense) - net (183) (127)
---------- ----------
Income Before Income Taxes 5,691 5,438
Income Taxes 2,172 2,068
---------- ----------
Net Income $ 3,519 $ 3,370
========== ==========
Basic Earnings Per Common Share $ .40 $ .38
========== ==========
Basic Weighted Average Shares Outstanding 8,881 8,926
========== ==========
Diluted Earnings Per Common Share $ .40 $ .38
========== ==========
Diluted Weighted Average Shares Outstanding 8,908 8,950
========== ==========
See the Notes to Condensed Consolidated Financial Statements.
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MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
-------- --------
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 3,519 $ 3,370
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 2,221 1,929
Provision for Losses on Accounts Receivable 108 75
Change in Assets & Liabilities:
Cash Flows Provided by (Used in) Changes In:
Accounts Receivable 2,678 6,329
Unbilled Accounts Receivable (12) (21)
Inventory 137 (4,512)
Other Assets 256 274
Accounts Payable (5,823) (3,331)
Accrued Expenses (819) (1,354)
Progress Billings (65) (700)
Other Long Term Liabilities (15) -
-------- --------
Net Cash Provided by Operating Activities 2,185 2,059
-------- --------
Cash Flows from Investing Activities:
Capital Expenditures (3,771) (2,418)
Acquisition of Businesses (net of cash acquired) (22,941) -
-------- --------
Net Cash Used in Investing Activities (26,712) ( 2,418)
-------- --------
Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit Agreements 23,690 14,720
Principal Payments Under Long Term Debt Obligations (21) (15,016)
Increase in Minority Interests 48 60
Repurchase of Common Stock (339) -
Cumulative Translation Adjustments 5 ( 1)
-------- --------
Net Cash Provided by (Used in) Financing Activities 23,383 ( 237)
-------- --------
Net Decrease in Cash and Cash Equivalents (1,144) ( 596)
Cash and Cash Equivalents - Beginning of Period 3,777 2,494
-------- --------
Cash and Cash Equivalents - End of Period $ 2,633 $ 1,898
======== =======
See the Notes to Condensed Consolidated Financial Statements.
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MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
For the period January 1, 1998 through March 31, 1999
Additional Cumulative
Common Paid In Retained Treasury Translation
Stock Capital Earnings Shares Adjustment Total
Balance - January 1, 1998 $479 $15,434 $109,199 ($6,109) ($996) $118,007
Net Income 16,064 16,064
Common Stock Repurchased (681) (681)
Cumulative Translation Adjustment (92) (92)
----- ------- -------- -------- -------- ---------
Balance-December 31, 1998 $479 $15,434 $125,263 ($6,790) ($1,088) $133,298
Net Income 3,519 3,519
Common Stock Repurchased (339) (339)
Cumulative Translation Adjustment 5 5
----- -------- --------- -------- -------- ---------
Balance - March 31, 1999 $479 $15,434 $128,782 ($7,129) ($1,083) $136,483
===== ======== ========= ======== ======== =========
See the Notes to Condensed Consolidated Financial Statements.
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MESTEK, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of the
company and its wholly-owned subsidiaries. In the opinion of management, the
financial statements include all material adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows. The results of this
interim period are not necessarily indicative of results for the entire year.
Inventories
Inventories are valued at the lower of cost or market. Cost of inventories is
determined principally by the last-in, first-out (LIFO) method.
Income Taxes
Provisions for income tax in the amounts of $2,172,000 and $2,068,000 were
recorded for the three month periods ended March 31, 1999 and 1998,
respectively.
Goodwill
The Company amortizes Goodwill on the straight line basis over the estimated
period to be benefitted. The acquisitions of National Northeast Corporation,
National Southeast Aluminum Corporation, and Heat Exchangers, Inc. in 1995
resulted in Goodwill of $11,118,000 which is being amortized over 25 years. The
acquisitions of Rowe Machinery & Automation, Inc., and Omega Flex, Inc. in 1996
resulted in Goodwill of $7,729,000 which is being amortized over 25 years. The
acquisition of Hill Engineering, Inc. on January 31, 1997, resulted in Goodwill
of $2,892,000 which is being amortized over 25 years. The acquistion of
Anemostat, as more fully described in Note 2, resulted in Goodwill of
approximately $6,800,000, which will be amortized over 25 years. The Company
continually evaluates the carrying value of Goodwill. Any impairments would be
recognized when the expected future operating cash flows derived from such
Goodwill is less than their carrying value.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform with the current year presentation.
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Note 2 - Business Acquistion
On March 26, 1999, the Company acquired substantially all of the operating
assets of the Anemostat Products and Anemostat-West Divisions of Dynamics
Corporation of America, (collectively, Anemostat), a wholly-owned subsidiary of
CTS Corporation. Anemostat manufactures commercial air distribution products
(grilles, registers, diffusers and VAV boxes); security air distribution
products; and door and vision frame products for the HVAC and commercial
building industries at locations in Scranton, Pennsylvania, (Anemostat Products)
and Carson, California, (Anemostat-West). The Anemostat products are
complementary to the Company's existing louver and damper businesses. The
purchase price paid for the assets acquired was approximately $25,360,000,
including assumed liabilities of approximately $2,419,000. The Company accounted
for this acquisition under the purchase method of accounting and, accordingly,
recorded Goodwill of approximately $6,800,000.
Note 3 - Property and Equipment
March 31, Dec. 31,
1999 1998
---------- ---------
Land $2,670,000 $2,395,000
Building 23,171,000 21,887,000
Leasehold Improvements 4,412,000 4,474,000
Equipment 90,618,000 78,820,000
----------- ------------
120,871,000 107,576,000
Accumulated Depreciation (53,672,000) (51,735,000)
------------ ------------
$67,199,000 $55,841,000
=========== ============
Note 4 - Long-Term Debt
March 31, Dec. 31,
1999 1998
--------- --------
Revolving Loan Agreement $36,309,000 $12,619,000
Other Bonds and Notes Payable 548,000 569,000
------------ ------------
36,857,000 13,188,000
Less Current Maturities (36,442,000) (12,750,000)
------------ ------------
$ 415,000 $ 438,000
============ ============
Revolving Loan Agreement - The Company has a Revolving Loan Agreement and Letter
of Credit Facility (the Agreement) with a commercial bank. The Agreement
provides $55 million of unsecured revolving credit and $10 million of standby
letter of credit capacity. Borrowings under the Agreement bear interest at a
floating rate based on the bank's prime rate less 1.00% or, at the discretion of
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the borrower, LIBOR plus a quoted market factor or, alternatively, in lieu of
the prime based rate, a rate based on the overnight Federal Funds Rate. The
Agreement was recently extended on a one year basis through April 30, 2000. The
Revolving Loan Agreement contains financial covenants which require that the
Company maintain certain current ratios, working capital amounts, capital bases
and leverage ratios. This Agreement also contains restrictions regarding the
creation of indebtedness, the occurrence of mergers or consolidations, the sale
of subsidiary stock, and the payment of dividends in excess of 50%of net income.
Note 5 - Interim Segment Information
Description of the types of products and services from which each reportable
segment derives its revenues:
The Company has four reportable segments: the manufacture of heating,
ventilating and air-conditioning equipment (HVAC), the manufacture of metal
handling and metal forming machinery (Metal Forming), the production of metal
products (Metal Products), and computer software development and system design,
(Computer Software).
