UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 Commission file number: 1-448
December 31, 1999
MESTEK, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0661650
- ------------ ----------
(State or other jurisdiction of (I. R. S Employer
incorporation or organization) Identification No.)
260 North Elm Street
Westfield, Massachusetts 01085
(Address of principal executive offices)
Registrant's telephone number, including area code: 413-568-9571
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, no par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of voting common shares held by non-affiliates of the
registrant as of March 7, 1999, based upon the closing price for the
registrant's common stock as reported in The Wall Street Journal as of such date
was $47,454,674.
The number of shares of the registrant's common stock issued and outstanding as
of March 7, 2000 was 8,743,103.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement relating to the annual meeting of shareholders
of the registrant to be held on May 12, 2000 are incorporated by reference into
Part III hereof and the exhibits to filings referenced on Pages 44 through 47 of
Part IV hereof are incorporated by reference into Part IV hereof.
<PAGE>
PART I
Item 1 - BUSINESS
GENERAL
Mestek, Inc. ("Mestek" or the "Company") was incorporated in the
Commonwealth of Pennsylvania in 1898 as Mesta Machine Company. It changed its
name to Mestek, Inc. in October, 1984, and merged with Reed National Corp. on
July 31, 1986.
On January 31, 1997, the Company acquired ninety-one and one hundredths
percent (91.01%) of the issued and outstanding common stock of Hill Engineering,
Inc. (Hill) of Villa Park, Illinois and Danville, Kentucky. Hill is a leading
producer of precision tools and dies for the gasket manufacturing and
roll-forming industries and other specialty equipment. The purchase price paid
for the acquired stock was $5,141,000. The Company has accounted for this
acquisition under the purchase method of accounting.
On November 3, 1997 the Company acquired one hundred percent (100%) of
the issued and outstanding common stock of CoilMate, Inc. (Coilmate) of
Southington, Connecticut. Coilmate is the leading producer of pallet decoiling
equipment for the metal stamping and roll forming industries. The purchase price
paid was $3,521,000. The Company has accounted for this acquisition under the
purchase method of accounting.
On April 29, 1998, the Company, through a Canadian subsidiary, acquired
100 percent of the outstanding common stock of Ruscio Brothers Refractory Ltd.
(RBR) and 988721 Ontario, Inc. (988721), both of Mississauga, Ontario, Canada.
RBR and 988721 manufacture and distribute commercial and residential
copper-finned boilers and water heaters under the name Ruscio Brothers
Industries, (RBI), primarily in Canada. Copper-finned boilers and water heaters
are complimentary to the Company's other hydronic products and the Company now
distributes RBI's products in the United States. The purchase price paid for the
acquired stock was approximately $2,877,000 (U.S.) and included goodwill of
approximately $1,807,000 (U.S.)
On November 2, 1998, the Company exchanged its forty-six and eight
tenths percent (46.8%) interest in Eafco, Inc. for ninety-three and six tenths
percent (93.6%) of the common stock of Boyertown Foundry Company (BFC) of
Boyertown, PA. BFC received one hundred percent (100%) of the foundry and
machining operations of Eafco on that same date pursuant to "a split-up" of
Eafco structured for tax purposes as a tax-free reorganization. The Company has
accounted for this transaction under the purchase method of accounting.
Accordingly, the carrying value of the Company's equity investment in Eafco,
$8,778,000 at November 2, 1998, was treated as the purchase price for accounting
purposes. The assets acquired by BFC included substantially all of the real
estate and equipment owned by Eafco in Boyertown and used in the foundry,
machining and boiler assembly operations and certain other assets and
liabilities. BFC will operate principally as a cast-iron foundry, supplying cast
iron sections and related machining services to both the Company's Westcast
subsidiary and to various third parties, including Peerless Heater Company, Inc.
In connection with this transaction the Company loaned Eafco, Inc. $1,500,000
and also assumed and paid $650,000 of Eafco's then outstanding bank
indebtedness. The $1,500,000 loan bears interest at BankBoston's prime rate less
one, is payable over 42 months beginning on May 1, 2000, and is secured by
substantially all of Eafco's assets. BFC has also leased a portion of its
facilities in Boyertown to Eafco, Inc. which will continue to assemble and
warehouse boilers in Boyertown for Peerless Heater Company, Inc.
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 $3,577,000. The
Company accounted for this acquisition under the purchase method of accounting
and, accordingly, recorded Goodwill of approximately $6,800,000.
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 certain of the
operating assets of ACDC, Inc. (ACDC) of New Milford, Ohio, a manufacturer of
industrial dampers for the power generation market, was approved. The Company
closed this transaction on May 7, 1999 for $2,554,000.
On March 7, 2000, the Company completed the Spin-off and subsequent
merger of its wholly owned subsidiary, MCS, Inc. with and into Simione Central
Holdings, Inc., as more fully explained in note 2 to the consolidated financial
statements.
On March 14, 2000, the Company and MetCoil Systems Corporation,
(MetCoil) announced that they have entered into a definitive merger agreement
under which MetCoil will be merged into a wholly owned subsidiary of the Company
for approximately $32 million.
The merger is subject to approval by MetCoil's stockholders and review
under the Hart-Scott-Rodino Act. All other conditions will be further described
in a proxy statement to be mailed to MetCoil's stockholders. The Board of
Directors of MetCoil has unanimously recommended that stockholders approve the
merger.
MetCoil manufactures advanced sheet metal forming equipment,
fabricating equipment, and computer-controlled fabrication systems for the
global market. The Company employs approximately 270 people, principally in its
Cedar Rapids, Iowa, and Lisle, Illinois, manufacturing facilities, and had
revenues for the fiscal year ended May 31, 1999 of $45.8 million. MetCoil's
products are complementary with those of the Company's Metal Forming Segment.
The Company's executive offices are located at 260 North Elm Street,
Westfield, Massachusetts 01085. The Company's phone number is 413-568-9571.
OPERATIONS OF THE COMPANY
The Company operates in four continuing business segments: Heating,
Ventilating, and Air Conditioning Equipment ("HVAC") manufacturing; Computer
Software Development and Systems Design; Metal Products; and Metal Forming. Each
of these segments is described below.
The Company's former Metal Products Segment was subdivided for
reporting purposes after 1997 into the Metal Forming Segment and the Metal
Products Segment.
The Company divested its Computer Systems segment on March 7, 2000 as
explained above.
The Company and its subsidiaries together employed approximately 3,050
persons as of December 31, 1999.
HEATING, VENTILATING AND AIR CONDITIONING EQUIPMENT
The Company, through Mestek, Inc. and various of its wholly owned
subsidiaries, (collectively, the "Reed Division") manufactures and distributes
products in the HVAC industry. These products include residential, commercial
and industrial hydronic heat distribution products, gas-fired heating and
ventilating equipment, louver and damper equipment, commercial and residential
gas and oil-fired boilers, air conditioning units, and related products used in
heating, ventilating and air conditioning systems.
The Reed Division sells finned-tube and baseboard radiation equipment
under the names "Sterling", "Vulcan", "Heatrim", "Petite-7", "Hydrotherm", and
"Suntemp", and other hydronic heat distribution products under the names
"Sterling" and "Beacon-Morris". The division sells gas-fired unit heaters under
the name "Sterling", radiant heating under the name "Cox" and gas-fired indoor
and outdoor heating and ventilating equipment under the names "Alton", "Applied
Air", "Wing", "Air Fan", and "Temprite". Cooling and air conditioning equipment
is sold under the "Alton", "Applied Air", "Space Pak", "Aztec", "Koldwave", "Air
Fan", and "Nesbitt" names, and gas and oil-fired boilers are sold primarily
under the names "RBI", "Hydrotherm", "Multi-Pulse", and "Multi-Temp", and
distributed under the name "Smith Cast Iron Boilers" by Westcast, Inc. A number
of these trade names are also registered trademarks owned by the Company and its
subsidiaries. These products may be used to heat, ventilate and/or cool
structures ranging in size from large office buildings, industrial buildings,
warehouses, stores and residences, down to such small spaces as add-on rooms in
residences. The division's products are manufactured at plants in Westfield,
Massachusetts; South Windsor, Connecticut; Farmville, North Carolina; Dallas,
Texas; Mississauga, Ontario, Canada; Dundalk, Maryland; and Wrens, Georgia. The
Company closed its Skokie, Illinois and Ridgeville, Indiana plants in 1996 and
relocated these operations to Dundalk, Maryland and Farmville, North Carolina,
respectively.
The Reed Division sells its many types of fire, smoke, and air control
louvers and dampers, which are devices designed to facilitate the ventilation of
buildings or to control or seal off the movement of air through building duct
work in the event of fire or smoke, under the names "Air Balance", "Phillips
Aire", "Anemostat", "ACDC", "Pacific Air Balance", "American Warming and
Ventilating", and "Arrow". These products are manufactured at the Company's
plants in Wrens, Georgia; Los Angeles, California; Bradner, Ohio; Waldron,
Michigan; Springfield, Ohio, and Wyalusing, Pennsylvania. The Reed Division also
manufactures industrial and power plant dampers in Los Angeles, California under
the name "Pacific Air Products".
Through its design and application engineering groups, the Reed
Division custom designs and manufactures many HVAC products to meet unique
customer needs or specifications not met by existing products. Such custom
designs often represent improvements on existing technology and often are
incorporated into the Reed Division's standard line of products.
The Reed division sells its HVAC products primarily through
approximately 2300 independent representatives throughout the United States and
Canada, many of whom sell several of Reed's products. These independent
representatives usually handle various HVAC products made by manufacturers other
than the Company. These representatives usually are granted an exclusive right
to solicit orders for specific Reed Division products from customers in a
specific geographic territory. Because of the diversity of the Reed Division's
product lines, there is often more than one representative in a given territory.
Representatives work closely with the Reed Division's sales managers and its
technical personnel to meet customers' needs and specifications. The independent
representatives are compensated on a commission basis and generally they neither
stock Reed Division products nor purchase such products for resale.
The Reed Division, directly, or through its representatives, sells its
HVAC products primarily to contractors, installers, and end users in the
construction industry, wholesale distributors and original equipment
manufacturers.
While the Reed Division's HVAC products are distributed throughout the
United States and Canada, sales in the northeast, mid-Atlantic and upper
mid-west states are somewhat higher than would be suggested by unadjusted
construction statistics in any given year due to the relative popularity of
hydronic products in these areas.
The sale of heating and cooling products is inherently sensitive to
climatic trends in that relatively warm winters and/or cool summers can
adversely effect sales volumes.
The Reed Division sells gas-fired and hydronic heating and ventilating
products, boilers and other HVAC equipment in Canada and also sells its products
in other foreign markets from time to time. Total export sales did not exceed
ten percent of total revenues, nor did foreign assets exceed ten percent of
total assets, in any of the most recent five years ending December 31, 1999.
The Reed Division uses a wide variety of materials in the manufacture
of its products, such as copper, aluminum and steel, as well as electrical and
mechanical components, controls, motors and other products. Management believes
that it has adequate sources of supply for its raw materials and components and
has not had significant difficulty in obtaining the raw materials, component
parts or finished goods from it suppliers. No industry segment of the Company is
dependent on a single supplier, the loss of which would have a material adverse
effect on its business.
The businesses of the HVAC segment are highly competitive. The Company
believes that it is the largest manufacturer of hydronic baseboard heating for
residential and commercial purposes and is one of the three leading
manufacturers of gas-fired heaters and fire and smoke dampers. The Company has
established a substantial market position in the cast-iron boiler business
through its acquisitions in 1991, 1992, and 1998. Nevertheless, in all of the
industries in which it competes, the Company has competitors with substantially
greater manufacturing, sales, research and financial resources than the Company.
Competition in these industries is based mainly on merchandising capability,
service, quality, price and ability to meet customer specifications. The Reed
Division believes that it has achieved and maintained its position as a
substantial competitor in the HVAC industry largely through the strength of its
extensive distribution network, the breadth of it product line and its ability
to meet customer delivery and service requirements. Most of its competitors
offer their products in some but not all of the industries served by the Reed
Division.
The quarterly results of the HVAC segment are affected by the
construction industry's demand for heating equipment, which generally peaks in
the last four months of each year (the "heating season"). Accordingly, sales are
usually higher during the heating season, and such higher levels of sales may in
some years continue into the following calendar year. As a result of these
seasonal factors, the Company's inventories of finished goods reach higher
levels during the heating season and are generally lower during the balance of
the year.
Management does not believe that backlog figures relating to the HVAC
segment are material to an understanding of its business because most equipment
is shipped promptly after the receipt of orders.
The Company owns a number of United States and foreign patents.
Although the Company usually seeks to obtain patents where appropriate, it does
not consider any segment materially dependent upon any single patent or group of
related patents.
The Reed Division has a number of trademarks important to its business,
including those relating to its Sterling, Vulcan, Beacon-Morris, Heatrim, Wing,
Alton, Applied Air, Arrow, Aztec Sensible Cooling, Hydrotherm, Temprite and
Dynaforce product lines.
Expenditures for research and development for the HVAC segment in 1999,
1998, and 1997 were$1,735,000, $1,415,000, and $941,000 respectively. Product
development efforts are necessary and ongoing in all product markets.
The Company believes that compliance with environmental laws will not
have a financially material effect on its operations in 2000.
COMPUTER SOFTWARE DEVELOPMENT AND SYSTEM DESIGN
The business of Mestek's wholly owned subsidiary, MCS, Inc. ("MCS") is
primarily related to the sales and service of business applications software for
the home health services information systems marketplace. Services to customers
include preparation of computer programs and software to meet the customer
needs, providing computer hardware when required, installing the system at the
customer's business, and providing continuing support services.
The most significant systems which MCS has available are MestaMed, a
third-party billing, general ledger, accounting and inventory control system for
providers of durable medical equipment, home health care, infusion therapy,
rehabilitation programs, and hospice services, and ProfitWorks, a system
utilized by lumber, electrical, plumbing, and manufacturer's representatives to
manage order entry, inventory, purchasing, accounts receivable, and reporting.
Support includes software enhancements, diagnostic access, and training
seminars. MestaMed is the only supplier of an integrated solution for providers
of home health services. MestaMed is available on a variety of hardware
platforms and operating systems including UNIX and various Intel based
platforms.
MCS's products were developed in what are today regarded as "legacy"
environments. Nevertheless, by the continual application and utilization of
tools developed by others, MCS has been able to sustain and improve the utility
of its products and offer such products on a variety of hardware and operating
systems platforms, including Windows NT. Developments undertaken during 1999
include a graphical user interface (GUI) for applicable modules and open
database compliant (ODBC) features. At the same time, the Company continues to
look at developing or acquiring new products based upon third generation tools
and modern software languages. The Company is also studying the use of such
tools, as well as Web-based tools, to accomplish the migration of its current
offerings to modern operating systems environments.
New enhancements to its software products are continually being
developed by MCS. Notable developments in 1999 were (1) the introduction of a
"point-of-care" enhancement to MCS's Home Health Care software and (2) the
introduction of an enhanced inventory system for MestaMed. During 1999, 1998,
and 1997 MCS spent approximately $2,532,000, $1,992,000, and $1,575,000
respectively, for software development. These costs related primarily to
customer-sponsored development and improvements to existing products.
Because of the importance of systems development to MCS, programming
and sales personnel are a primary resource. MCS's main office is in the
Pittsburgh, Pennsylvania area and it has sales offices in other parts of the
country.
The delivery of home health care services is increasingly dominated by
hospital based "integrated delivery systems" (IDS). MCS has not established a
relationship at this time with a supplier of information systems to hospital
based delivery systems. It has, however, recently entered into agreement with
the Volunteer Hospital Association whereby its products will be recommended to
the Association's members as a recommended solution for their home health
services information systems needs.
The markets for business applications software and systems development
are intensely competitive and subject to rapid technological change. For this
reason MCS faces risks and enjoys opportunities, which are somewhat more
pronounced than in the Company's other operating segments. MCS has many
competitors in the markets in which it operates both on a regional and national
basis. Foreign sales are not significant. On December 31, 1999, MCS's backlog
was approximately $187,803.
MCS's inventory consists primarily of computer hardware and related
equipment, which is sold together with applications software as a turnkey
solution. MCS attempts to maintain a sixty-day supply so that delivery of
completed systems can be made on a timely basis.
METAL FORMING
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 (collectively Formtek). 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, roll forming systems, wing
benders, presses, servo-feeds, straighteners, cradles, reels, cut-to-length
lines, specialty dies, tube cut-off systems, hydraulic punching blanking and
cutoff systems, rotary punching, and flying cut-off saws.
In 1997, this Segment added two additional units: Hill Engineering,
Inc. a leading producer of precision tools and dies for the gasket manufacturing
and roll forming industries, and CoilMate, Inc., a leading producer of pallet
decoiling equipment for the metal stamping and roll forming industries. The
CoilMate product has been combined with a former CWP Division, Dickerman, and
this "low-end" line is now marketed as CoilMate-Dickerman.
The Company believes it has improved its competitive position within
the metal forming marketplace by developing servo-driven feeders with
microprocessor controls, and other software controls, affording diagnostic and
operational features, as well as by the strategic acquisitions made in 1996 and
1997 which broadened the segment's overall product offerings.
Certain products made by these units are custom designed and
manufactured to meet unique customer needs or specifications not currently met
by existing products. These products, developed by the Company's design and
application engineering groups, often represent improvements on existing
technology and are often then incorporated into the unit's standard product
line.
The primary customers for such metal-handling and metal-forming
equipment include contract metal stampers, manufacturers of large and small
appliances, commercial and residential lighting fixtures, automobile
accessories, office furniture and equipment, metal construction and HVAC
products.
The businesses of Formtek are highly competitive and, due to the nature
of the products, are significantly more cyclical (due to changes in
manufacturing capacity utilization) than the Company's other operating segments.
CWP, Rowe, and CoilMate-Dickerman have become substantial forces in the
manufacture of coil handling equipment through their broad and competitive
product lines, together with Formtek's customer driven application engineering
and ability to meet customer delivery and service requirements through separate
extensive distribution networks. The Company expects that these strengths will
be further leveraged by the large installed customer bases of its recent
acquisitions.
The Metal Forming Segment sells equipment in Canada and other foreign
markets. Total export sales did not exceed ten percent (10%) of the total
revenues nor did foreign assets exceed ten percent (10%) of total assets in any
of the most recent five years ending December 31,1999.
The backlog relating to this segment at December 31, 1999 was
approximately $9,257,335.
Expenditures for research and development for this segment in 1999,
1998, and 1997 were $610,000, $465,000, and $298,000, respectively.
METAL PRODUCTS
The Company's Metal Products Segment (consisting of National Northeast
Corporation, OmegaFlex, Inc. and Boyertown Foundry Company) manufactures a
variety of metal products including extruded aluminum heat sinks, flexible metal
hose and grey iron castings. This segment sells cast iron products to the HVAC
industry, including the company's HVAC segment, flexible metal hose products to
the HVAC and industrial metal hose marketplaces, extruded aluminum products for
thermal management, (heat sinks), to the electronics marketplaces, extruded
aluminum products to the architectural products marketplace, and extruded
aluminum products to the Company's HVAC segment.
National Northeast Corporation (National) extrudes aluminum shapes for
the construction and other markets and extrudes and fabricates aluminum based
products and assemblies and high precision aluminum heat sinks (heat dissipation
devices) for use in a wide variety of power control, communications and related
electronic and computer systems applications. Its products are made through an
extrusion process supported by a broad line of secondary machining, stamping and
assembly capabilities. National's application engineering and fabrication
capabilities have helped it become a substantial competitor in the heat sink
market place.
OmegaFlex, Inc. (Omega) manufactures corrugated flexible stainless
steel hose for use in a wide variety of industrial applications. Its products
include annular, helical and braided metal hose and hose fabrications and are
sold primarily through industrial hose distributors. In January of 1997, Omega
introduced Trac-PipeTM, a corrugated stainless steel tubing developed for use in
piping gas appliances. The Company has realized significant synergies by
distributing Trac-PipeTM through its extensive HVAC distribution network.
Boyertown Foundry Company (BFC) operates a cast-iron foundry in
Boyertown, PA, which manufactures products used principally in the HVAC
industry.
The Metals Products Segment sells products in Canada and in other
foreign markets. Total export sales, however, did not exceed ten percent of
total revenues, nor did foreign assets exceed ten percent of total assets in any
of the most recent five years ending December 31, 1999.
The backlog relating to this segment at December 31, 1999 was
approximately $15,451,414.
Expenditures for research and development for this segment, independent
of research and development related to specific customer requests, in 1999,
1998, and 1997 were $594,000, $256,000, and $389,000, respectively.
SEGMENT INFORMATION
Selected financial information regarding the operations of each of the
above segments, consistent with statement of Financial Accounting Standard No.
131 and Section 101 (d) of Regulation 5-K, is presented in Note 12 to the
Consolidated Financial Statements.
Item 2 - PROPERTIES
The HVAC segment of the Company manufactures equipment at plants that
the Company owns in Waldron, Michigan; Bradner, Ohio; Wyalusing, Pennsylvania;
Dundalk, Maryland, Springfield, Ohio; Wrens, Georgia, and Dallas, Texas. It
operates plants that it leases from entities owned directly or indirectly by
certain officers and directors of the Company in Westfield, Massachusetts;
Farmville, North Carolina; South Windsor, Connecticut and Los Angeles,
California. The Reed Division leases manufacturing space from unrelated parties
in Mississauga, Ontario, Canada; Carson, California; New Milford, Ohio; as well
as a regional distribution facility in Mississauga, Ontario, Canada.
The Metal Forming segment manufactures products at plants the Company
owns in Clinton, Maine, Villa Park, Illinois, Schiller Park, Illinois, and
Danville, Kentucky.
The Metal Products segment manufactures products at plants the Company
owns in Pelham, New Hampshire, Boyertown, Pennsylvania and at leased facilities
in Lawrence, Massachusetts, Winter Haven, Florida, and Exton, Pennsylvania.
The Company's Computer System's segment (MCS) leases office space in
Monroeville, Pennsylvania, which houses its principal offices and computer
facility used in the computer software development and system design business.
MCS has also recently leased office space in Pleasanton, California. MCS owns
the computer equipment used in its operations
The Company's principal executive offices in Westfield, Massachusetts
are leased from an entity owned by an officer and director of the Company. The
Company also owns an office building in Holland, Ohio.
In addition, the Company and certain of its subsidiaries lease other
office space in various cities around the country for use as sales offices.
Certain of the owned facilities are pledged as security for certain
long-term debt instruments. See Property and Equipment, Note 4 to the
Consolidated Financial Statements.
Item 3 - LEGAL PROCEEDINGS
The Company is not presently involved in any litigation, which it
believes will materially and adversely affect its financial condition or results
of operations.
Item 4 - SUBMISSION OF MATTER TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to the security holders of the Company for a vote
during the fourth quarter of 1999.
PART II
Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange,
under the symbol MCC. The number of shareholders of record as of March 15, 2000
based on inquiries of the registrant's transfer agent was 1,288. For this
purpose, shareholders whose shares are held by brokers on behalf of such
shareholders (shares held in "street name") are not separately counted. The
price range of the Company's common stock between January 1, 2000 and March 15,
2000 was between $20 1/4 and $16, and the closing price on March 15, 2000 was
$16.
The quarterly price ranges of the Company's common stock during 1999
and 1998 as reported in the consolidated transaction reporting system were as
follows:
PRICE RANGE
1999 1998
---- ----
First Quarter $20 15/16 $18 3/4 $22 3/8 $18 1/4
Second Quarter $22 3/8 $18 3/8 $22 3/4 $18 9/16
Third Quarter $22 7/8 $19 3/4 $22 5/8 $18
Fourth Quarter $20 1/4 $18 1/4 $20 3/4 $17 1/2
The Company has not paid any dividends on its common stock since 1979.
No securities issued by the Company, other than common stock, are listed on
a stock exchange or are publicly traded.
Item 6 - SELECTED FINANCIAL DATA
Selected financial data for the Company for each of the last five fiscal
years is shown in the following table. Selected financial data reflecting the
operations of acquired businesses is shown only for periods following the
related acquisition.
SUMMARY OF FINANCIAL POSITION as of December 31, (1) (dollars in thousands
except per share data)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total Assets $242,253 $205,143 $191,117 $170,010 $141,431
Working capital 63,732 49,415 42,056 59,274 41,626
Long-term debt, including
current portion 34,791 13,188 19,329 15,362 3,031
Shareholders' equity 148,617 133,298 118,007 103,718 91,046
Shareholders' equity
per common share (1) $16.96 $14.99 $13.22 $11.61 $10.14
======== ========= ======= ======= ========
SUMMARY OF OPERATIONS - for the year ended December 31, (2) (dollars in
thousands except per share data)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total revenue $375,270 $338,344 $327,778 $299,527 $245,865
Net income 17,917 16,064 14,405 13,329 10,906
Earnings per common share:
Net Income
Basic $2.02 $1.80 $1.61 $1.49 $1.21
Diluted $2.02 $1.80 $1.61 $1.49 $1.21
1) Equity per common share amounts are computed using the common shares and
common share equivalents outstanding as of December 31, 1999, 1998, 1997,
1996, and 1995.
(2) Includes the results of acquired companies or asset acquisitions from the
date of such acquisition, as follows:
* Anemostat Corporation from March 26, 1999 * ACDC, Inc. from May 7, 1999
* Boyertown Foundry Company from November 2, 1998
* Ruscio Brothers Industries, (RBI), from April 29, 1998
* CoilMate, Inc., from November 3, 1997
* Hill Engineering, Inc., from January 31, 1997
* Dahlstrom Industries, Inc. from August 30, 1996.
* Rowe Machinery & Automation, Inc., from February 5, 1996.
* Omega Flex, Inc., from February 2, 1996.
* National Northeast Corporation and National Southeast Corporation from
October 30, 1995.
* Heat Exchangers, Inc., from November 15, 1995.
* Aztec Sensible Cooling, Inc., from November 1, 1994.
<PAGE>
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 Annual Report on Form 10-K 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 Annual Report on Form 10-K. 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.
RETURN ON AVERAGE NET ASSETS EMPLOYED
1999, 1998, 1997
The Company's Return on Average Net Assets Employed, defined as
operating profits before bonuses, over Average Net Assets Employed (Total Assets
less Current Liabilities other than Current Portion of Long-Term Debt and
Revolving Credit Agreement, averaged over 12 months) for the years 1999, 1998,
and 1997 was as follows:
1999 1998 1997
---- ---- ----
Operating Profits (as defined) $36,295,000 $31,497,000 $30,525,000
Average Net Assets Employed (as defined) $175,070,000 $147,170,000 $130,419,000
------------ ------------ -----------
Return on Average Net Assets Employed 20.7% 21.4% 23.4%
============ ============ ===========
The 1999 return on Average Net Assets Employed decreased slightly from
1998 due principally to reduced operating incomes from the Company's Computer
Software and Metal Forming Segments and a substandard return on the HVAC
segment's investment in Anemostat, as more fully explained below.
ANALYSIS: 1999 VS. 1998
The Company's core HVAC Segment reported comparative results for 1999
and 1998 as follows:
1999 1999 1998 1998
($000) % ($000) %
------ ---- ------ ----
Net Sales $254,452 100.00% $229,704 100.00%
Gross Profit 73,604 28.93% 65,485 28.51%
Operating Income 20,700 8.14% 15,668 6.82%
Improved performances from many of the HVAC segment's hydronic and
industrial products offset sub par performances from certain air distribution
products as well as depressed results from the Company's recently acquired
Anemostat business. Significant one-time expenses were incurred in 1999 as part
of a long-term plan to strengthen and improve the Anemostat franchise,
principally in the product development and market development areas. These costs
will continue in year 2000 and may result in substandard returns on the
Company's investment in Anemostat for some time.
The Company's Computer Systems Segment (MCS, Inc.) reported increased
sales, relatively flat margins, and significantly reduced operating profits in
1999 as indicated in the following table:
1999 1999 1998 1998
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $18,087 100.00% $16,630 100.00%
Gross Profit 7,073 39.11% 6,578 39.56%
Operating Income 937 5.18% 2,335 14.04%
Sales of MCS' core MestaMed product increased significantly in 1999,
accounting for most of MCS' revenue growth. Significant product development and
product support related costs were also incurred during this period resulting in
decreased operating income for MCS despite the growth in revenues. MCS is
pursuing a number of product development initiatives designed to assist with the
migration of its core products to more modern operating system environments.