The Company's HVAC segment manufactures and sells a wide variety of residential,
commercial and industrial heating, cooling, and air distribution products to
independent wholesales supply warehouses, to mechanical, sheet metal and other
contractors, and in some cases to other HVAC manufacturers under original
equipment manufacture (OEM) contracts. The products include finned tube and
baseboard radiation equipment gas fired heating and ventilating equipment, air
damper equipment and related air distribution products and commercial and
residential boilers. The products are marketed under a number of franchise names
including Sterling, Beacon Morris, Smith, Hydrotherm, RBI, Vulcan, Applied Air,
Wing, AWV, ABI, Arrow, Koldwave, and SpacePak. Assets totaling approximately
$25,360,000 acquired in the Anemostat acquisition on March 26, 1999, as more
fully described in Note 2, have been added to the Company's HVAC segment.
The Company's Metal Products segment manufactures a variety of metal products
including aluminum extrusions, flexible metal hose and grey iron castings. This
segment sells its products mostly as components to manufacturers who incorporate
them into their own products. In some cases flexible metal hose is sold to
distributors.
The Company's Metal Forming Segment designs, manufactures and sells a variety of
metal handling and metal forming products under names such as Cooper-Weymouth,
Peterson, Dahlstrom, Hill Engineering, Coilmate-Dickerman, and Rowe. The
products are sold through independent dealers in most cases to end-users and in
some cases to other original equipment manufacturers. The products include roll
formers, feeds, straighteners, cradles, cut-to-length lines, specialty dies, and
flying cut-off saws.
The Company's Computer Software segment operates under the name MCS and develops
and sells software used principally in the medical information systems
marketplace. MCS's products include software used to manage the day-to-day
operations of durable medical equipment dealers and home health agencies.
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Measurement of segment profit or loss and segment assets:
The Company evaluates performance and allocates resources based on profit or
loss from operations before interest expense and income taxes, (EBIT) not
including non-operating gains and losses. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment sales and transfers are recorded
at prices substantially equivalent to the Company's cost; inter-company profits
on such intersegment sales or transfers are not material.
Factors management used to identify the enterprise's 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 using distinct production processes
intended for distinct marketplaces.
Three Months ended March 31, 1999:
Metal Metal Computer
HVAC Products Forming Software Totals
----- -------- ------- -------- ------
Revenues from External Customers $54,132 15,543 7,887 4,464 82,026
Segment Operating Profit 3,694 1,919 292 228 6,133
Three Months ended March 31, 1998:
Metal Metal Computer
HVAC Products Forming Software Totals
------ -------- ------- -------- ------
Revenues from External Customers $49,549 13,610 8,476 4,014 75,649
Segment Operating Profit 3,349 1,321 565 489 5,724
Note 6 - Earnings Per Common Share
Basic earnings per share were computed using the weighted average number of
common shares outstanding. Common stock options were considered in the
computation of diluted earnings.
Note 7 - Common Stock Buyback Program
During the first quarter of 1999 the Company continued its program of selective
"open market" and odd lot purchases of its common stock acquiring 17,200 shares.
All such shares are accounted for as treasury shares.
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Note 8 - Stock Option Plans
On March 20, 1996 the Company adopted a stock option plan, the Mestek, Inc. 1996
Stock Option Plan, (the Plan), which provides for the granting of incentive and
non-qualified stock options of up to 500,000 shares of stock to certain
employees of the Company and other persons, including directors, for the
purchase of the Company's common stock at fair market value at the date of
grant. The Plan was approved by the Company's shareholders on May 22, 1996.
Options granted under the plan vest over a five-year period and expire at the
end of ten years. During the first quarter of 1999, 85,000 options were granted,
(65,000 on January 4, 1999 and 20,000 on March 29, 1999) at an exercise price of
$20.00, to seven employees and these options are outstanding at March 31, 1999.
Note 9 - Subsequent Event
On April 26, 1999, an order was entered in the Bankruptcy Court for the Southern
District of Ohio, whereby the Company's offer to acquire the operating assets of
ACDC, Inc. (ACDC) of New Milford, Ohio, a manufacturer of industrial dampers for
the power generation market, was approved. Based upon the satisfaction of
various contingencies, the Company hopes to close its purchase of the assets and
the real estate that ACDC currently utilizes sometime in May of 1999 for
approximately $3.2 million.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operation
FORWARD LOOKING INFORMATION
This report contains forward-looking statements, which are subject to
inherent uncertainties. These uncertainties include, but are not limited to,
variations in weather, changes in the regulatory environment, the broad economic
effect of the Year 2000 problem, customer preferences, general economic
conditions, and increased competition. All of these are difficult to predict,
and many are beyond the ability of the Company to control.
Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, that are not historical facts but rather reflect
the Company's current expectations concerning future results and events. The
words "believes", "expects", "intends", "plans", "anticipates", "likely",
"will", and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company (or entities in which the Company has interests), or
industry results, to differ materially from future results, performance or
achievements expressed or implied by such forward-looking statements.
Readers are cautioned not to place undue reliance on these
forward-looking statements which reflect management's view only as of the date
of this Quarterly Report on Form 10-Q. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
which may be made to reflect events or circumstance after the date hereof or to
reflect the occurrence of unanticipated events, conditions or circumstances.
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Total Revenues in the Company's HVAC segment, as illustrated in Note 5 to the
Condensed Consolidated Financial Statements, during the first quarter of 1999
were increased relative to the first quarter of 1998, by 9.2%. Improved
performances from many of the segment's hydronic products and, in particular,
from the Company's South Windsor, Connecticut and Dundalk, Maryland facilities,
together with sales from the Company's RBI division which was acquired on April
29, 1998, account for the increase in sales. Gross profit margins for the HVAC
segment were relatively unchanged at 27.24%. Operating income for this segment
was accordingly increased from $3,349,000 in the first quarter of 1998 to
$3,694,000 in the first quarter of 1999.
Total Revenues in the Company's Metal Products segment, as illustrated in Note 5
to the Condensed Consolidated Financial Statements, were up 14.2% during the
first quarter of 1999, principally as a result of the addition of Boyertown
Foundry Company which was acquired on November 2, 1998. In addition, this
segment's Omega Flex division continued to expand sales of it Trac-Pipe(TM)
flexible gas piping product. As a result of these factors, gross profit margins
and operating income increased significantly during the first quarter of 1999.
Total Revenues in the Company's Metal Forming segment, as illustrated in Note 5
to the Condensed Consolidated Financial Statement were down 11.7% reflecting an
industry-wide slow-down in orders for Metal Forming Equipment, especially
standard coil handling equipment and tooling. Operating income was accordingly
reduced from $565,000 in the first quarter of 1998 to $292,000 in the first
quarter of 1999.
The Company's Computer Software segment reported slightly improved revenues, but
slightly reduced gross profit and operating income due to increased product
development spending.
For the Company as a whole, Sales, General and Administrative, and Engineering
costs, taken together as
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a percentage of Total Revenues, were slightly increased from 20.47% to 20.60%.
Operating income for the first quarter of 1999 for the Company as a whole
increased by $409,000 or 7.1% reflecting the net effect of the factors mentioned
above.