MCS' products were developed in what are today regarded as "legacy"
environments. Nevertheless, by the continual application and utilization of
tools developed by others, MCS has been able to sustain and improve the utility
of its products and offer such products on a variety of hardware, and operating
systems platforms, including Windows NT. MCS is also undertaking a redesign of
its product support infrastructure with a view to improving the quality and
timeliness of the support function.
The Company's Metal Products Segment includes National Northeast
Corporation, (National), an 89.5% owned aluminum extruder and heat sink
fabricator acquired in 1995, Omega Flex, Inc. (Omega), an industrial metal hose
fabricator acquired in 1996, and Boyertown Foundry Company, (BFC), a
ninety-three and six tenths percent (93.6%) owned subsidiary which acquired the
foundry and machining operations of Eafco, Inc. on November 2, 1998. Prior to
that date, the Company's forty-six and eight tenths percent (46.8%) investment
in Eafco was accounted for on the equity method and was not included in this
segment. Results of operations for BFC for the period November 2, 1998 through
December 31, 1998, exclusive of intersegment sales, are included in the this
segment's 1998 results. BFC produces cast iron products and related machining
services for the Company's HVAC Segment and various third parties.
Comparative results for 1999 and 1998 were as follows:
1999 1999 1998 1998
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $65,614 100.00% $50,745 100.00%
Gross Profit 18,554 28.28% 14,222 28.03%
Operating Income 7,870 11.99% 5,194 10.24%
The growth in operating profits in 1999 is traceable to significantly
improved results from both BFC and Omega. Sales of Omega's patented TracPipe(R)
flexible gas piping product continued to grow at a very rapid pace in 1999.
TracPipe(R) is a corrugated stainless steel tubing developed especially for use
in the piping and installation of gas appliances. National experienced a sub par
year in 1999 as it completed its relocation from Lawrence, Massachusetts to
Pelham, New Hampshire and installed a new 3,000 ton extrusion press in Pelham.
Significant disruptions and one-time costs associated with the relocation and
new press installation impacted operating profits in 1999.
The Company's Metal Forming Segment includes Cooper-Weymouth, Peterson,
(CWP), Rowe Machinery and Automation Inc., (Rowe), a leading manufacturer of
press-feeding and cut-to-length equipment, acquired in 1996, Dahlstrom
Industries, (Dahlstrom), a leading manufacturer of roll forming equipment,
acquired in 1996, Hill Engineering, (Hill), a leading producer of tools and dies
for the gasket manufacturing and roll forming industries acquired on January 31,
1997, and CoilMate, Inc., (CoilMate), a leading producer of pallet decoiling
equipment for the metal stamping and roll forming industries acquired on
November 3, 1997. Comparative results for 1999 and 1998 were as follows:
1999 1999 1998 1998
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $37,116 100.00% $41,265 100.00%
Gross Profit 10,141 27.32% 12,212 29.59%
Operating Income 1,748 4.71% 4,170 10.11%
The Metal Forming Segment was effected in 1999 by an industry-wide
slowdown in orders for new equipment which reduced revenues significantly.
Margins also suffered for related reasons and results overall were impacted
accordingly.
As a whole the Company reported comparative results as follows:
1999 1999 1998 1998
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $375,270 100.00% $338,334 100.00%
Gross Profit 109,372 29.14% 98,136 29.01%
Operating Income 31,255 8.33% 27,367 8.09%
Gross Profit and Operating Income margins increased primarily due to
positive results from the Company's HVAC and Metal Products Segments.
Sales Expense for the Company as a whole, as a percentage of total
revenues, decreased slightly, from twelve and seventy hundredths percent 12.70%
to twelve and fifty-nine hundredths 12.59%, owing to in the Company's growth in
1999. General and Administrative Expenses, as a percentage of revenues,
decreased from five and sixty-two hundredths percent (5.62%) to five and three
tenths percent (5.3%)for the same reason. Engineering Expense, as a percentage
of total revenues, increased slightly from two and sixty hundredths percent
(2.60%) to two and ninety-three hundredths percent (2.93%), owing to significant
new product development costs incurred by the Company's Computer Software
Segment.
Interest Expense increased substantially in 1999, reflecting
principally the effect of the Anemostat acquisition and other capital spending.
Income Tax Expense for 1999, as a percentage of pretax income,
increased slightly from thirty-seven and thirty-seven hundredths percent
(37.37%) to thirty-seven and fifty-nine hundredths percent (37.59%).
ANALYSIS: 1998 VS. 1997
The Company's core HVAC Segment reported comparative results for 1998
and 1997 as follows:
1998 1998 1997 1997
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $229,704 100.00% $229,423 100.00%
Gross Profit 65,485 28.51% 66,178 28.85%
Operating Income 15,668 6.82% 17,846 7.78%
The Company's decision in 1998 to close its Temprite Manufacturing
location in Orangeville, Ontario, Canada, together with the effect of certain
transitional costs associated with the Company's recent HVAC acquisitions and
certain other product re-alignment costs, combined to produce flat HVAC revenues
in 1998 and reduced operating profits.
The Company's Computer Systems Segment (MCS, Inc.) reported reduced
sales, margins and operating profits in 1998 as indicated in the following
table:
1998 1998 1997 1997
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $16,630 100.00% $17,029 100.00%
Gross Profit 6,578 39.56% 7,238 42.50%
Operating Income 2,335 14.04% 3,289 19.31%
Reimbursement restrictions imposed upon Medicare providers (MCS's
customers) in 1998 by the Balanced Budget Amendment adversely affected the home
health care information systems marketplace and resulted in reduced revenues for
MCS. Also, costs incurred by MCS relative to its efforts to address Year 2000
functionality in its products, and other product development initiatives,
impacted this segment's operating costs adversely in 1998.
MCS's products were developed in what are today regarded as "legacy"
environments. Nevertheless, by the continual application and utilization of
tools developed by others, MCS has been able to sustain and improve the utility
of its products and offer such products on a variety of hardware, and operating
systems platforms, including Windows NT. Developments in progress at this time
include a graphical user interface (GUI) for applicable modules and open
database compliant (ODBC) features. At the same time the Company continues to
look at developing or acquiring new products based upon third generation tools
and modern software languages. The Company is also studying the use of such
tools, as well as Web-based tools, to accomplish the migration of its current
offerings to modern operating systems environments.
For 1998 reporting purposes the Company's former Metal Products Segment
has been subdivided into a Metal Forming Segment and a Metal Products segment.
The Company's Metal Products Segment includes National Northeast
Corporation, (National), an eighty-nine and five tenths percent (89.5%) aluminum
extruder and heat sink fabricator acquired in 1995, Omega Flex, Inc. (Omega), an
industrial metal hose fabricator acquired in 1996, and Boyertown Foundry
Company, (BFC), a ninety-three and six tenths percent (93.6%) owned subsidiary
which acquired the foundry and machining operations of Eafco, Inc. on November
2, 1998. Prior to that date, the Company's forty-six and eight tenths percent
(46.8%) investment in Eafco was accounted for on the equity method and was not
included in this segment. Results of operations for BFC for the period November
2, 1998 through December 31, 1998, exclusive of intersegment sales, are included
in the this segments' 1998 results. BFC produces cast iron products and related
machining services for the Company's HVAC Segment and various third parties.
Comparative results for 1998 and 1997 were as follows:
1998 1998 1997 1997
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $50,745 100.00% $42,797 100.00%
Gross Profit 14,222 28.03% 10,407 24.32%
Operating Income 5,194 10.24% 2,723 6.36%
The growth in operating profits in 1998 is traceable to significantly
improved results from both National and Omega. National continued to execute its
aggressive expansion plan in 1998, moving its fabricating operations from
Lawrence, MA to its new facility in Pelham, NH, and continued to expand its
presence in the thermal management (heat sink) marketplace. Omega, with
significant 1997 product development and market development costs behind it,
successfully executed its plan in 1998 to greatly expand sales of its new
"Trac-pipe(TM)" flexible gas piping product, a corrugated stainless steel tubing
developed especially for use in the piping and installation of gas appliances.
The Company's Metal Forming Segment includes Cooper-Weymouth, Peterson,
(CWP), Rowe Machinery and Automation Inc., (Rowe), a leading manufacturer of
press-feeding and cut-to-length equipment, acquired in 1996, Dahlstrom
Industries, (Dahlstrom), a leading manufacturer of roll forming equipment,
acquired in 1996, Hill Engineering, (Hill), a leading producer of tools and dies
for the gasket manufacturing and roll forming industries acquired on January 31,
1997, and CoilMate, Inc., (CoilMate), a leading producer of pallet decoiling
equipment for the metal stamping and roll forming industries acquired on
November 3, 1997. Comparative results for 1998 and 1997 were as follows:
1998 1998 1997 1997
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $41,265 100.00% $38,529 100.00%
Gross Profit 12,212 29.59% 10,626 27.58%
Operating Income 4,170 10.11% 1,537 3.99%
The relocation of the Rowe manufacturing operation to the Company's
Formtek facility in Clinton, Maine imposed significant direct and indirect costs
on this segment in 1997. With these costs behind it, this segment was able to
exploit the synergies expected from this consolidation and as a result operating
income for 1998 was up considerably on modestly increased revenues. The Coilmate
operations were moved from Southington, Connecticut to Clinton, Maine, in the
fourth quarter to achieve further operating synergies.
As a whole the Company reported comparative results as follows:
1998 1998 1997 1997
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $338,334 100.00% $327,778 100.00%
Gross Profit 98,136 29.01% 94,449 28.81%
Operating Income 27,367 8.09% 25,395 7.75%
Gross Profit and Operating Income percentage margins were relatively
unchanged overall.
Sales Expense for the Company as a whole, as a percentage of total
revenues, increased slightly, from twelve and forty-nine hundredths percent
(12.49%) to twelve and seventy hundredths percent (12.70%), owing to relatively
flat revenues in the Company's HVAC segment. General and Administrative
Expenses, as a percentage of revenues, decreased from six and thirteen
hundredths percent (6.13%) to five and sixty-two hundredths percent (5.62%),
principally due to a decrease in the provision for bonuses. Engineering Expense,
as a percentage of total revenues, increased slightly from two and forty-five
hundredths percent (2.45%) to two and sixty hundredths percent (2.60%). Interest
Expense decreased slightly in 1998, tracking the net reduction in interest
bearing indebtedness.
Income Tax Expense for 1998, as a percentage of pretax income, was
reduced slightly from thirty-eight and sixteen hundredths percent (38.16%) to
thirty-seven and thirty-seven hundredths percent (37.37%).
ANALYSIS: LIQUIDITY AND CAPITAL STRUCTURE
Working capital increased in 1999, from $49,415,000 at December 31,
1998 to $63,732,000 at December 31, 1999, reflecting primarily the acquisition
of Anemostat as more fully described in Note 2 to the consolidated financial
statements.
The Company's funded debt to equity ratio (including minority interests
in funded debt) increased from twelve and four hundredths percent (12.04%) at
December 31, 1998 to twenty-five and thirty-seven hundredths percent 25.37% at
December 31, 1999 for the same reason.
The principal changes to the Company's Net Assets Employed during 1999
were as follows:
Net Assets Employed 12/31/98 $149,927
Acquisition of Anemostat Products 21,783
National Northeast plant expansion
and related capital spending 11,209
All other 5,510
--------
Net Assets Employed 12/31/99 $ 188,429
=========
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.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard No. 130, which was effective for fiscal years
beginning after December 15, 1997. FAS 130 requires the presentation of
"comprehensive income," a more broadly defined measure of income, in addition to
conventional "net income. The Company adopted FAS 130 effective with 1998. The
Company's "comprehensive income" was not materially different from its "net
income" as explained in Note 1 to the Consolidated Financial Statements.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard No. 131, which was effective for fiscal years
beginning after December 15, 1997. FAS 131 requires, in general, a "management
approach" rather than an "industry approach" to the disclosure of segment
information. The Company adopted FAS 131 in 1998 and expanded its segmental
reporting accordingly as reflected in Note 12 to the Consolidated Financial
Statements.
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 Year 2000 problems have been nominal to date and the
Company expects no material adverse effect from such problems in the future.
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 was
approximately $2,500,000 over the 4-year period ended December 31, 1999. Of this
total, the Company incurred approximately $1,100,000 in 1999.
ENVIRONMENTAL DISCLOSURE
The Company is subject to numerous laws and regulations that govern the
discharge and disposal of materials into the environment. The Company is not
aware, at present, of any material administrative or judicial proceedings
against the Company arising under any federal, state or local environmental
protection laws or regulations ("Environmental Laws"). There are, however, a
number of activities in which the Company is engaged under Environmental Laws.
Permitting Activities
The Company is engaged in various matters with respect to obtaining,
amending or renewing permits required under Environmental Laws to operate each
of its manufacturing facilities. Based on the information presently available to
it, management expects that all permit applications will be routinely handled
and management does not believe that the denial of any currently pending permit
application will have a material adverse effect on the Company's financial
position or the results of operations.
Potentially Responsible Parties (PRP) Actions
The Company has been named or contacted by state authorities and/or the
Environmental Protection Agency (the "EPA") regarding the Company's liability as
a potentially responsible party ("PRP") for the remediation of several sites,
none of which actions represent a material proceeding. The potential liability
of the Company is based upon records that show the Company or other corporations
from whom the Company or its subsidiaries acquired assets used the sites for the
lawful disposal of hazardous waste pursuant to third party agreements with the
operators of such sites. Such PRP actions generally arise when the operator of a
site lacks the financial ability to address compliance with the Environmental
Laws, decisions and orders affecting the site in a timely and effective manner.
The governmental authority responsible for the site looks to the past users of
the facility and their successors to address the costs of remediation of the
site.