The Company's total debt (long-term debt plus current portion of long-term debt)
increased by $23.7 million during the quarter ended March 31, 1999 reflecting
the effect of the acquisition of Anemostat on March 26, 1999. Management regards
the Company's current capital structure and banking relationships as fully
adequate to meet foreseeable future needs. The Company has not paid dividends on
its common stock since 1979.
YEAR 2000 DISCLOSURE
The following information is being provided as a Year 2000 Readiness
Disclosure Statement, and is subject to the provisions of the Year 2000
Information and Readiness Disclosure Act.
The Company's risks related to the Year 2000 problem fall into four
categories:
1. Information Technology Systems
The Company's principal business applications software packages and
related hardware and operating system environments, and the status of the
Company's Year 2000 compliance efforts related thereto are as follows:
HVAC Segment:
The HVAC Segment maintains order entry, billing and manufacturing
systems at a number of locations. The Segment's needs in this area, while
specific to each individual division, have sufficient common ground that
commercially available software packages, suitably customized, have been used in
the past rather than custom written code. As a result, the Company decided in
1996 to address the Year 2000 problem in this area by upgrading its various
manufacturing/order processing/inventory control/accounts receivable software
systems to "Year 2000 Compliant" versions, while at the same time adding
enhanced functionality.
The Company began a search at that time for a system which would meet
the needs of as many of its divisions as possible. Friedman Associates, a
manufacturing package with strong "configure to order" capabilities was chosen
in 1997. The majority of the Segment's business is processed through its
Westfield, Massachusetts, and Holland, Ohio, locations which are in the process
of implementing the Friedman Associates system in IBM AS400 environments. The
implementation process began in 1997 and is being managed on a division by
division basis. The Company continues to believe that all divisions scheduled to
implement the Friedman system will have completed this task by October 31, 1999.
As of May 13, 1999, approximately fifty percent 50% of the HVAC divisions, as
measured in 1998 revenues, have migrated to the Friedman system or are otherwise
operating in environments believed to be Year 2000 compliant. The Company
believes based upon inquiries of the relevant vendors that the IBM AS400 (model
500) operating system and the Friedman Associates software are fully Year 2000
compliant. The Company also utilizes at certain locations a manufacturing and
order processing software known as MSS/Costar which also operates on the IBM
AS400 platform. The Company hasmade the
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necessary programming changes to make MSS/Costar Year 2000 compliant. The
Company also utilizes at one location a manufacturing and order processing
software known as Profit Key which, based upon representations from its seller,
is also Year 2000 compliant. The Company is presently in the process of
arranging for formal tests to validate its vendors' claims - both as to software
and as to operating systems - relative to Year 2000 compliance.
The HVAC Segment performs most of its financial reporting on a
centralized basis in Westfield, Massachusetts, using general ledger, payroll,
payables, and human resources software packages from Infinium, Inc. which, based
upon representations from Infinium, to the best of the Company's knowledge, are
Year 2000 compliant. The Infinium Software runs in an IBM AS400 mini computer
environment. Based upon representations from IBM, the Company believes the AS400
operating system environment which it is using for its financial software
systems is Year 2000 compliant. Certain of the Company's subsidiaries maintain
separate financial reporting functions using a variety of personal computer
based software solutions. Visual and Syspro, the principal software packages in
use at remote locations for financial accounting purposes are believed, based
upon representations from these vendors, to be Year 2000 compliant at this time.
The Company is presently in the process of arranging for formal testing to
validate the representations received in this regard from its hardware and
software vendors.
Metal Products Segment:
The Metal Products Segment has successfully phased in business
application systems believed to be Year 2000 compliant at this time based upon
inquiries of the relevant vendors. The business applications running in these
environments include general ledger, payables, payroll, human resources,
order-entry and manufacturing. The Company is presently in the process of
arranging for formal testing to validate its vendors' claims - both as to
software and as to operating systems - relative to Year 2000 compliance.
Metal Forming Segment:
The Clinton, Maine location of the (Cooper-Weymouth, Peterson, Rowe and
CoilMate/Dickerman) Metal Forming Segment is in the process of implementing
Symix Software for its order entry, billing, manufacturing, scheduling,
inventory control and related needs. The system was loaded recently and operator
training is underway. Pilot programs began in April of 1999. The Company expects
the new system (less scheduling enhancements) to be operational on September 1,
1999. The Metal Forming Segment has developed a contingency plan to be used in
the event its transition to Symix is not complete as of December 31, 1999 which
entails fixing the Year 2000 problem in its present MSS/Costar order entry and
manufacturing environment. The vendor has represented that it has a cure and
that the cure can be implemented without disruption prior to July 1, 1999. While
the cost and effort required to implement the Symix system is significant, the
Company expects that the benefits to its business process - in addition to
resolving Year 2000 functionality - will be substantial as many enhanced
functionalities are expected particularly in the scheduling and advance planning
areas. The Company believes that its contingency plan for this segment is a
realistic alternative which would allow the segment to function as it does now
after December 31, 1999 while it focuses on completing the Symix implementation.
There can be no assurance, however, that the Company's implementation of the
Symix system - or its implementation of its contingency plan - will be
accomplished successfully prior to December 31, 1999.
The Dahlstrom division shut down its non compliant systems in 1998 and
in early 1999 completed development and implementation of a Year 2000 compliant
Windows-based inventory and
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costing system which is adequate to current needs. Dahlstrom intends to
implement the Symix system within two (2) years.
The Hill Engineering unit (Hill) utilizes the Elite system by Informix.
Because Hill's current version of the software, although Year 2000 compliant,
will not be supported by the vendor after June 1999, Hill intends to upgrade its
software to a better-supported product prior to September 30, 1999.
Engineering (CAD/CAM) systems:
The Company uses a variety of commercially available engineering and
manufacturing design tools including AutoCAD, Pro E and Intergraph. Based upon
inquiries of the vendors of these systems, the Company believes that the
versions in use at its various locations are or will be soon Year 2000
compliant. The Company is presently arranging for formal testing to validate the
representations made by vendors in this regard.
2. Suppliers and Customers Year 2000 problems.
Both the Company's customer base and its supplier base are large and
diverse. As a result, the Company does not believe it has a reliable method of
accurately assessing the magnitude of the risk it faces relating to either its
customers or its suppliers. The possibility that one or more key suppliers may
be unable for some period to fulfill their obligations to the Company as a
result of Year 2000 related problems cannot be discounted. In such an event, a
disruption of the Company's business, which could be financially material, is
quite possible; although most materials are readily available from other vendors
(although lead times may vary or be unpredictable or inadequate). The Company's
core HVAC segment has conducted a survey of its principal and mission critical
suppliers relative to Year 2000 compliance which covered eighty percent (80%) of
the annual spending done by this segment. Results overall were mixed in that
while responses were generally encouraging they were also in many cases
legalistic and as a result difficult to interpret in terms of genuine readiness.
The Company's Metal Forming Segment and Metal Products Segment are in the
process of conducting similar surveys. The Company will continue to seek
assurances and clarification from its key suppliers on the issue of Year 2000
readiness.
3. Embedded microprocessors.
The Company recognizes that some of its manufacturing equipment and
some of its office equipment (other than computers) include embedded
microprocessors which in some cases may prove to be non-Year 2000 compliant and
may disrupt (until replaced) the Company's operations. The Company's Metal
Forming Segment has made systematic inquiries of the suppliers of its key
machinery, equipment and processes controlled by microprocessors in an effort to
establish the status of embedded microprocessors in its manufacturing
operations. The results of these inquiries have been generally favorable, and
based upon the representations made by vendors, this segment believes its
critical pieces of manufacturing equipment are Year 2000 compliant. The
Company's HVAC Segment and Metal Products Segment are in the process of
conducting a similar survey of their key manufacturing equipment suppliers on
the issue of embedded microprocessors. Accordingly, the Company does not believe
at this time that it can accurately assess the magnitude of the risk it faces in
this regard. The Company intends to continue its inquiries of the key suppliers
of machinery, equipment, and processes to determine their contingency plans
available to address any failures which may occur after January 1, 2000.
Management will continue to utilize the technical resources available to it to
manage this exposure.
16
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4. MCS.
The Company's MCS subsidiary, which produces software used in
information systems for the home health care marketplace, released a Year 2000
compliant version of its principal product, MestaMed, in the fall of 1998. Many
of the users of MestaMed have installed the upgrade, but a large number remain
to be installed. MestaMed runs on a number of different software operating
systems across a wide variety of hardware platforms. MCS has been aware that
some older operating systems used to run MestaMed are not Year 2000 compliant or
will not be supported by their suppliers and it has been working with customers
to encourage operating system upgrades. MCS has learned that two such operating
systems used in conjunction with MestaMed will not be fully supported by its
developer after October 1999. MCS's preliminary tests indicate that its products
will be Year 2000 compliant while running under these operating systems. MCS is
working with the supplier to determine the extent of the supplier's support for
Year 2000 issues for the affected operating systems. The Company has confirmed
from the supplier that it will offer a Year 2000 date-processing limited
warranty on several versions of these operating systems. MCS is working closely
with the supplier to confirm that this warranty will be extended to the
remaining versions of those operating systems. Depending on the outcome of such
discussions, MCS will encourage its customers affected by this issue to upgrade
to more current versions of the operating system prior to December 31, 1999. A
small percentage of MCS products users (generally customized versions of
MestaMed or those not choosing maintenance) are running versions that are not
Year 2000 compliant. The Company is actively encouraging these users to upgrade
to the current version of MestaMed prior to December 31, 1999.
The Company's state of readiness:
Relative to its internal business applications systems, the Company
believes that the timetables and plans described above relative to Year 2000
upgrades and conversions for its various locations are generally realistic. The
possibility that one or more of the Company's other divisions will fail to meet
their respective deadlines relative to the Year 2000 upgrade process cannot be
discounted.
Contingency Plans:
In some locations, the Company's plan to upgrade its business
application system to a Year 2000 compliant version prior to December 31, 1999
may be delayed due to limited technical resources and/or other implementation
challenges. The Company believes it may be able, in some cases, to fix the Year
2000 problem in its existing business application softwares in order to mitigate
the effect of such delays. There can be no assurance, however, that such
contingency plans will be effective and, accordingly, the risk that the
Company's operations may be significantly disrupted after December 31, 1999
cannot be discounted. Such disruptions could be financially material to the
Company.
Costs incurred relative to Year 2000 solutions:
The Company estimates that its total cost of addressing the Year 2000
issue, (excluding costs incurred by MCS relative to its software products),
including software licenses, modifications, training and implementation will be
approximately $2,500,000 over the 4-year period ended December 31, 1999. Of this
total, the Company has incurred approximately $1,950,000 as of March 31, 1999.
17
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Statement of Computation of Per Share Earnings ... Page 13
(b) Registrant filed one report on Form 8-K during the quarter for which this
report is filed.
MESTEK, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended
March 31,
1999 1998
------ ------
(Amounts in thousands, except earnings per common share)
Net Income for earnings per share $3,519 $3,370
====== ======
Basic weighted average number of common shares outstanding 8,881 8,926
====== ======
Basic earnings per common share $ .40 $ .38
====== ======
Diluted weighted average number of common shares outstanding 8,908 8,950
====== ======
Diluted earnings per common share $ .40 $ .38
====== ======
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MESTEK, INC.
(Registrant)
Date: May 14, 1999 By: /S/ Stephen M. Shea
---------------------------------------------------
Stephen M. Shea, Senior Vice President -Finance and
CFO (Chief Financial Officer)
18
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") made as of the 1st day of July,
1998, by and between Sterling Realty Trust, a Trust made under a Declaration of
Trust dated November 24, 1950, and recorded in Hampden County Registry of Deeds
as Document No. 26882, in Book 2088, Page 123 (the "Landlord"), and Mestek,
Inc., and its successors and assigns (the "Tenant") a Pennsylvania corporation,
with offices at 260 North Elm Street, Westfield, MA 01085.
WITNESSETH
THAT FOR AND IN CONSIDERATION of the mutual covenants and agreements
herein contained, and intending to be legally bound, the parties hereto do
hereby covenant and agree as follows:
1. Lease of Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord those premises commonly known as 161 Notre Dame Street
("Engineering Building"), Westfield, MA 01085 (the "Premises"), as more
specifically described in Exhibit A to this Lease, which is situated on that
certain parcel of land described in Exhibit B to this Lease (the "Property").
2. Term
2.1 Term. The term of the Lease shall be for a period of five (5) years
(the "Term") beginning on July 1, 1998 (the "Commencement Date") and ending on
June 30, 2003 (the "Termination Date") at 5:00 p.m., subject to (a) earlier
termination as provided in this Lease, and (b) further extensions of such term
as may hereafter be otherwise agreed in writing between Landlord and Tenant.
2.2 Termination.
2.2.1 This Lease shall terminate at the end of the Term
without the necessity of any notice from either Landlord or Tenant to terminate
the same.
2.2.2 This Lease may terminate at the election of Landlord in
the event of any default of Tenant as described in Article 11 below.
2.2.3 Upon the expiration or sooner termination of the Term,
Tenant shall quietly and peacefully surrender the Premises in good condition,
reasonable wear and tear excepted, to Landlord. All appurtenances, fixtures and
leasehold improvements installed in the Premises, whether by Landlord or Tenant,
and whether at Landlord's expense or Tenant's expense shall be and remain the
property of Landlord. All non-fixture personal property owned by Tenant and/or
placed in the Premises shall remain the property of Tenant and shall be removed
prior to the end of the Term or such other time as Tenant may lose the right of
possession of the Premises. Any property of Tenant remaining in the Premises at
the expiration or other termination of the Term, or at such other time as Tenant
may lose the right of possession of the Premises, shall be deemed abandoned by
Tenant
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and, at Landlord's option, shall become the property of Landlord. Landlord may
remove such property and sell or otherwise dispose of the same in any manner
without liability or obligation to account to Tenant therefor. Tenant shall pay
Landlord on demand for all costs of Landlord in removing, storing and disposing
of any such property.
3. Rent. Tenant shall pay to the Landlord at 10 Tekoa Terrace, Westfield, MA
01085 or such other address as Landlord may designate, an annual rent (the
"Annual Rent") of Seventy-Six Thousand Eight Hundred Dollars and No/100
($76,800.00), payable in monthly installments of Six Thousand Four Hundred
Dollars and No/100 ($6,400.00), in advance of the first day of each month of the
Term, without any deduction, counterclaim, abatement or set-off whatsoever
(except as may be expressly authorized by the terms of this Lease).