In High Point, North Carolina, the Company has been named as a PRP with
regard to the clean up of groundwater contamination allegedly due to dumping at
a landfill. The Company's activity at the site represented less than one percent
(1%) of all activity at the site. State authorities continue to investigate the
extent of and remediation methods for groundwater contamination at or near the
site, and the Company joined a joint defense group to help define and limit its
liabilities whereby it may be required to contribute additional non-material
sums as part of the remediation of groundwater contamination. The Company (along
with many other corporations) is involved in PRP actions for the remediation of
a site in Southington, Connecticut, as a result of the EPA's preliminary
assignment of derivative responsibility for the presence of hazardous materials
attributable to two other corporations from whom the Company purchased assets
after the hazardous materials had been disposed of at the Southington site. The
Company is currently participating as part of a joint defense group in
discussions with the EPA for a "de minimis settlement" at the Southington,
Connecticut site. The obligations of the Company in this matter are not expected
to be material to the Company's financial position or the results of operations.
The Company has also received a request for information from the EPA addressed
to a predecessor of the Company regarding the generation, storage,
transportation and possible release of hazardous substances at a superfund site
in Coraopolis, Pennsylvania, and the Company has complied with such request. The
Company continues to investigate all of these matters, but expects that they
will not be material to the Company's financial position or results of
operations.
Releases of Hazardous Materials
There have been releases of hazardous materials on a few parcels of
property which are presently leased or operated by the Company. All such
releases occurred prior to the occupation of the properties by the Company. All
releases are in the process of assessment or remediation. At a site in
Massachusetts leased by the Company the Lessor has received notice from two
abutters that activities on the property prior to the Company's occupation may
be the source of groundwater contamination on the abutters' property. Based upon
an investigation by the Lessor, the claims do not appear to be supportable.
Based on the information presently available to it, management does not believe
that the costs of addressing any of the releases will have a material adverse
effect on the Company's financial position or the results of operations.
The Company has also received notice from the owner of a formerly
leased property of a release of hazardous materials into the ground around and
under the Company's former manufacturing facility. The owner, which is also a
former operator of the facility, has undertaken to remove the hazardous
materials. Although the Company's anticipates that it may be subject to a claim
for contribution with respect tot he removal of hazardous substances, it expects
that any contribution will not be material to the Company's financial position
or result of operations.
Changes to Environmental Laws Affecting Operations and Product Design
The Company's operations and it's HVAC products that involve combustion
as currently designed and applied entail the risk of future noncompliance with
the evolving landscape of Environmental Laws. The cost of complying with the
various Environmental Laws is likely to increase over time, and there can be no
assurance that the cost of compliance, including changes to manufacturing
processes and design changes to current HVAC product offerings that involve
atmospheric combustion, will not over the long-term and in the future have a
material adverse effect on the Company's results of operations (especially in
light of the international agreement on the reduction of green house gas
emissions set forth in the Kyoto Protocol).
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders'
Mestek, Inc.
We have audited the accompanying consolidated balance sheets of Mestek,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Mestek,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the three year period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
We have also audited Schedule II of Mestek, Inc. and subsidiaries as of
December 31, 1999 and for each of the years in the three-year period ended
December 31, 1999. In our opinion, the schedule presents fairly, in all material
respects, the information required to be set forth therein.
Boston, Massachusetts
March 3, 2000
(except for Note 17 as to which the date is March 14, 2000)
<PAGE>
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
1999 1998
---- ----
(Dollars in thousands)
ASSETS
Current Assets
Cash and Cash Equivalents $4,468 $3,777
Accounts Receivable - less allowances of
$3,627and $3,443 66,605 55,443
Unbilled Accounts Receivable 447 286
Inventories 54,688 52,980
Deferred Tax Benefit 1,551 1,483
Other Current Assets 4,264 3,620
------- -------
Total Current Assets 132,023 117,589
Property and Equipment - net 69,067 55,841
Notes Receivable 3,850 -
Other Assets and Deferred Charges - net 7,146 7,148
Excess of Cost over Net Assets of Acquired Companies 30,167 24,565
------- -------
Total Assets $242,253 $205,143
======== ========
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31,
1999 1998
---- ----
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving Credit Agreement $14,358 $12,619
Current Portion of Long-Term Debt 109 131
Accounts Payable 18,335 20,126
Accrued Salaries and Bonuses 6,778 6,187
Accrued Commissions 3,314 3,985
Progress Billings in Excess of Cost
and Estimated Earnings 3,257 3,150
Customer Deposits 5,409 5,746
Other Accrued Liabilities 16,731 16,230
--------- ---------
Total Current Liabilities 68,291 68,174
Deferred Tax Liability 2,052 361
Long-Term Debt 20,324 438
Other Liabilities 52 9
--------- ---------
Total Liabilities 90,719 68,982
--------- ---------
Minority Interests 2,917 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 143,180 125,263
Treasury Shares, at cost (846,132 and
719,830 common shares, respectively) (9,393) (6,790)
Cumulative Translation Adjustment (1,083) (1,088)
--------- ---------
Total Shareholders' Equity 148,617 133,298
--------- ---------
Total Liabilities and Shareholders' Equity $242,253 $205,143
========= =========
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
MESTEK, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
1999 1998 1997
---- ---- ----
(Dollars in thousands,
Except Earnings Per Common Share)
Net Sales $357,182 $321,714 $310,749
Net Service Revenues 18,088 16,630 17,029
-------- -------- --------
Total Revenues 375,270 338,344 327,778
Cost of Goods Sold 254,884 230,156 223,539
Cost of Service Revenues 11,014 10,052 9,790
-------- -------- --------
Gross Profit 109,372 98,136 94,449
Selling Expense 47,249 42,970 40,929
General and Administrative Expense 19,887 19,015 20,096
Engineering Expense 10,981 8,784 8,029
-------- -------- --------
Operating Profit 31,255 27,367 25,395
Interest Expense (1,951) (1,256) (1,434)
Other Income (Expense), Net (594) (460) (668)
-------- -------- --------
Income Before Income Taxes 28,710 25,651 23,293
Income Taxes 10,793 9,587 8,888
------- ------- --------
Net Income $17,917 $16,064 $14,405
======= ======= ========
Basic Earnings per Common Share: $2.02 $1.80 $1.61
===== ===== ======
Basic Weighted Average Shares Outstanding 8,857 8,921 8,929
===== ===== ======
Diluted Earnings Per Common Share $2.02 $1.80 $1.61
===== ===== ======
Diluted Weighted Average Shares Outstanding 8,887 8,949 8,951
===== ===== ======
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
1
<PAGE>
<TABLE>
MESTEK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1999, 1998 and 1997
<CAPTION>
Cumulative
Common Paid In Retained Treasury Translation
(Dollars in Thousands) Stock Capital Earnings Shares Adjustment Total
- ---------------------- ------ ------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 $479 $15,434 $94,794 ($6,040) ($949) $103,718
Net Income 14,405 14,405
Common Stock Repurchased (69) (69)
Cumulative Translation Adjustment (47) (47)
------ ------- -------- -------- ---------- ---------
Balance - December 31, 1997 $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 17,917 17,917
Common Stock Repurchase (2,603) (2,603)
Cumulative Translation Adjustment 5 5
------ ------- -------- -------- ---------- ---------
Balance - December 31, 1999 $479 $15,434 $143,180 ($9,393) ($1,083) $148,617
====== ======= ======== ========= ========== =========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income 17,917 $16,064 $14,405
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 10,631 8,599 6,548
Provision for Losses on Accounts
Receivable, net of write-offs 184 914 828
Net Change in Minority Interests net of
effects of acquisitions and dispositions 54 256 (82)
Changes in assets and liabilities net of
effects of acquisitions and dispositions:
Accounts Receivable (7,207) (2,782) (2,498)
Unbilled Accounts Receivable (161) (38) (74)
Inventory 2,076 755 (6,894)
Accounts Payable (2,805) (560) 430
Other Liabilities (745) 2,718 247
Progress Billings 107 (55) 306
Notes Receivable (3,850) - -
Other 2,255 (1,346) 105
------- ------- ------
Net Cash Provided by Operating Activities 18,456 24,525 13,321
------- ------- -------
Cash Flows from Investing Activities:
Capital Expenditures (12,437) (12,802) (11,740)
Acquisition of Businesses and Other
Assets, Net of Cash Acquired (24,337) (2,877) (12,886)
-------- -------- -------
Net Cash (Used in) Investing Activities (36,770) (15,679) (24,626)
-------- -------- --------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) Under
Revolving Credit Agreement 1,739 9,119 3,500
Principal Payments Under Long
Term Debt Obligations (136) (15,909) (1,234)
Proceeds from Issuance of Long Term Debt 20,000 - -
Repurchase of Common Stock (2,603) (681) (69)
-------- -------- --------
Net Cash (Used In) Provided by Financing Activities 19,000 (7,471) 2,197
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 686 1,375 (9,108)
Translation effect on Cash 5 (92) (47)
Cash and Cash Equivalents - Beginning of Year 3,777 2,494 11,649
-------- -------- --------
Cash and Cash Equivalents - End of Year $4,468 $3,777 $2,494
======== ======= =======
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
MESTEK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Mestek,
Inc. and its subsidiaries, collectively referred to as the Company. All material
inter-company accounts and transactions have been eliminated in consolidation.
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 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.
Revenue recognition and unbilled receivables
Revenue from product sales is recognized at the time of shipment.
Revenue from the licensing of software applications and software systems
development is recognized on the basis of completed contracts in accordance with
the "residual value method" provided in SOP 98-9.
Unbilled receivables represent revenue earned in the current period but
not billed to the customer until future dates, usually within one month.
Cash equivalents
The Company considers all highly liquid investments with a remaining
maturity of 90 days or less at the time of purchase to be cash equivalents. Cash
equivalents include investments in an institutional money market fund, which
invests in U.S. Treasury bills, notes and bonds, and/or repurchase agreements,
backed by such obligations.
Inventories
Inventories are valued at the lower of cost or market. Approximately
seventy-eight percent (78%) of the cost of inventories are determined by the
last-in, first-out (LIFO) method.
Property and equipment
Property and equipment are carried at cost. Depreciation and
amortization are computed using the straight-line and accelerated methods over
the estimated useful lives of the assets or the life of the lease, if shorter.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in income for the period. The cost of maintenance and repairs
is charged to income as incurred; significant improvements are capitalized.
Excess of Cost Over Net Assets of Acquired Companies (Goodwill)
The Company amortizes goodwill on the straight-line basis over the
estimated period to be benefitted. The acquisition of Anemostat Products, 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 the underlying acquired
businesses is less than the carrying value of the goodwill. Accumulated
amortization of goodwill and other intangibles was $4,984,000 and $3,640,000 at
December 31, 1999 and 1998, respectively.
Advertising Expense
Advertising costs are charged to operations as incurred. Such charges
aggregated $4,794,000, $3,993,000, and $3,738,000, for the years ended December
31, 1999, 1998, and 1997 respectively.
Research and Development Expense
Research and development expenses are charged to operations as
incurred. Such charges aggregated $2,939,000, $2,136,000, and $1,628,000, for
the years-ended December 31, 1999, 1998, and 1997, respectively.
Software Development Expenses
The Company's MCS, Inc. subsidiary is in the business of application
software and systems development. SFAS No. 86 requires that development costs
incurred subsequent to the establishment of technological feasibility for the
product be capitalized. The Company has no capitalized development cost.
Treasury shares
Common stock held in the Company's treasury has been recorded at cost.
Earnings per common share
Basic earnings per share have been computed using the weighted average
number of common shares outstanding. Common stock options, as more fully
described in Note 15, were considered in the computation of diluted earnings per
share but had no effect.
Currency Translation
Assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at exchange rates prevailing on the balance sheet date. Net
foreign currency transactions are reported in the results of operations in U.S.
dollars at average exchange rates. Adjustments resulting from balance sheet
translations are excluded from the determination of income and are accumulated
in a separate component of shareholders' equity.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Comprehensive Income
For the years ended December 31, 1999 and December 31, 1998,
respectively, the components of other comprehensive income were immaterial and
consisted solely of foreign currency translation adjustment.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform to the current year presentation.
2. BUSINESS ACQUISITIONS
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 $3,577,000. The
Company accounted for this acquisition under the purchase method of accounting
and, accordingly, recorded Goodwill of approximately $6,800,000.
Proforma unaudited results of operations for 1999 and 1998, reflecting
a hypothetical acquisition date for Anemostat of January 1, 1998 are as follows:
1999 1998
Total Revenues $381,448 368,195
Net Income $17,409 5,634
Earnings Per Share $1.97 $1.75
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 certain of the
operating assets of ACDC, Inc. (ACDC) of New Milford, Ohio, a manufacturer of
industrial dampers for the power generation market, was approved. The Company
closed this transaction on May 7, 1999 for $2,554,000.
On May 26, 1999 the Company entered into a definitive agreement, (The
Agreement), to merge its wholly owned subsidiary, MCS, Inc. (MCS) into Simione
Central Holdings, Inc. (Simione). Simione is a provider of information systems
and services to the home health care industry supplying information systems,
consulting and agency support services to customers nationwide. Simione provides
freestanding, hospital based and multi-office Home Health Care Providers
(including certified, private duty, staffing, HME, IV therapy, and hospice) with
information solutions that address all aspects of home care operations. Simione
maintains offices nationwide and is headquartered in Atlanta, Georgia.
Under the terms of the Agreement, for every share of outstanding Simione
common stock, Simione would issue .85 shares of its common stock to the Company.
As a result, the Company would own, based on the number of Simione common shares
outstanding at the date of the Agreement, approximately 46% of Simione after the
merger is completed. On August 12, 1999, Simione, with the Company's consent,
acquired all of the outstanding common stock of CareCentric Solutions, Inc. for
$200,000 and acquired all of the Preferred Stock of CareCentric Solutions, Inc.
in return for 3.1 million newly issued shares of Simione Series A Preferred
Stock, which may be converted on a one for one basis into Simione common shares
upon consent of a majority of the Simione shareholders. The Simione management
intends to seek such consent and conversion in June 2000. As a result the
Company would expect to own, barring other changes in the capital structure of
Simione, approximately 38% of Simione after the merger is completed. Under the
terms of the Agreement, MCS's ProfitWorks segment would be distributed to the
Company prior to the merger.
On September 9, 1999, Mestek, Inc. ("Mestek") announced that it had
entered into an amendment to the Plan and Agreement of Merger dated May 26, 1999
(the "Amendment") between Simione Central Holdings, Inc. ("SCHI"), Mestek, and
its wholly-owned subsidiary, MCS, Inc. ("MCS"), whereby the shares of common
stock of MCS will be distributed to the Mestek common shareholders in a spin-off
transaction (the Spinoff), and MCS will then be merged with and into SCHI, (the
Merger). The Spin-off and the Merger were completed on March 7, 2000.
In connection with the Amendment, Mestek loaned to SCHI a total of
$4,000,000 on a short-term basis, $3,000,000 of which was outstanding as of
December 31, 1999. Upon the closing of the above-mentioned merger, the
$4,000,000 loan was canceled, and Mestek contributed an additional $2,000,000 to
the capital of SCHI in return for newly issued Series B Preferred Stock of SCHI.
The Series B Preferred Stock issued to Mestek has voting rights equivalent to
11.2 million shares of SCHI common stock. Mestek also received as part of it
capital contribution to SCHI a warrant for the subsequent purchase of 2 million
shares of SCHI common stock. The Amendment also provided, upon consummation of
the merger, for the appointment to the SCHI Board of Directors of six
individuals designated by Mestek, and the obligation of the Mestek Major
Shareholders (as defined in the Amendment) to vote for the nominees to the SCHI
Board of Directors for eighteen months after the effective date of the merger.
Mestek also loaned Simione $850,000 on November 11, 1999 on a short-term
basis. Upon consummation of the merger, the loan was converted to $850,000 of
newly issued Series C Preferred Stock. The Series C Preferred stock has voting
rights equal to 850,000 shares of SCHI common stock.
Under the purchase method of accounting, results of operations of
acquired businesses are included in consolidated operations subsequent to the
date of acquisition.
3. INVENTORIES
Inventories consisted of the following at December 31:
1999 1998
---- ----
Finished Goods $18,692 $21,803
Work-in-progress 14,865 13,948
Raw materials 28,335 24,463
------- -------
61,892 60,214
Less provision for LIFO
method of valuation (7,204) (7,234)
------- -------
$54,688 $52,980
======= ========
Progress billings exceeded related contract costs by $3,257,000, and
$3,150,000 at December 31, 1999 and 1998, respectively. As such, these
amounts are reported as a liability in the accompanying consolidated
financial statements.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Depreciation and
Amortization Est.
1999 1998 Useful Lives
---- ---- ------------
Land $2,853 $2,395
Buildings 26,792 21,887 19-39 Years
Leasehold Improvements 4,415 4,474 15-39 Years
Equipment 96,028 78,820 3-10 Years
--------- ---------
130,088 107,576
Accumulated Depreciation (61,021) (51,735)
--------- ---------
$69,067 $55,841
========= =========
The above amounts include $851,000, and$6,870,000, at December 31, 1999
and 1998 respectively, in assets that had not yet been placed in service by the
Company. No depreciation was recorded in the related periods for these assets.
Depreciation and amortization expense was $10,631,000, $8,599,000, and
$6,548,000, for the years ended December 31, 1999, 1998, and 1997, respectively.
5. EQUITY INVESTMENTS
H. B. Smith Company Incorporated (HBS)
- --------------------------------------
The Company's investment in HBS is carried at a zero balance reflecting
the Company's equity in HBS' cumulative losses. The Company has no obligation to
fund future HBS operating losses.
Eafco, Inc. (EAFCO)
The Company's forty-six and eight hundredths percent (46.8%) investment
in Eafco, Inc. was exchanged on November 2, 1998 for ninety-three and six tenths
percent (93.6%) of the foundry and machining operations of Eafco.
6. LONG TERM DEBT
Long-Term Debt consisted of the following:
Dec. 31, Dec. 31,
1999 1998
---- ----
Revolving Loan Agreement $34,358 $12,619
Other Bonds and Notes Payable 433 569
-------- --------
34,791 13,188
Less Current Maturities (14,467) (12,750)
-------- --------
$20,324 $438
======== ========
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 one percent (1.00%) or,
at the discretion of 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 has been extended on a one-year basis through
April 30, 2001. 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 percent of net income.
Note Payable - The Company has a Demand Loan Facility with a second
commercial bank under which the Company can borrow up to $10,000,000 on a LIBOR
basis. The facility expires on April 1, 2000, with no balance outstanding as of
December 31, 1999.
Other Bonds and Notes Payable - The Company is obligated under the
terms of an Industrial Revenue Bond (the Bond) secured by its facility in
Wyalusing, Pennsylvania. The Bond bears interest at five percent (5%) and
matures on July 25, 2001. The outstanding balance under the Bond at December 31,
1999 was $64,000. The Company's National Northeast subsidiary is obligated under
a non-interest bearing subordinated Note Payable on which interest was imputed
at eight percent (8%). The note is secured by certain pieces of equipment. The
outstanding balance under the note at December 31, 1999 was $19,000 and the note
matures on May 1, 2001. The Company's Hill Engineering subsidiary is obligated
under an Industrial Revenue Bond secured by certain of its operating assets. The
outstanding balance under the bond at December 31, 1999 was $350,000. The bond
bears interest at eighty percent (80%) of the prime rate and matures on
September 1, 2005.
Cash paid for interest was $1,951,000, $1,256,000, and $1,434,000,
during the years ended December 31, 1999, 1998, and 1997, respectively.
Maturities of long-term debt in each of the next five years are as follows:
2000 14,467
2001 20,074
2002 50
2003 50
2004 50
The fair value of the Company's long-term debt is estimated based on
the current interest rates offered to the Company for debt of the same remaining
maturities. Management believes the carrying value of debt and the contractual
values of the outstanding letters of credit approximate their fair values as of
December 31, 1999.
7. SHAREHOLDERS' EQUITY
The Company has authorized common stock of 20,000,000 shares with no par value,
and a stated value of $0.05 per share. As of December 31, 1999, John E. Reed,
Chairman, President and CEO of the Company and Stewart B. Reed, a Director of
the Company and son of John E. Reed, together beneficially own a majority of the
outstanding shares of the Company's common stock.
By a vote of its shareholders at its annual meeting of shareholders on May 22,
1996, the Company amended its Articles of Incorporation to authorize 10,000,000
shares of a new class (or classes) of preferred stock (the Preferred Stock) and
to eliminate both its $5.00 convertible, non-cumulative, non-voting, $100 par,
preferred stock (the Convertible Preferred) and its $6.00, $100 par, redeemable
preferred stock (the Redeemable Preferred). As of December 31, 1999 no shares of
the Preferred Stock have been issued.
8. INCOME TAXES
Income before income taxes included foreign income (losses) of
$223,000, ($1,166,000), and ($730,000) in 1999, 1998, and 1997, respectively.
Income tax expense (benefit) consisted of the following:
1999 1998 1997
---- ---- ----
Federal Income Tax:
Current $8,113 $8,897 $7,188
Deferred 1,284 (283) 527
State Income Tax:
Current 1,107 1,708 1,045
Deferred 175 (141) 166
Foreign Income Tax:
Current 18 18 18
Deferred 96 (612) (56)
-------- ------ -------
Income Taxes $10,793 $9,587 $8,888
======== ====== =======
Total income tax expense from continuing operations differed from
"expected " income tax expense, computed by applying the U.S. federal income tax
rate of 35% to earnings before income tax, as follows:
1999 1998 1997
- ---- ---- ----
Computed "expected" income tax $10,067 $9,068 $8,218
State income tax, net of federal tax benefit 917 867 787
Foreign tax rate differential 7 (35) (22)
Other - net (198) (313) (95)
-------- ------- -------
Income Taxes $10,793 $9,587 $8,888
======== ======= =======
<PAGE>
1
A deferred income tax (expense) benefit results from temporary timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The components of and changes in the net deferred
tax assets (liabilities) which give rise to this deferred income tax (expense)
benefit for the year ended December 31, 1999 are as follows:
Change
December 31, (Expense) December 31,
1998 Benefit 1999
---- ------- ----
Deferred Tax Assets:
Warranty Reserve $656 ($133) $523
Compensated Absences 716 (22) 694
Inventory Valuation 608 (104) 504
Accounts Receivable Valuation 241 328 569
State Tax Operating Loss
Carryforward 131 41 172
Foreign Tax Operating Loss
Carryforward 1,120 (96) 1,024
Deferred Income on Sale of Assets
to Non-consolidated Investees 159 - 159
Other 27 113 140
------- ------ -------
Total Gross Deferred Tax Assets 3,658 127 3,785
Less Valuation Allowance (119) - (119)
------- ------ -------
Deferred Tax Assets 3,539 127 3,666
------- ------ -------
Deferred Tax Liabilities:
Prepaid Expenses (501) (176) (677)
Depreciation and Amortization (1,916) (1,574) (3,490)
------- ------- --------
Deferred Tax Liabilities (2,417) (1,750) (4,167)
------- ------- --------
Net Deferred Tax Assets (Liabilities) $1,122 ($1,623) ($501)
======= ======== =======
A valuation allowance of $195,000 was established at December 31, 1993.
This allowance reflects uncertainties as to the realization of a portion of the
foreign tax operating loss carryforward identified above. This valuation
allowance was adjusted downward to $119,000 on December 31, 1995 because the
foreign operations resulted in earnings for the year. At December 31, 1999, no
additional valuation allowance has been established relative to the remaining
foreign tax operating loss carryforward or state tax operating loss
carryforward. It is management's belief that it is more likely than not that
these carry forwards will be utilized prior to their expiration. The Company has
available to it a number of tax planning opportunities which support this
conclusion.
At December 31, 1999, the Company has state tax operating loss and
foreign tax operating loss carry forwards of approximately $3,796,000 and
$2,089,000, respectively, which are available to reduce future income taxes
payable, subject to applicable "carryforward" rules and limitations. These
losses begin to expire after the following years:
State Foreign
2002 - $2,089
2007 $ 3,796 -
-------- -------
$ 3,796 $2,089
======== =======
Cash paid for income taxes was $10,191,000, $7,876,000, and $9,027,000
for the years ended December 31, 1999, 1998 and 1997 respectively.
9. LEASES
Related Party Leases
The Company leases various manufacturing facilities and equipment from
companies owned by certain officers and directors of the Company, either
directly or indirectly, through affiliates. The leases generally provide that
the Company will bear the cost of property taxes and insurance.
Details of the principal operating leases with related parties as of
December 31, 1999 including the effect of renewals and amendments executed
subsequent to December 31, 1999 are as follows:
Date Basic Minimum
Of Annual Future
Lease Term Rental Rentals
Sterling Realty Trust
Land and Building - Main monthly $192 ***
Land and Building - Engineering 07/01/98 5 years 77 269
Land and Building - South Complex 01/01/94 15 years 257 2,311
Land and Building - Torrington 07/01/99 5 years 127 572
Machinery & Equipment 01/01/93 5 years - *
(Westfield, Farmville & Wrens
Locations)
Machinery Rental
Machinery & Equipment 01/01/93 5** years - -
(Westfield, Farmville, Wrens
and South Windsor Locations)
Elizabeth C. Reed Trust
Machinery & Equipment 01/01/93 5 years - *
Rohrschach Associates ^
Land and Building 01/01/97 2++years 120 120
Rudbeek Realty Corp.
(Farmville Location) 11/02/92+ 18.16 years 436 4,792
MacKeeber
(South Windsor Location) 01/01/97 8 years 325 1,623
* Original lease expired 01/01/98, month-to-month rental terminated as
of 12/31/98 and machinery and equipment sold to the Company in January
of 1999.
** Original lease expired on 01/01/98, month-to-month rental terminated
as of 12/31/99. Equipment purchased by the Company from Lessor in
January 2000.
+ Original lease amended 4/1/98 extending the lease term to 12/31/10;
and amended again 7/1/98 increasing rent expense to $36,300 per month.
++ Lease was renewed as of 1/1/99 for an additional two-year renewal
term at $0.40/sf. for 25,000sf.
<PAGE>
^ Formerly Production Realty
*** Lease expired 12/31/99; renewal pending as of March 15, 2000
On January 1, 1999, the company purchased its previously leased Machinery and
Equipment from Sterling Realty Trust and Elizabeth C. Reed trust for use in
its Westfield, Farmville, and Wrens location. The purchase price paid was
$263,500 and $99,750 respectively.
On January 1, 2000, at the end of the lease term, the Company purchased
Machinery and Equipment used at Westfield, Farmville, Wrens, and South Windsor
locations from Machinery Rental Company, paying $507,000
All Leases
Rent expense for operating leases, including those with related
parties, was $2,685,000, $2,801,000, and $2,719,000 for the years ended December
31, 1999, 1998 and 1997 respectively.
Future minimum lease payments under all noncancellable leases as of
December 31, 1999 are as follows:
Operating
Year Ending December 31, Leases
2000 2,320
2001 1,973
2002 1,644
2003 1,576
2004 1,474
After 2005 4,731
--------
Total minimum lease payments $13,718
========
10. EMPLOYEE BENEFIT PLANS
The Company maintains a qualified non-contributory profit-sharing plan
covering all eligible employees. Contributions to the plan were $1,183,000,
$1,118,000, and $ 1,011,000, for the years ended December 31, 1999, 1998, and
1997, respectively. Contributions to the Plan are defined as three percent (3%)
of gross wages up to the current Old Age, Survivors, and Disability, (OASDI),
limit and six percent (6%) of the excess over the Old Age, Survivors, and
Disability, (OASDI), limit, subject to the maximum allowed under the Employee
Retirement Income Security Act, (ERISA). The plan's vesting terms are twenty
percent (20%) vesting after 3 years of service, forty percent (40%) after 4
years, sixty percent (60%) after 5 years, eighty percent (80%) after 6 years,
and one hundred percent (100%) vesting after 7 years.
In addition to the profit-sharing plan, the Company also offers the
following defined contribution benefit plans:
The Company maintains a Retirement Savings Plan qualified under Internal
Revenue Code Section 401(k) for employees covered under regional collective
bargaining agreements. Service eligibility requirements differ by division and
collective bargaining agreement. Participants may elect to have up to fifteen
percent (15%) of their compensation withheld, up to the maximum allowed by the
Internal Revenue Code. Participants may also elect to make nondeductible
voluntary contributions up to an additional ten percent (10%) of their gross
earnings each year within the legal limits. The Company contributes differing
amounts depending upon the division's collective bargaining agreement.
Contributions are funded on a current basis. Contributions to the Plan were
$304,000, $302,000, and $269,000, for the years-ended December 31, 1999, 1998,
and 1997, respectively.