4. Additional Rent. In addition to the Annual Rent payable pursuant to Section 3
of this Lease, Tenant shall pay as additional rent (the "Additional Rent") the
following:
4.1 Real Estate Taxes. Tenant shall pay in each calendar year of the
Lease (the "Lease Year"), as Additional Rent, all taxes, assessments and charges
whatsoever, ordinary or extraordinary, general or special, foreseen or
unforeseen, levied upon or with respect to the Premises and the Property or any
improvements, fixtures and equipment of Landlord or Tenant used in the operation
thereof (the "Real Estate Taxes"). Real Estate Taxes shall not include transfer,
inheritance or capital stock taxes or income taxes measured by the net income of
Landlord from all sources, unless any of such taxes is levied or assessed
against Landlord as a substitute in whole or in part for or as an addition to,
in whole or in part, any other tax that would otherwise constitute a real estate
tax. Real Estate Taxes shall also include reasonable legal fees, costs and
disbursements incurred in connection with proceedings and activities to contest,
determine, reduce or negotiate the amount or payment of real estate taxes. If
Tenant is in possession of the Premises for a portion of any calendar year
during the Term hereof, Tenant shall pay a pro rata share of the Real Estate
Taxes for such calendar year.
4.2 Insurance. At all times during the Term of this Lease, Tenant shall
secure, keep in force and pay for directly as Additional Rent, at Tenant's sole
expense, the following insurance:
4.2.1 Property Insurance. Tenant shall, at Tenant's sole
expense, obtain and keep in force during the Term of this Lease a policy of fire
and extended coverage insurance with respect to the Premises insuring Tenant,
and as additional insured, Landlord, against any property damage or casualty
loss thereto, up to the fair market value of the Premises, which is deemed for
the first Lease Year to be an amount of not less than One Million Dollars and
No.100 ($1,000,000.00). All such policies shall be written as primary policies
not contributing with and not only in excess of any coverage which Landlord may
carry.
4.2.2 Liability Insurance. Tenant shall, at Tenant's sole
expense, obtain and keep in force during the term of this Lease a policy of
comprehensive public liability insurance in the amount of One Million Dollars
and No.100 ($1,000,000.00), insuring, Tenant and, as additional insured,
Landlord, against any liability arising out of the ownership, use, occupancy, or
maintenance of the
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Premises and all areas appurtenant thereto. All such policies shall be written
as primary policies not contributing with and not only in excess of any coverage
which Landlord may carry.
4.2.3 Landlord's Approval. The company or companies writing
any insurance which Tenant is required to take out and maintain pursuant to this
Lease, as well as the form of such insurance, shall at all times be subject to
the Landlord's approval, and any such company or companies shall be licensed to
do business in Massachusetts. Each policy evidencing such insurance shall (a)
name Landlord and any other of its designees as additional insured (except with
respect to Tenant's own personal property), (b) shall contain a provision by
which the insured agrees that such policy shall not be canceled except after
thirty (30) days written notice to Landlord and its designee, and (c) shall
provide that coverage shall not be limited or denied by reason of the provisions
in this Lease, including those relating to limitations of liability and waivers
of subrogation and other rights. For all insurance policies procured by Tenant,
a certificate of such insurance shall at all times be deposited with Landlord.
If Tenant shall fail to perform any of its obligations under this Article 4,
then in addition to any other remedies it may have, Landlord may, but is not
required to, perform the same, and the cost thereof, together with interest
thereon at the Default Rate, shall be deemed Additional Rent and shall be
payable upon Landlord's demand.
4.3 Utilities. At all times during the Term of this Lease Tenant shall
pay for directly as Additional Rent all utilities, including, but without
limitation, water, gas, heat, light, power, electricity, fuel, sewer charges,
telephone service, and any and all other services and utilities supplied to the
Premises together with any taxes thereon (collectively the "Utilities"). Tenant
shall notify the utility companies that the Utilities are to be placed in the
name of Tenant and all bills therefor are to be sent directly to Tenant. In
addition, Tenant shall pay the costs of all deposits required by utility
companies for the Utilities.
5. Improvements and Alterations.
5.1 Improvements by Tenant. Tenant shall not make any alterations,
renovations or improvements or cause to be installed any fixtures, exterior
signs, floor covering, interior or exterior lighting or plumbing fixtures,
shades or awnings or any other installations in, on, or to the Premises or any
part thereof (including, without limitation, any structural alterations, or any
cutting or drilling into any part of the Premises or any securing of any
fixture, apparatus or equipment of any kind to any part of the Premises) unless
and until Tenant shall have caused plans and specifications therefor to have
been prepared, at Tenant's expense, by an architect or other duly qualified
person and shall have obtained Landlord's written approval thereof.
5.2 Mechanic's Liens. Tenant shall keep the Premises free from any
liens arising out of any work or service performed or material furnished by or
for Tenant or any person or entity claiming through or under Tenant whether for
the Tenant Improvements or otherwise. Notwithstanding the foregoing, if any
mechanic's or other lien shall be filed against the Premises, purporting to be
for labor, services or material furnished or to be furnished at the request of
Tenant, then Tenant shall at its expense cause such lien to be discharged of
record by payment, bond or otherwise, within ten (10) days after the filing
thereof. If Tenant shall fail to cause such lien to be
3
<PAGE>
discharged of record within such ten (10) day period, Landlord, in addition to
any other remedies it may have, may cause such lien to be discharged by payment,
bond or otherwise, without investigation as to the validity thereof or as to any
offsets or defenses thereto, and Tenant shall, upon demand, reimburse Landlord
for all amounts paid and costs incurred, including attorneys' fees, in having
such lien discharged of record.
5.3 Contractor's Insurance. Prior to engaging any contractor, Tenant
shall require any contractor performing work on the Premises at Tenant's request
or on Tenant's behalf to carry and maintain such insurance in such amounts of
coverage as Landlord may require from time to time, including contractor's
liability coverage and workers' compensation insurance and to name Landlord as
an additional insured upon the contractor's insurance policy for the terms and
purpose of the work upon the Premises.
6. Use of Premises. Tenant's use and occupancy of the Premises shall be for the
purpose of engineering, testing and manufacturing of HVAC equipment. Tenant
shall not use or permit the Premises to be used for any other purpose without
the prior written consent of Landlord.
6.1 Prohibited Uses. Tenant shall not use or allow the Premises to be
used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises.
Tenant shall not use the Premises for the purpose of manufacturing. Tenant shall
not commit or allow to be committed any material waste in or upon the Premises,
reasonable wear and tear excepted. Tenant shall not cause or permit any
hazardous or toxic substance, material or waste including without limitation any
oil, pollutant, contaminant, hazardous waste, asbestos, or other hazardous
substance, as such term or similar terms are now defined, used or understood in
or under any federal, state, local or other governmental statute, rule,
regulation, ordinance or order which relates in any way to the protection of the
environment (the "Environmental Laws") to be used, stored, released, dumped or
disposed of upon the Premises except in full compliance with and as otherwise
allowed by the Environmental Laws.
6.2 Compliance with Law. Tenant shall not use or permit the use of the
Premises in any way in conflict with any law or governmental rule. Tenant shall,
at Tenant's sole cost, promptly comply in all material respects with all such
laws and governmental rules and regulations and with the requirements of any
board of underwriters or other similar bodies now or hereafter constituted
relating to the condition, use or occupancy of the Premises whether or not
expressly ordered to do so by the applicable governmental authority.
7. Maintenance and Repairs. Responsibility for maintenance and repairs shall be
allocated between Landlord and Tenant as follows:
7.1 Tenant's Obligations. By taking possession of the Premises, Tenant
shall be deemed to have accepted the Premises "as is", in good condition and
repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises and
the Property and each and every part thereof in an orderly and sanitary
condition, well-maintained and in good repair and appearance (except as
hereinafter provided with respect to Landlord's obligations), including without
limitation, the maintenance, replacement,
4
<PAGE>
painting and repair of any doors, door frames, windows, window casements, floors
and floor coverings, walls and wall surfaces and coverings, plumbing, pipes,
electrical service, including panels, boxes, wiring and conduits, the heating
and air conditioning systems, roofing, shingles, coverings, membranes, and any
wood or metal structural elements, including beams and joists, and all other
mechanical equipment parts and systems whether interior or exterior. Tenant
shall, upon the expiration or sooner termination of this Lease, surrender the
Premises to Landlord in good condition, broom clean, ordinary wear and tear
excepted. Any damage to property or injury sustained by any person because of
mechanical, electrical, plumbing or any other equipment or installations, whose
maintenance and repair shall be the responsibility of Tenant, shall be the
obligation of and paid for by Tenant. Tenant shall indemnify and hold Landlord
harmless from and against all claims, actions, damages and liability in
connection with Tenant's obligations under this Article 7, including, but not
limited to, attorneys' and other professional fees, and any other costs and
expenses which Landlord might reasonably incur. Any damage to adjacent premises
caused by Tenant's use of the Premises shall be repaired at the sole cost and
expense of Tenant.
7.2 Landlord's Obligations. Upon receipt of written notice of the need
for the same, Landlord shall, at Landlord's expense, repair and maintain the
structural portions of the Premises, which include the foundation, exterior
walls, structural members and roof. In the event such maintenance and repairs
are necessitated in whole or in part by the acts, neglect, fault, or omission of
any duty by Tenant, Tenant's agents, servants, employees, or invitees, or any
damage caused by breaking and entering, Tenant shall pay to Landlord the entire
cost of such maintenance and repairs. Except as otherwise provided in this
Section 7.3, there shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations, or improvements in or to any portion of the
Premises or in or to fixtures, appurtenances, and equipment. Tenant waives the
right to make repairs that are Landlord's obligation under this Lease at
Landlord's expense under any law, statute, or ordinance now or hereafter in
effect. Landlord shall have no responsibility for the maintenance, repair or
replacement of anything which is Tenant's obligation as set forth in Section
7.1.
8. Hold Harmless. To the extent permitted by law, and except to the extent of
Landlord's acts or omissions for which Landlord is solely negligent, Tenant
shall indemnify and hold Landlord harmless from and against any and all claims
arising from, in connection with or related to (a) Tenant's use of the Premises,
(b) the conduct of Tenant's business, (c) any activity, work, or other things,
done, permitted, or suffered by Tenant in or about the Premises, (d) any breach
or default in the performance of any obligation on Tenant's part to be performed
under the terms of this Lease, (e) any act or negligence of Tenant or any
officer, agent, employee, guest, or invitee of Tenant and (f) all costs
(including attorneys' fees) and liabilities incurred in or about the defense of
any such claim or any action or proceeding brought thereon. In any action or
proceeding brought against Landlord by reason of any such claim described
herein, Tenant, upon notice from Landlord, shall defend the same at Tenant's
sole expense conferring from time to time with Landlord. To the extent permitted
by law, Tenant hereby assumes all risk of damage to property or injury to
persons of whatever status in, upon, or about the Premises from any cause other
than the sole negligence of Landlord. Landlord or Landlord's agents shall not be
liable for any loss or damage to persons or property resulting from
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fire, explosion, falling plaster, steam, gas, electricity, water, or rain which
may leak from any part of the building, upon the Premises or from the pipes,
appliances, heating and air conditioning system or plumbing works therein or
from the road, street, or subsurface, or from any other place resulting from
dampness, or from any other cause whatsoever, unless caused by or due to the
sole negligence of Landlord or Landlord's agents. Tenant shall give prompt
notice to Landlord in case of casualty or accidents upon the Premises.
9. Entry by Landlord. At any and all reasonable times during regular business
hours, upon one days' prior notice to Tenant, Landlord reserves and shall have
the right to enter the Premises to inspect the same a reasonable number of
times, to submit the Premises to prospective purchasers or tenants, to repair
the Premises and any portion of the building that Landlord may deem necessary or
desirable, without abatement of rent, and may for that purpose erect scaffolding
and other necessary structures where reasonably required by the character of the
work to be performed, using best efforts to avoid blocking the entrance to the
Premises and providing that the business of Tenant shall not be interfered with
unreasonably. Tenant hereby waives any claim for damages or for any injury or
inconvenience to or interference with Tenant's business, and any loss of
occupancy to quiet enjoyment of the Premises.
10. Assignment and Subletting. Tenant shall not either voluntarily or by
operation of law assign, transfer, mortgage, pledge, hypothecate, or encumber
this Lease or any interest therein and shall not sublet the Premises or any part
thereof or any right or privilege appurtenant thereto or allow any person (the
employees, agents, servants, and invitees of Tenant excepted) to occupy or use
the Premises or any portion thereof without the prior written consent of
Landlord. Any such assignment or subletting without such consent shall be
voidable by Landlord and may constitute a default under the terms of this Lease.
It is understood and agreed that Landlord may fully assign or encumber
Landlord's interest in this Lease as Landlord. Landlord may assign or encumber
the Annual Rent herein provided to any person, partnership, corporation, or
bank, and Tenant agrees when notified in writing by the assignee of such
assignment to make the rental payments to assignee under the terms of said
assignment.
11. Tenant's Default. The occurrence of any one or more of the following events
shall constitute an event of default and breach of this Lease by Tenant:
11.1 Abandonment. Tenant vacates or abandons the Premises for a
continuous period in excess of five (5) business days.
11.2 Failure to Pay Obligations. Tenant fails to make any payment of
Annual Rent, Additional Rent, or any other payment required to be made by Tenant
hereunder, as and when due, where such failure shall continue for a period of
ten (10) business days after written notice thereof by Landlord to Tenant.
11.3 Failure to Observe Other Covenants. Tenant fails to observe or
perform any of the covenants, conditions, or provisions of this Lease to be
observed or performed by Tenant, other than described in Section 11.2 herein,
where such failure shall continue for a period of thirty (30) days
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after written notice thereof by Landlord to Tenant; provided, however, that if
the nature of Tenant's default is such that more than thirty (30) days are
reasonably required for cure of such condition, then Tenant shall not be deemed
to be in default if Tenant commences such cure within said thirty (30) days and
thereafter diligently prosecutes such cure to completion.