The Company maintains a separate qualified 401(k) Plan for salaried
employees not covered by a collective bargaining agreement, who choose to
participate. Participants may elect to have up to fifteen percent (15%) of their
compensation withheld, up to the maximum allowed by the Internal Revenue Code.
Participants may also elect to make nondeductible voluntary contributions up to
an additional ten percent (10%) of their gross earnings each year within the
legal limits. The Company contributes $0.25 of each $1.00 deferred by
participants and deposited to the Plan not to exceed one and five tenths percent
(1.5%) of an employee's compensation. The Company does not match any amounts for
withholdings from participants in excess of six percent (6%) of their
compensation or for any nondeductible voluntary contributions. Contributions are
funded on a current basis. Contributions to the Plan were $360,000, $435,000,
and $392,000 for the years ended December 1999, 1998, and 1997, respectively.
One of the Company's subsidiaries maintains a qualified defined
contribution target benefit pension plan, which covers substantially all of its
employees. Pension costs are accrued annually based on contributions earned by
participants under plan provisions as determined by an independent actuary. The
total expense related to this pension plan for the twelve months ended December
31, 1999, 1998, and 1997 was $124,000, $88,000, and $65,000, respectively.
The Company maintains bonus plans for its officers and other key
employees. The plans generally allow for annual bonuses for individual employees
based upon the operating results of related profit centers in excess of a
percentage of the Company's investment in the respective profit centers. The
Company maintains an employment agreement with its chief executive officer.
Approximately forty-two percent (42%) of the Company's employees are
covered under collective bargaining agreements, of which thirty-eight (38%) of
these employees are covered under agreements expected to be renewed in 2000.
11. COMMITMENTS AND CONTINGENCIES
The Company is subject to several legal actions and proceedings in
which various monetary claims are asserted. Management, after consultation with
its corporate counsel and outside counsel, does not anticipate that any ultimate
liability arising out of all such litigation and proceedings will have a
material adverse effect on the financial condition of the Company.
The Company is obligated as guarantor with respect to the debt of
MacKeeber Associates Limited Partnership, a Connecticut Limited Partnership,
under an Industrial Development Bond issued in 1984 by the Connecticut
Development Authority. The balance outstanding under the bond as of December 31,
1999 was $765,000.
The Company is subject to numerous laws and regulations that govern the
discharge and disposal of materials into the environment. Liabilities for
environmental remediation and/or restoration are recorded when it is probable
that obligations have been incurred and the amounts can be reasonably estimated.
The Company is not aware, at present, of any material administrative or judicial
proceedings against the Company arising under any federal, state or local
environmental protection laws or regulations (Environmental Laws). There are,
however, a number of activities in which the Company is engaged under
Environmental Laws. The Company is engaged in various matters with respect to
obtaining, amending or renewing permits required under Environmental Laws to
operate each of its manufacturing facilities. The Company or various of its
subsidiaries have been named or contacted by state authorities and/or the
Environmental Protection Agency (the EPA) regarding the Company's liability as a
potentially responsible party (PRP) for the remediation of several sites, none
of which, in the judgement of management, would have a material adverse impact
on the financial condition or results of operations of the Company. There have
been releases of hazardous materials on a few parcels of property which are
presently leased or operated by the Company. Based on the information presently
available to it, management does not believe that the costs of addressing any of
the releases will have a material adverse effect on the Company's financial
position or the results of operations.
12. 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, Anemostat, Koldwave, and SpacePak. Assets acquired in the
Anemostat and ACDC acquisitions on March 26, 1999 and May 7, 1999 respectively,
as more fully described in Note 2, have been added to the Company's HVAC
segment.
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 custom metal forming systems and other standard machinery such
as roll formers, wing formers, destackers, presses, feeds, straighteners,
cradles, stock reels, cut-to-length lines, gasket dies, tools and dies for metal
forming systems and specialty punching and cut-off machinery.
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 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. As
explained in Note 2, the Company distributed the stock of its MCS subsidiary to
its shareholders on March 7, 2000. Results of operations for MCS in the Year
2000 will be accounted for under Discontinued Operations in accordance with APB
30.
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.
<PAGE>
Year ended
December 31, 1999
Metal Metal Computer All
HVAC Products Forming Software Other Totals
Revenues from External
Customers $254,452 65,614 37,117 18,087 --- $375,270
Intersegment & Intrasegment
Revenues $8,009 8,847 1,848 --- --- $18,704
Interest Expense $1,194 513 190 54 --- $1,951
Depreciation Expense $4,263 3,129 1,698 240 --- $9,330
Amortization Expense $384 556 361 --- --- $1,301
Segment Operating Profit $20,700 7,870 1,748 937 --- $31,255
Segment Assets $148,272 63,641 23,643 6,697 --- $242,253
Expenditures for
Long-lived Assets (1.) $5,185 5,090 1,476 686 --- $12,437
Year ended
December 31, 1998
Metal Metal Computer All
HVAC Products Forming Software Other Totals
Revenues from External
Customers $229,704 50,745 41,265 16,630 --- $338,344
Intersegment & Intrasegment
Revenues $7,851 2,288 234 --- --- $10,373
Interest Expense $711 342 169 34 --- $1,256
Depreciation Expense $3,870 2,242 1,168 194 --- $7,474
Amortization Expense $231 584 373 --- --- $1,188
Segment Operating Profit $15,668 5,194 4,170 2,335 --- $27,367
Segment Assets $113,796 55,842 29,916 5,589 --- $205,143
Expenditures for
Long-lived Assets (1.) $3,064 8,185 1,025 528 --- $12,802
Year ended
December 31, 1997
Metal Metal Computer All
HVAC Products Forming Software Other Totals
(2.)
Revenues from External
Customers $229,423 42,797 38,529 17,029 --- $327,778
Intersegment & Intrasegment
Revenues $7,809 634 509 --- --- $8,952
Interest Expense $850 265 215 38 66 $1,434
Depreciation Expense $2,732 1,791 940 119 --- $5,582
Amortization Expense $144 584 246 --- --- $974
Segment Operating Profit $17,846 2,723 1,537 3,289 --- $25,395
Segment Assets $113,405 35,312 28,577 5,045 8,778 $191,117
Expenditures for
Long-lived Assets (1.) $5,802 5,589 183 166 --- $11,740
(1.) Excludes long-lived assets acquired via business acquisition.
(2.) Segments Assets in All Other in 1997 represents the Companyy's investment
in Eafco, Inc. which was exchanged on November 2, 1998 for ninety-three and six
tenths percent (93.6%) of the foundry and machining operations of Eafco. The
business assets thus acquired and the related results of operations are included
in the Metal Products segment in 1999 and 1998.
RECONCILIATION WITH CONSOLIDATED DATA:
Revenues 1999 1998 1997
- -------- ---- ---- ----
Total external revenues for
reportable segments $375,270 $338,344 $327,778
Inter & Intrasegment revenues
for reportable segments 18,704 10,373 8,952
Elimination of Inter &
Intrasegment revenues (18,704) (10,373) (8,952)
---------- --------- ---------
Total consolidated revenues $375,270 $338,344 $327,778
========== ========= ==========
<PAGE>
Profit or Loss
Total profit or loss for
reportable segments $31,255 $27,367 $25,395
Interest Expense (1,951) (1,256) (1,434)
Other income (expense) net (594) (460 (668)
-------- -------- ---------
Income before income taxes $28,710 $25,651 $23,293
======== ======== =========
Assets:
Total assets for reportable
segments $242,253 $205,143 $182,339
Equity Investment in Eafco Inc. --- --- 8,778
-------- -------- ---------
Total consolidated assets $242,253 $205,143 $191,117
======== ======== ==========
GEOGRAPHIC INFORMATION:
1999 1998 1997
---- ---- ----
Revenues:
United States $355,274 $314,603 $305,728
Canada 13,443 17,310 14,235
Other Foreign Countries 6,553 6,431 7,815
-------- -------- ----------
Consolidated Total $375,270 $338,344 $327,778
======== ======== ==========
Long Lived Assets:
United States $97,187 $78,502 $64,349
Canada 2,048 1,904 183
Other Foreign Countries --- --- ---
------- ------- ---------
Consolidated Total $99,235 $80,406 $ 64,532
======= ======= ==========
13. SELECTED QUARTERLY INFORMATION (UNAUDITED)
The table below sets forth selected quarterly information for each full
quarter of 1999 and 1998.
(Dollars in thousands except per common share amounts)
1999 1st 2nd 3rd 4th
- ----
Quarter Quarter Quarter Quarter
Total Revenues $82,026 $89,533 $98,646 $105,065
Gross Profit $23,035 $26,130 $26,778 $33,429
Net Income $3,519 $3,605 $4,069 $6,724
Per Common Share:
Basic $0.40 $0.41 $0.46 $0.75
Diluted $0.40 $0.41 $0.46 $0.75
1998 1st 2nd 3rd 4th
- ----
Quarter Quarter Quarter Quarter
Total Revenues $75,649 $77,688 $92,013 $92,994
Gross Profit $21,172 $21,607 $26,432 $28,925
Net Income $3,370 $2,832 $4,324 $5,538
Per Common Share:
Basic $0.38 $0.32 $0.48 $0.62
Diluted $0.38 $0.32 $0.48 $0.62
14. COMMON STOCK BUYBACK PROGRAM
In 1999 and 1998 the Company continued its program of selective
"open-market" and odd lot purchases. 126,302 and 36,000 of such shares were
acquired in 1999 and 1998, respectively. All such shares are accounted for as
treasury shares.
15. 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
options to purchase 500,000 shares of the Company's common stock. The Plan
provides for the awarding of incentive and non-qualified stock options to
certain employees of the Company and other persons, including directors, for the
purchase of the Company's common stock at fair market value on the grant date.
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.
A summary of transactions for the years ended December 31, 1999, 1998, and 1997
are as follows:
Weighted
Number of Average
Options Exercise Price
Balance - December 31, 1996 90,000 $13.75
Balance - December 31, 1997 90,000 $13.75
Balance - December 31, 1998 90,000 $13.75
Granted 85,000 $20.00
Balance - December 31, 1999 175,000 $16.79
Options exercisable for the years ended December 31, 1999, 1998, and
1997 were 54,000, 36,000, and 18,000, respectively. The weighted average
exercise price for all exercisable options was $13.75.
Effective in 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
SFAS No. 123. As permitted by the statement, the Company has chosen to continue
to account for stock-based compensations using the intrinsic value method as
prescribed by Accounting Principles Board Opinion No. 25. Accordingly, no
compensation expense has been recognized for its stock-based compensation plan.
The weighted average fair value at the date of grant for options
granted during the year ended December 31, 1999 and for options outstanding as
of December 31, 1998 and 1997 were $9.44, $7.27, and $7.27, respectively. The
fair value of options at the date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
Years Ended
December 31, December 31, December 31
1999 1998 1997
Expected life (years) 10 10 10
Interest 4.81% 6.56% 6.56%
Volatility 23.75% 22.50% 22.50%
Dividend yield 0% 0%
Had the fair value method of accounting been applied to the Company's
stock option plan, with compensation cost for the Plan determined on the basis
of the fair value of the options at the grant date, the Company's net income and
earnings per share would have been as follows:
Years Ended
December 31, December 31, December 31
1999 1998 1997
Net income (loss) - as reported $17,917 $16,064 $14,405
Net income (loss) - pro forma 17,748 15,985 14,326
Earnings per share - as reported $2.02 $1.80 $1.61
Earnings per share - pro for $2.00 $1.79 1.61
The application of SFAS 123 for pro forma disclosure may not be
representative of future effects of applying the statement.
16. NOTES RECEIVABLE
On September 9, 1999, the Company loaned $3,000,000 to Simione Central
Holdings, Inc. as more fully explained in Note 2 to the consolidated financial
statements. The loan matures on the earlier of June 30, 2000 or the date of
closing of the transaction described in Note 2. The loan bears interest at two
points above the prime rate of interest as set from time to time by BankBoston
N.A. The loan was canceled on March 7, 2000, as more fully described in Note 2.
On November 11, 1999, the Company loaned $850,000 to Simione Central
Holdings, Inc. as more fully explained in Note 2 to the consolidated financial
statements. The loan matures on November 11, 2000 and bears interest at the rate
of 11 percent. The loan is convertible on or after the date of closing of the
transactions described in Note 2 into $850,000 of Simione Central Holdings, Inc.
Series C Preferred Stock, as more fully described in Note 2 to the Consolidated
Financial Statements
17. SUBSEQUENT EVENT
On January 28, 2000, the Company acquired substantially all of the
operating assets of Wolfram, Inc. d/b/a Cesco Products (Cesco) located in
Minneapolis, Minnesota. Cesco manufactures vertical and horizontal louvers;
controls and fire/smoke dampers; gravity ventilators louver penthouses and
walk-in access doors for the HVAC industry at its location in Minneapolis,
Minnesota. The Cesco products are complimentary to the Company's existing louver
and damper businesses. The purchases price paid for the assets acquired was
approximately $5,991,000, including assumed liabilities of approximately
$991,000. The Company intends to account for this acquisition under the purchase
method of accounting.
On February 4, 2000, the Company loaned $1 million to Simione Central
Holdings, Inc. The loan matures on the earlier of June 30, 2000 or the closing
of the transactions described in Note 2 to the consolidated financial
statements. The loan bears interest at two points above the prime rate of
interest as set from time to time by BankBoston N.A. The loan was canceled on
March 7, 2000, as more fully described in Note 2.
On February 10, 2000, the Company acquired the designs, intellectual
property and certain physical assets of B & K Rotary Machinery International
Corporation (B & K) of Brampton, Ontario, Canada. B & K is well-known and
experience highly engineered metal processing line. B & K equipment is found in
steel processing centers, tube/pipe production plants and roll forming
facilities around the world. The B & K Supermill(TM), Rotary Shear(TM), and
Rotary Pierce(TM) designs are the technology of choice among leading producers
of light gauge steel framing used in building construction. The B & K products
will be designed and manufactured at the Formtek operations located in Chicago,
Illinois and Clinton, Maine. The purchase price paid for the assets acquired was
approximately $2.8 million. The Company intends to account for this acquisition
under the purchase method of accounting.