12. Remedies on Default. In the event of any default or breach by Tenant,
Landlord may, at any time thereafter with or without notice or demand and
without limiting Landlord in the exercise of a right or remedy which Landlord
may have by reason of such default or breach, exercise any of the following
remedies:
12.1 Termination of Possession. Landlord may terminate Tenant's right
to possession of the Premises by written notice to Tenant or any other lawful
means, terminate this Lease by written notice to Tenant, revoke Tenant's right
to any free rent or other lease concessions and recover the value of any such
concessions made, re-enter and take possession of the Premises and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including without limitation, all unpaid
Annual Rent, Additional Rent and other obligations of Tenant under this Lease
including without limitation, accrued interest, default interest and late
charges thereon, the cost of recovering possession of the Premises, the expenses
of reletting, and any other costs or damages arising out of Tenant's default,
including without limitation the costs of removing persons and property from the
Premises, the costs of repairing or altering the Premises for reletting,
brokers' commissions, and legal costs including attorneys' fees whether suit is
brought or not. Notwithstanding any termination of this Lease, re-entry or
reletting of the Premises, the liability of Tenant for the Annual Rent,
Additional Rent, and other charges and adjustments for the balance of the Term
shall not be extinguished and Tenant shall pay and Landlord may recover from
Tenant at the time of termination, re-entry, or reletting, the amount of such
rents reserved in this Lease for the balance of the Term (even if in excess of
the then reasonable rental value of the Premises or any part thereof) without
first terminating Tenant's right to possession pursuant to this Lease. Landlord
reserves the right, at any time thereafter, to elect to terminate Tenant's right
to possession to the Premises for the default that originally resulted in the
reletting.
12.2 Enforcement of Lease. Landlord may maintain Tenant's right to
possession, in which case this Lease shall continue in effect whether or not
Tenant shall have abandoned the Premises. In such event, Landlord shall be
entitled to enforce all of Landlord's rights and remedies under this Lease,
including the right to recover the Annual Rent, Additional Rent, other
obligations of Tenant under this Lease, and any other charges, interest and
adjustments as may become due hereunder. Landlord's failure or inability to
relet the Premises or any part thereof shall not reduce or restrict or in any
way affect Landlord's right to recover from Tenant all such rent and other sums
as the same become due, and, despite such failure or inability to so relet the
Premises or any part thereof.
12.3 Other Remedies. Landlord may pursue any other remedy now or
hereafter available to Landlord under the laws or judicial decisions of the
Commonwealth of Massachusetts, in addition to the foregoing. It is understood
and agreed that Landlord's remedies hereunder are cumulative, and
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the exercise of any right or remedy shall not constitute a waiver, merger or
extinguishment of any other right or remedy.
12.4 Removal of Personal Property. In the event of a retaking of
possession of the Premises by Landlord, Tenant shall remove all personal
property located thereon and, upon failure to do so upon demand of Landlord,
Landlord may remove and store the same in any place selected by Landlord,
including without limitation a public warehouse, at the expense and risk of
Tenant. If Tenant shall fail to pay the cost of storing any such property after
it has been stored for a period of thirty (30) days of more, Landlord may sell
any or all of such personal property at a public or private sale or auction and
shall apply the proceeds of such sale first to the cost of such sale, secondly
to the payment of the charges for storage, if any, and thirdly to the payment of
any other sums of money which may be due from Tenant to Landlord under the terms
of this Lease, and the balance, if any, to Tenant. Tenant hereby waives all
claims for damages that may be caused by Landlord's lawfully re-entering and
taking possession of the Premises or lawfully removing and storing the personal
property of Tenant as herein provided and will hold Landlord harmless from loss
or damages occasioned by Landlord thereby, and no such lawful re-entry shall be
considered or construed to be a forcible or unlawful entry or detainer.
13. Damage and Reconstruction. Should the Premises be damaged during the term of
this Lease, Tenant shall immediately notify Landlord, and the rights and
responsibilities of Landlord and Tenant shall then be as follows:
13.1 Insured Damage. In the event the Premises are damaged by fire or
other perils covered by Tenant's or Landlord's casualty or property insurance,
Landlord agrees forthwith to commence repair of the same to the extent of
insurance proceeds available and this Lease shall remain in full force and
effect, except that Tenant shall be entitled to a proportionate reduction of the
Annual Rent (but not other obligations hereunder) from the date of damage and
while such repairs are being made, such proportionate reduction to be based upon
the extent to which the damage and making of such repairs shall cause undue
interference with the business carried on by Tenant in the Premises. In the
event the Premises are damaged by fire or other perils covered by Tenant's or
Landlord's casualty or property insurance, Tenant shall continue to be liable
for all payments of Additional Rent pursuant to Article 4 of this Lease. If the
damage is due to the fault or neglect of Tenant or Tenant's employees, there
shall be no abatement of the Annual Rent.
13.2 Other Damage. In the event the Premises are damaged as the result
of any cause other than the perils covered by Tenant's or Landlord's casualty
insurance or for which insurance proceeds are insufficient fully to cover, then
Landlord agrees forthwith to commence repair of the same, only in the case that
the extent of the destruction of the Premises is less than ten percent (10%) of
the then full replacement cost of the Premises. In the event the destruction of
the Premises is to an extent of ten percent (10%) or more of the full
replacement cost of the Premises, then Landlord shall have the option (a) to
repair or restore such damage, this Lease continuing in full force and effect,
but the Annual Rent to be proportionately reduced as provided above in Section
13.1; or (b) to give notice to Tenant at any time within sixty (60) days after
such damage, terminating this Lease as of the date specified in the notice,
which date shall be no more than thirty (30) days after the giving of such
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notice. In the event of giving such notice, this Lease shall expire and all
interest of Tenant in the Premises shall terminate on the date so specified in
such notice and the Annual Rent, reduced by a proportionate reduction based upon
the extent, if any to which such damage unduly interferes with the business
carried on by Tenant in the Premises, the Additional Rent and all other
obligations of Tenant under this Lease shall be paid up to the date of such
termination. At Tenant's sole option, it may, upon notice to Landlord and in
accordance with Article 5 of this Lease, effect all necessary repairs and
reinstate this Lease. Tenant's obligation to pay Annual Rent, but not the other
obligations hereunder, during any period of repair shall be abated, so long as
such period does not exceed one hundred eighty (180) days.
13.3 Damage to Tenant's Property. Landlord shall not be required to
repair or make whole any injury or damage by fire or other cause or peril or to
make any repairs or replacements of any fixtures or other personal property of
Tenant. Tenant shall maintain hazard insurance to cover hazards to its personal
property.
14. Eminent Domain.
14.1 Taking. If fifty percent (50%) or more of the Premises or the
improvements thereon shall be taken or appropriated by any public or
quasi-public authority under the power of eminent domain, Tenant shall have the
right at its option within sixty (60) days after said taking to terminate this
Lease upon thirty (30) days' written notice.
14.2 Partial Taking. If less than fifty (50%) percent of the Premises
or the improvements thereon are taken, or fifty percent (50%) or more of the
Premises or the improvements thereon are taken and Tenant elects not to
terminate as herein provided, the Annual Rent thereafter to be paid shall be
equitably reduced.
14.3 Award. In the event of any taking or appropriation whatsoever,
Landlord shall be entitled to any and all awards, payments or settlements which
may be given, made or ordered and Tenant shall have no claim against the
condemning authority or Landlord for the value of any unexpired term of this
Lease, and Tenant hereby assigns to Landlord any and all claims to any award,
payments or settlement. Nothing contained herein shall be deemed to give
Landlord any interest in or to require Tenant to assign to Landlord any award
made to Tenant for the taking of personal property or fixtures belonging to
Tenant, for the interruption of or damage to Tenant's business, or for Tenant's
moving expenses.
15. Signs.
15.1 Tenant Signs. Tenant may, at Tenant's sole expense, place external
signs on the Premises, provided such signs have been approved in advance by
Landlord, and provided such signs do not violate any statute or regulation
existing during the term of this Lease. Tenant shall pay the costs of removal of
such signs upon termination of the Lease, and such signs shall be the property
of Tenant.
9
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15.2 "For Lease" Signs. At any time within One Hundred Eighty (180)
days prior to the expiration of this Lease, Landlord may place upon the Premises
"for lease" signs.
16. Subordination. Tenant agrees that this Lease shall be subordinate to any
mortgage or deed of trust that is now or may hereafter be placed upon the
Premises and to any and all advances to be made thereunder, to the interest
thereon, and all renewals, replacements, and extensions thereof; provided, the
lender secured by and named in such mortgage or deed of trust shall agree in
writing to recognize this Lease of Tenant in the event of foreclosure, if Tenant
is not in default. Tenant agrees to take all actions and to execute and deliver
all certificates, instruments, documents and agreements, including, without
limitation, agreements of subordination, waiver and attornment, necessary or
proper to effect the foregoing.
17. Tenant's Statement. Tenant shall at any time and from time to time upon not
less than ten (10) days' prior written notice from Landlord, execute,
acknowledge, and deliver to Landlord a statement in writing (a) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease, as so modified,
is in full force and effect) and the date to which the rental and other charges
are paid in advance, if any; (b) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults if any are claimed; and (c) setting forth the date of commencement
of Annual Rent and expiration of the Term hereof. Any such statement may be
relied upon by any prospective purchaser or encumbrancer of the Premises.
Failure to provide such statement within ten (10) days shall be deemed
confirmation of the statement of Landlord regarding each of the foregoing items.
18. Authority of Parties. Each of Tenant and Landlord represents and warrants
that it is a corporation duly organized and in good standing and that the
execution, delivery and performance of this Lease has been duly authorized by
all requisite corporate action. Each individual executing this Lease on behalf
of the corporation that is a party hereto represents and warrants that he or she
is duly authorized to execute, deliver and perform this Lease for, in the name
of and on behalf of the respective party, in accordance with the bylaws of such
corporation, and that this Lease is legally binding upon and enforceable against
such entity in accordance with its terms. Upon request, each of Tenant and
Landlord agrees to provide a Certificate of Officer verifying the authority and
position of each signatory.
19. General Provisions. Landlord and Tenant agree to the following general
provisions:
19.1 Waiver. A waiver by Landlord of any term, covenant, or condition
herein contained shall not be deemed to be a future waiver of such term,
covenant, or condition, nor the waiver of any other term, covenant or condition
herein contained. The subsequent acceptance of any payment hereunder by Landlord
shall not be deemed to be a waiver of any preceding default by Tenant of any
term, covenant, or condition of this Lease, other than the failure of Tenant to
pay a particular rental so accepted, regardless of Landlord's knowledge of such
preceding default at the time of the acceptance of any such rent.
10
<PAGE>
19.2 Time. Time is of the essence of this Lease and each and all its
provisions in which performance is a factor.
19.3 Headings. The heading and section titles of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
19.4 Successors and Assigns. The covenants and conditions herein
contained subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators, and assigns of the parties hereto.
19.5 Quiet Possession. Upon Tenant paying all of the obligations
hereunder and performing all of the covenants, conditions, and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease. The Premises are leased subject to any and all
existing encumbrances, conditions, rights, covenants, easements, restrictions,
rights-of-way, and any matters of record, applicable zoning and building laws,
and such matters as may be disclosed by inspection or survey.
19.6 Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understandings pertaining to any such matters shall
be effective or binding upon any party until fully executed by both parties
hereto.
19.7 Partial Invalidity. Any provisions of this Lease which shall prove
to be invalid, void, or illegal shall in no way affect, impair, or invalidate
any other provision hereof, and such other provision shall remain in full force
and effect.
19.8 Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive, but shall whenever possible be cumulative with all other
remedies at law or in equity.
19.9 Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, excluding its
conflict of laws.
19.10 Real Estate Commission. There are no brokers eligible to
receive commissions.
19.11 Notice. Any notices or other communications required or permitted
hereunder or otherwise in connection herewith shall be in writing and shall be
deemed to have been duly given when delivered in person or transmitted by
facsimile transmission or on receipt after dispatch by express, registered or
certified mail, postage prepaid, addressed, as follows:
If to Landlord:
Sterling Realty Trust
10 Tekoa Terrace
Westfield, MA 01085
Attention: John E. Reed, Trustee
11
<PAGE>
If to Tenant:
Mestek, Inc.
260 North Elm Street
Westfield, MA 01085
Attention: Stephen M. Shea, Sr. Vice President-Finance
19.12 Survival. All agreements, covenants, warranties, representations
and indemnification contained herein or made in writing pursuant to the terms of
this Lease by or on behalf of Tenant shall be deemed material and shall survive
the expiration or sooner termination of this Lease.
DATED as of the date first set forth above.
LANDLORD:
STERLING REALTY TRUST
/S/ JOHN E. REED
-----------------------------
By: John E. Reed
Its: Trustee
TENANT:
MESTEK, INC.
/S/ STEPHEN M. SHEA
---------------------------
By: Stephen M. Shea
Its: Sr. Vice President-Finance
12
<PAGE>
EXHIBIT A
This is Exhibit A to that certain Lease Agreement made as of the 1st day of
July, 1998, by and between Sterling Realty Trust, a Trust made under a
Declaration of Trust dated November 24, 1950, and recorded in Hampden County
Registry of Deeds as Document No. 26882, in Book 2088, Page 123 (the
"Landlord"), and Mestek, Inc., and its successors and assigns (the "Tenant") a
Pennsylvania corporation, with offices at 260 North Elm Street, Westfield, MA
01085.
The Premises leased by Tenant from Landlord are those commonly known as 161
Notre Dame Street ("Engineering Building"), Westfield, MA 01085 consisting of an
office - laboratory building 132' long x 98.25' wide consisting of 12,900 sq.
ft.; and a plant which is contiguous to the above office- laboratory building
and which is 100' long x 80' wide consisting of 8,000 sq. ft.; together with all
the parking space immediately adjacent to said buildings for the use of Tenant's
employees and business invitees.
13
<PAGE>
EXHIBIT B
This is Exhibit B to that certain Lease Agreement made as of the 1st day of
July, 1998, by and between Sterling Realty Trust, a Trust made under a
Declaration of Trust dated November 24, 1950, and recorded in Hampden County
Registry of Deeds as Document No. 26882, in Book 2088, Page 123 (the
"Landlord"), and Mestek, Inc., and its successors and assigns (the "Tenant") a
Pennsylvania corporation, with offices at 260 North Elm Street, Westfield, MA
01085.
The Premises leased by Tenant from Landlord is situated on the following real
property:
SOUTHERLY by said Notre Dame Street two hundred seventy-two (272) feet;
WESTERLY by land conveyed to John E. Reed et al, Trustees by deed dated
April 8, 1968 and recorded in said Registry of Deeds in Book 3328, Page
405 two hundred fifty-nine and 24/100 (259.24 feet) feet;
NORTHERLY by last named land three hundred twenty-eight and 02/100
(328.02) feet, more or less; and
EASTERLY by Lot B as shown on said plan two hundred seventeen (217)
feet.
Subject to such rights as the City of Westfield Gas and Electric Light
Department may have to maintain a line of poles and wires along the
southeasterly line of the above described premises.
14
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0
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