On March 7, 2000, the Company completed the Spin-off and subsequent
merger of its wholly owned subsidiary, MCS, Inc., into Simione Central Holdings,
Inc. as more fully explained in Note 2.
On March 14, 2000, the Company and MetCoil Systems Corporation,
(MetCoil) announced that they have entered into a definitive merger agreement
under which MetCoil will be merged into a wholly owned subsidiary of the Company
for approximately $32 million.
The merger is subject to approval by MetCoil's stockholders and review
under the Hart-Scott-Rodino Act. All other conditions will be further described
in a proxy statement to be mailed to MetCoil's stockholders. The board of
directors of MetCoil has unanimously recommended that stockholders approve the
merger.
MetCoil manufactures advanced sheet metal forming equipment,
fabricating equipment and computer-controlled fabrication systems for the global
market. The Company employs approximately 270 people, principally in its Cedar
Rapids, Iowa and Lisle, Illinois manufacturing facilities, and had revenues for
the fiscal year ended May 31, 1999 of $45.8 million. MetCoil's products are
complementary with those of the Company's Metal Forming Segment.
<PAGE>
PART III
With respect to items 10 through 13, the Company will file with the
Securities and Exchange Commission, within 120 days of the close of its fiscal
year, a definitive proxy statement pursuant to Regulation 14-A.
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company will be set forth in the
Company's proxy statement relating to the annual meeting of shareholders to be
held May 12, 2000, and to the extent required, is incorporated herein by
reference. Information regarding executive officers of the Company is set forth
under the caption "Executive Officers".
Item 11 - EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in the
Company's proxy statement relating to the annual meeting of shareholders to be
held May 12, 2000, and, to the extent required, is incorporated herein by
reference.
The report of the Compensation Committee of the Board of Directors of
the Company shall not be deemed incorporated by reference by any general
statement incorporating by reference the proxy statement into any filing under
the Securities Exchange Act of 1934, and shall not otherwise be deemed filed
under such Act.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management will be set forth in the Company's proxy statement relating to
the annual meeting of shareholders to be held May 12, 2000, and, to the extent
required, is incorporated herein by reference.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
will be set forth in the Company's proxy statement relating to the annual
meeting of shareholders to be held May 12, 2000, and, to the extent required, is
incorporated herein by reference.
<PAGE>
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
INDEX
Pages of
this report
Independent Auditors' Reports Page 19
Financial Statements:
(a)(1) Consolidated Balance Sheets as of
December 31, 1998 and 1997 Pages 20 and 21
Consolidated Statements of Income for the Years
Ended December 31, 1998, 1997, and 1996 Page 22
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1998, 1997, and 1996 Page 23
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997, and 1996 Page 24
Notes to the Consolidated Financial Statements
(a)(2) Financial Statement Schedules
II. Valuation and Qualifying Accounts Page 44
All other financial statement schedules required by Item 14(a)(2) have been
omitted because they are inapplicable or because the required information has
been included in the consolidated financial statements or notes thereto.
(a)(3) Exhibits
The Exhibit Index is set forth on Pages 44 through 47
No annual report to security holders as of December 31, 1999 had been sent to
security holders and no proxy statement, form of proxy or other proxy soliciting
material has been sent by the registrant to more than ten of the registrant's
security holders with respect to any annual or other meeting of security holders
held or to be held in 2000. Such annual report to security holders, proxy
statement or form of proxy will be furnished to security holders subsequent to
the filing of this Annual Report on Form 10-K.
<PAGE>
Schedule II
MESTEK, INC.
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
Bal.at Charged Bad Debt Bal.
at Beg. to Other Write-offs at end
Year Description of Year expense (1) (2) of Year
- ---- ----------- ------- ------- ----------- ----------- -------
1999 Allowance
for doubtful
accounts $3,443 $1,432 $27 ($1,275) $3,627
1998 Allowance
for doubtful
accounts $2,529 $1,165 $57 ($308) $3,443
1997 Allowance
for doubtful
accounts $1,701 $1,124 $16 ($312) $2,529
(1) Includes recoveries of amounts previously written-off and allowances for
doubtful accounts of acquired companies.
(2) Bad debts written off.
<PAGE>
EXHIBIT INDEX
Those documents followed by a parenthetical notation are incorporated
herein by reference to previous filings with the Securities and Exchange
Commission as set forth below.
Exhibit No.
Description
****************
2.1 Plan of Reorganization of Eafco, Inc. (H)
3.1 Restated Articles of Incorporation of Mestek, Inc., as amended (K)
3.2 By-laws of Mestek, Inc. as amended through April 1, 1993 (D)
10.1 Employment Agreement dated January 1, 1982 between Mestek
and John E. Reed (A)
10.2 Lease dated July 1, 1983 between Sterling Realty Trust (lessor)
and Mestek, Inc. (lessee) (D)
10.3 Lease dated December 17, 1984 between Mestek (lessee) and
Sterling Realty Trust (lessor), as amended on November 1, 1991 (D)
10.4 Lease dated January 1, 1994 between Mestek (lessee) and
Sterling Realty Trust (lessor) (D)
10.5 Amended and restated lease agreement dated as of July 1, 1997
between Mestek, Inc. (lessee) and Rudbeek Realty Corp. (lessor)
10.6 Amended and restated lease agreement dated as of January 1, 1997
between Vulcan Radiator Division, Mestek, Inc. (lessee) and
MacKeeber Associates Limited Partnership (lessor). (K)
10.7 Equipment Lease Agreement dated January 1, 1993, between Mestek
(lessee) and Sterling Realty Trust (lessor) (D)
10.8 Loan Agreement dated as of December 1, 1984 among Reed National
Corp., Rudbeek Realty Corp. and The Pitt County Industrial Facilities
and Pollution Control Financing Authority and the Promissory Notes
thereunder two Guaranty Agreements dated as of December 1, 1984
between Reed National Corp., NCNB National Bank of North Carolina,
and Rudbeek Realty Corp. (A)
10.9 Loan Agreement dated as of May 1, 1984 among the Connecticut
Development Authority (the "CDA"), MacKeeber Limited Partnership,
Vulcan Radiator Corporation and the Promissory Notes thereunder;
Guaranty of Vulcan Radiator Corporation and Reed National Corp.
to the Connecticut Bank and Trust Company, NA (A)
10.10 Note Agreement dated as of July 1, 1987 between Mestek, Inc. and
Massachusetts Mutual Life Insurance Company. (B)
10.11 Indemnification Agreements entered into between Mestek, Inc. and
its Directors and Officers and the Directors of its wholly-owned
subsidiaries incorporated by reference as provided herein, except
as set forth in the attached schedule (C)
10.12 Share Purchase Agreement relating to the acquisition of capital
stock of Ruscio Brothers Refractory, Ltd. And Rainbow Electronics
Spotwelding Equipment, Ltd. dated April 29, 1998 by and between
1291893 Ontario, Inc. as Buyer and Domenic Ruscio, et al.,
as Sellers. (L)
10.13 Lease Agreement dated July 1, 1998 between Mestek (lessee) and
Sterling Realty Trust (lessor). (D)
10.14 Loan Agreement and Promissory Note dated June 7, 1993 between
The First National Bank of Boston and Mestek, Inc. (D)
10.15 Mortgage Note dated February 1, 1986 between Arrow United Industries,
Inc. and Chemical Bank; said Note assumed by Mestek, Inc. in the
purchase of certain assets of Arrow United Industries, Inc. (D)
10.16 Equipment Lease Agreement dated January 1, 1993 between Machinery
Rental Company (Lessor) and Vulcan Radiator Corporation (Lessee). (E)
10.17 Equipment Lease Agreement dated January 1, 1993 between Machinery
Rental Company (Lessor) and Mestek, Inc. (Lessee). (E)
10.18 Equipment Lease Agreement dated January 1, 1993 between
Elizabeth C. Reed Trust (Lessor) and Mestek, Inc. (Lessee). (E)
10.19 1996 Mestek, Inc. Stock Option Plan. (I)
10.20 Amended and Restated Revolving Loans and Foreign Exchange Facilities
Agreement between Mestek, Inc. and Bank Boston dated July 15, 1997.(J)
10.21 Lease dated January 1, 1997 between Pacific Air Balance, Inc. (Lessee)
and Production Realty, Inc. (Lessor). (J)
10.22 Letter Agreement between Mestek, Inc. and the Travelers Insurance
Company, dated March 1, 1996, regarding five and fifty-three hundredth
percent (5.53%) Senior Notes due March 1, 1998. (K)
10.23 Supplemental Executive Retirement Agreements entered into between
Mestek, Inc. and certain of its officers. (J)
10.24 Lease dated July 1, 1999 between Mestek (Lessee) and Sterling Realty
Trust (Lessor) for 1st floor - Torrington Building.
10.25 Lease dated July 1, 1999 between Mestek (Lessee) and Sterling Realty
Trust (Lessor) for 3rd & 4th Floor - Torrington Building.
10.26 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and
Sterling Realty Company (Seller).
10.27 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and
Elizabeth C. Reed Trust (Seller).
10.28 Bill of Sale dated January 1, 2000 between Mestek (Purchase) and
Machinery Rental Company (Seller)
10.29 Asset Purchase Agreement dated March 18, 1999 among CTS Corporation,
Dynamics Corporation of America, and Mestek, Inc. (F)
10.30 Second Amended and Restated Agreement and Plan of Merger and
Investment Agreement dated October 25, 1999 among Simione Central
Holdings, Inc., MCS, Inc., Mestek, Inc., John E. Reed,
Stewart B. Reed, and E. Herbert Burk. (G)
10.31 Agreement and Plan of Reorganization by and betwwe Formtek Acquisition,
Inc., Formtek, Inc., and Met-Coil Systems Corporation
dated March 13, 2000
10.32 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and
Sterling Realty Company (Seller).
10.33 Bill of Sale dated January 1, 2000 between Mestek (Purchase) and
Machinery Rental Company (Seller)
11.1 Schedule of Computation of Earnings per Common Share.
22.1 Subsidiaries of Mestek, Inc.
(A) Filed as an Exhibit to the Registration Statement 33-7101,
effective July 31, 1986
(B) Filed as an Exhibit to the Current Report on Form 8-K dated
July 2, 1987
(C) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1987
(D) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1993
(E) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1994
(F) Filed as an Exhibit to the Current Report on Form 8-k dated
April 6, 1999.
(G) Incorporated by reference from the from the Form 10 file
by MCS, Inc. with the Securities and Exchange Commission on
October 26, 1999, File No. 000-27829.
(H) Filed as an Exhibit to the Annual Report on Form 10-K for
the year ended December 31, 1998.
(I) Filed as an Exhibit to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.
(J) Filed as an Exhibit tot eh Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
(K) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1996.
(L) Filed as and Exhibit to the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
<PAGE>
Exhibit 11.1
MESTEK, INC.
Schedule of Computation of Earnings Per Common Share
Years Ended December 31,
1999 1998 1997
---- ---- ----
Net income for earnings per share $17,917 $16,064 $14,405
======= ======= =======
Basic weighted average number of
common shares outstanding 8,857 8,921 8,929
======= ======= =======
Basic earnings per common share $2.02 $1.80 $1.61
======= ======= =======
Diluted weighted average number of
common shares outstanding 8,887 8,949 8,951
======= ======= =======
Diluted earnings per common share $2.02 $1.80 $1.61
======= ======= =======
<PAGE>
Exhibit 22.1
LIST OF SUBSIDIARIES
Jurisdiction of
Formation
Name
Advanced Thermal Hydronics, Inc. Delaware
Alapco Holding, Inc. Delaware
Anemostat, Inc Delaware
Boyertown Foundry Company Pennsylvania
Deltex Partners, Inc. Delaware
Formtek, Inc. Delaware
Formtek Acquistion, Inc. Delaware
Hill Engineering, Inc. Illinois
Gentex Partners, Inc. Texas
Mestex, Ltd. (Texas limited partnership) Texas
Yorktown Properties, Ltd. (Texas limited partnership) Texas
HBS Aquisition Corporation Delaware
Keyser Properties, Inc. Delaware
Lexington Business Trust (Massachusetts business trust) Massachusetts
MCS, Inc. Pennsylvania
Mestek Canada, Inc. Ontario
1291893 Ontario, Inc. Ontario
Ruscio Brother Refractory, Ltd. Ontario
988721 Ontario, Inc. Ontario
Mestek Foreign Sales Corporation U.S. Virgin Islands
Mestek Technology, Inc. Delaware
National Northeast Corporation Delaware
Omega Flex, Inc. Pennsylvania
Pacific/Air Balance, Inc. California
TEK Capital Corporation Delaware
Westcast, Inc. Massachusetts
<PAGE>
Exhibit 10.12
SCHEDULE OF DIRECTORS/OFFICERS
Indemnification Agreements
The Indemnification Agreement entered into by the Directors and/or Officers
of Mestek, Inc. and certain Directors of Mestek's wholly owned subsidiaries are
identical in all respects, except for the name of the indemnified director or
officer and the date of execution.
Set forth below is the identity of each director and officer of Mestek,
Inc. and the date upon which the above Indemnification Agreement was executed by
the Director or Officer.
Director and/or Officer Year of Execution
A. Warne Boyce 1987
E. Herbert Burk 1987
William J. Coad 1987
David R. Macdonald 1987
David M. Kelly 1996
Winston R. Hindle, Jr. 1995
David W. Hunter 1987
John E. Reed 1987
Stewart B. Reed 1987
James A. Burk 1987
R. Bruce Dewey 1990
Robert G. Dewey 1988
Nicholas Kakavis 1987
Richard J. McKnight 1987
Walter J. Markowski 1990
John F. Melesko, Jr. 1987
Jack E. Nelson 1996
William S. Rafferty 1990
Stephen M. Shea 1987
Charles J. Weymouth 1995
Kevin R. Hoben 1996
Stephen M. Schwaber 1997
Phil K. LaRosa 1997
Robert P. Kandel 1997
Richard E. Kessler 1997
Timothy P. Scanlan 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report be signed on its
behalf by the undersigned, thereunto duly authorized.
MESTEK, INC.
Date: March 31, 2000 By: /S/ John E. Reed
------------------------ ----------------
John E. Reed, Chairman of the Board
and Chief Executive Officer
Date: March 31, 2000 By: /S/ Stephen M. Shea
------------------------ -------------------
Stephen M. Shea, Senior Vice President
Finance, Chief Financial 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.
Date: March 31, 2000 By: /S/ A. Warne Boyce
------------------------ ------------------
A. Warne Boyce, Director
Date: March 31, 2000 By: /S/ E. Herbert Burk
------------------------ ------------------
E. Herbert Burk, Director
Date: March 31, 2000 By: /S/ William J. Coad
------------------------ -------------------
William J. Coad, Director
<PAGE>
Date: March 31, 2000 By: /S/ David M. Kelly
------------------------ -----------------
David M. Kelly, Director
Date: March 31, 2000 By: /S/ Winston R. Hindle, Jr.
------------------------ --------------------------
Winston R. Hindle, Jr., Director
Date: March 31, 2000 By: /S/ David W. Hunter
------------------------ -------------------
David W. Hunter, Director
Date: March 31, 2000 By: /S/ David R. Macdonald
------------------------ ----------------------
David R. Macdonald, Director
Date: March 31, 2000 By: /S/ John E. Reed
------------------------ ----------------
John E. Reed, Director
Date: March 31, 2000 By: /S/ Stewart B. Reed
------------------------ -------------------
Stewart B. Reed, Director
AGREEMENT AND PLAN OF REORGANIZATION
OF
FORMTEK ACQUISITION, INC.
(A Corporation of the State of Delaware),
FORMTEK, INC.
(A Corporation of the State of Delaware),
AND
MET-COIL SYSTEMS CORPORATION
(A Corporation of the State of Delaware)
DATED March 13, 2000
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006
Telephone: (202) 452-7000
Facsimile: (202) 452-7074
<PAGE>
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as
of March 13, 2000, by and among Formtek Acquisition, Inc., a corporation
organized under the laws of the State of Delaware ("Merger Sub" or "Surviving
Corporation"); Formtek, Inc., a corporation organized under the laws of the
State of Delaware ("Parent"); and Met-Coil Systems Corporation, a corporation
organized under the laws of the State of Delaware (the "Company"). Capitalized
terms used and not otherwise defined herein shall have the meanings assigned
thereto in Article XI.
WITNESSETH:
WHEREAS, Merger Sub is the wholly-owned Subsidiary of Parent;
WHEREAS, the Board of Directors of the Company, Parent and Merger Sub
have each approved the merger of the Company with and into Merger Sub (the
"Merger"), pursuant to the terms and conditions of this Agreement;
WHEREAS, the Board of Directors of the Company has (x) determined that
the terms of the Merger are advisable and in the best interests of the holders
of capital stock of the Company, (y) approved the Merger, and (z) recommended
the approval of the Merger and the approval and adoption of this Agreement by
the stockholders of the Company;
WHEREAS, the Board of Directors of Merger Sub has deemed it advisable
to merge with the Company and has recommended to its sole stockholder, Parent,
that it approve the Merger on the terms and conditions of this Agreement;
WHEREAS, Parent, as the sole stockholder of Merger Sub, has approved
and consented to the Merger of the Company with and into Merger Sub on the terms
and conditions of this Agreement;
WHEREAS, Parent and Merger Sub are unwilling to enter into this
Agreement unless certain holders of Shares, immediately following the execution
and delivery of this Agreement, enter into stockholder agreements (the
"Stockholder Agreements") among Parent, Merger Sub and each of certain holders
of Shares providing for, among other things, the agreement of such holders to
vote all of their Shares in favor of the Merger and granting to Parent and
Merger Sub an option to purchase such Shares;
WHEREAS, the Board of Directors of the Company has approved the
transactions contemplated by the terms of the Stockholder Agreements to the
extent such transactions result in Parent or Merger Sub being interested
stockholders for purposes of Section 203 of the DGCL; and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger;
NOW, THEREFORE, it is agreed as follows by all of the parties,
acknowledging the receipt and sufficiency of the consideration exchanged herein
and intending to be legally bound hereby:
ARTICLE I
THE MERGER
1.1 Surviving Corporation. At the Effective Time, the Company shall
merge with and into Merger Sub, with Merger Sub as the surviving corporation,
pursuant to the terms and conditions contained herein. The Surviving Corporation
shall continue to be governed by the laws of the State of Delaware, but the
separate corporate existence of the Company shall cease forthwith upon the
Effective Time. Following the Merger, the existence of the Surviving Corporation
shall continue unaffected and unimpaired by the Merger, with all the rights,
privileges, immunities, and powers, and subject to all the duties and
liabilities, of a corporation organized under the laws of the State of Delaware.
1.2 Effective Time. The closing of the Merger (the "Closing") shall
take place (i) at the offices of Baker & McKenzie at 815 Connecticut Avenue,
N.W., Washington, D.C., as soon as practicable, but in any event within three
business days after the day on which the last to be fulfilled or waived of the
conditions set forth in Articles VII and VIII (other than those conditions that
by their nature are to be fulfilled at the Closing, but subject to the
fulfillment or waiver of such conditions) shall be fulfilled or waived in
accordance with this Agreement or (ii) at such other place and time or on such
other date as the Company and Parent may agree in writing. The date on which the
Closing takes place shall be referred to hereinafter as the "Closing Date," at
which time the Company and Merger Sub will file a certificate of merger with the
Delaware Secretary of State and make all other filings and recordings required
by Delaware law in connection with the Merger. The Merger shall become effective
at such time (the "Effective Time") as the certificate of merger is duly filed
with the Delaware Secretary of State or at such later time as is specified in
the certificate of merger.
1.3 Name. The name of Surviving Corporation shall be changed as of the
Effective Time to Met-Coil Systems Corporation.
1.4 Certificate of Incorporation. The Certificate of Incorporation of
the Surviving Corporation as in effect immediately prior to the Effective Time,
shall continue in full force and effect and, except as provided in Section 1.3
above, shall not be changed in any manner by the Merger and shall be the
Certificate of Incorporation of the Surviving Corporation following the
Effective Time unless and until the same be amended or repealed in accordance
with the provisions thereof, which power to amend or repeal is hereby expressly
reserved, and all rights or powers of whatsoever nature conferred in such
Certificate of Incorporation or herein upon any shareholder or director or
officer of the Surviving Corporation or upon any other persons whomsoever are
subject to the reserve power. Such Certificate of Incorporation shall constitute
the Certificate of Incorporation of the Surviving Corporation separate and apart
from this Agreement and may be separately certified as the Certificate of
Incorporation of the Surviving Corporation.
1.5 Bylaws. The Bylaws of the Surviving Corporation as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation following the Effective Time unless and until the same shall be
amended or repealed in accordance with the provisions thereof.
1.6 Directors and Officers. The members of the Board of Directors of
the Surviving Corporation immediately after the Effective Time shall be John E.
Reed, R. Bruce Dewey, Donald Hill, James Heitt and Raymond Blakeman. The
officers of the Surviving Corporation immediately after the Effective Time of
the Merger shall include John E. Reed as Chairman, James Heitt as President,
Stephen M. Shea as Senior Vice President - Finance and Treasurer, and Timothy
Scanlan as Secretary. All such directors and officers shall serve in such
offices until their respective successors are elected and qualified, subject to
the provisions of the Bylaws and of the DGCL.
1.7 Additional Acts. If at any time the Surviving Corporation shall
consider or be advised that any acknowledgments or assurances in law or other
similar actions are necessary or desirable in order to acknowledge or confirm in
and to the Surviving Corporation any right, title, or interest of the Company
held immediately prior to the Effective Time, the Company and its proper
officers, directors and representatives shall and will, without further
consideration, on behalf of the Company, execute and deliver all such
acknowledgments or assurances in law and do all things necessary or proper to
acknowledge or confirm such right, title, or interest in the Surviving
Corporation as shall be necessary to carry out the purposes of this Agreement,
and the Surviving Corporation and the proper officers and directors thereof are
fully authorized to take any and all such action in the name of the Company or
otherwise.
1.8 Transfer of Property and Liabilities. At and after the Effective Time:
The Surviving Corporation shall succeed to and possess, without further
act or deed, all of the estate, rights, privileges, powers, and franchises, both
public and private, all of the property, real, personal, and mixed, of the
Company and Surviving Corporation; all debts due to the Company shall be vested
in the Surviving Corporation; all claims, demands, property, rights, privileges,
powers and franchises and every other interest of either of the parties to the
Merger shall be as effectively the property of the Surviving Corporation as they
were of the respective parties to the Merger; the title to any real estate
vested by deed or otherwise in the Company shall not revert or be in any way
impaired by reason of the Merger, but shall be vested in the Surviving
Corporation; all rights of creditors and all liens upon any property of either
of the parties to the Merger shall be preserved unimpaired, limited in lien to
the property affected by such lien at the Effective Time of the Merger; and all
debts, liabilities, and duties of the respective parties to the Merger shall
thenceforth attach to the Surviving Corporation and may be enforced against it
to the same extent as if such debts, liabilities, and duties had been incurred
or contracted by it.
ARTICLE II
CONVERSION OF SHARES OF CAPITAL STOCK
2.1 Merger Consideration. Subject to the provisions of this Article, at
the Effective Time, by virtue of the Merger and without any action on the part
of Parent, Merger Sub or the Company or the shareholders thereof, each share of
capital stock of Merger Sub and the Company issued and outstanding immediately
prior to the Effective Time shall be converted or cancelled as follows:
(a) Each share of Merger Sub that is issued and outstanding immediately
prior to the Effective Time shall become one fully paid and nonassessable share
of common stock, par value $0.01 per share, of the Surviving Corporation.
(b) Each Share that is issued and outstanding immediately prior to the
Effective Time (other than (i) any Shares which are held by any Subsidiary or in
the treasury of the Company, or which are held, directly or indirectly, by
Parent or any direct or indirect Subsidiary of Parent (including Merger Sub),
all of which shall be cancelled and none of which shall receive any payment with
respect thereto and (ii) Shares held by Dissenting Stockholders) shall be
cancelled and converted into and represent the right to receive an amount in
cash, without interest, equal to Seven Dollars and Ten Cents ($7.10) per Share
(the "Merger Consideration").
2.2 Stock Options and Warrants.
(a) Each Option and Warrant which is outstanding at the Effective Time
shall be canceled by virtue of the Merger and without any action on the part of
Parent, Merger Sub or the Company or the shareholders thereof, without
consideration except as provided in this Section 2.2(a), and shall cease to
exist. Each holder of an Option or Warrant, whether or not such Option or
Warrant is then exercisable, shall be entitled to receive, subject to applicable
withholding requirements, a cash payment (the "Cash Payment"), without interest,
at the Effective Time, equal to the product of (i) the total number of Shares as
to which such Option or Warrant could have been exercisable or convertible ("the
Option Shares") and (ii) the excess of the Merger Consideration over the
exercise price per Share subject to such Option or Warrant. Each such Cash
Payment shall be paid to each holder of an outstanding Option or Warrant
promptly after the Effective Time.
(b) The Company will ensure that any then-outstanding stock
appreciation rights or limited stock appreciation rights shall be cancelled as
of immediately prior to the Effective Time without any payment therefor. The
Company will ensure that the Met-Coil Systems Corporation 1997 Non-Employee
Directors Stock Option Plan, the Met-Coil Systems Corporation 1999 Non-Employee
Directors Stock Purchase Plan, the Met-Coil Systems Corporation 1993 Employees
Stock Option Plan and any other plan, program or arrangement (other than the
Met-Coil Systems Corporation Retirement Plan and the Met-Coil Systems Employee
Stock Ownership Plan) providing for the issuance or grant of any other interest
in respect of the capital stock of the Company or any of its subsidiaries
(collectively referred to as the "Stock Incentive Plans") shall terminate as of
the Effective Time.
2.3 Exchange of Certificates. The manner of making payment for Shares in
the Merger shall be as follows:
(a) (i) Prior to the Effective Time, Parent shall designate a bank or
trust company located in the United States reasonably satisfactory to the
Company to act as Paying Agent (the "Paying Agent") for the holders of Shares in
connection with the Merger and to receive the funds which holders of Shares will
be entitled to receive pursuant to Sections 2.1 and 2.2. Promptly after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "Company Certificates") (other than those
which are held by any Subsidiary of the Company or in the treasury of the
Company or which are held directly or indirectly by Parent or any direct or
indirect Subsidiary of Parent (including Merger Sub)) (1) a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Company Certificates shall pass, only upon proper delivery
of the Company Certificates to the Paying Agent) and (2) instructions for use in
effecting the surrender of the Company Certificates for payment therefor. Upon
surrender of Company Certificates for cancellation to the Paying Agent, together
with such letter of transmittal duly executed and any other required documents,
the holder of such Company Certificates shall be entitled to receive the Merger
Consideration deliverable in respect thereof and the Company Certificates shall
forthwith be cancelled. Until so surrendered, Company Certificates shall
represent solely the right to receive the Merger Consideration payable in
respect of the Shares represented thereby.
(ii) If the Merger Consideration is to be paid to or issued in a name
other than that in which the Company Certificate surrendered in exchange
therefor is registered, it shall be a condition of such exchange that the
Company Certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the Person requesting such exchange shall pay
to the Paying Agent any transfer or other taxes required by reason of the
foregoing or shall establish to the reasonable satisfaction of the Paying Agent
that such tax has been paid or is not applicable.
(b) In the event that any Company Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Company Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Company Certificate, the Paying
Agent will deliver to the Person delivering such affidavit the Merger
Consideration payable in respect of the Shares represented by such lost, stolen
or destroyed Company Certificates.
(c) Concurrently with or immediately prior to the Effective Time,
Parent shall, or shall cause Merger Sub to, deposit in trust with the Paying
Agent cash in United States dollars in an aggregate amount equal to (i) the
product of (x) the number of Shares outstanding immediately prior to the
Effective Time (other than Shares which are held by any Subsidiary of the
Company or in the treasury of the Company or which are held directly or
indirectly by Parent or any direct or indirect Subsidiary of Parent (including
Merger Sub) or a Person known at the time of such deposit to be a Dissenting
Stockholder) and (y) the Merger Consideration and (ii) the product of (x) the
Option Shares and (y) the excess of the Merger Consideration over the exercise
price per Share in respect of such Options or Warrants (such aggregate amount
being hereinafter referred to as the "Payment Fund"). The Payment Fund shall be
invested by the Paying Agent as directed by Parent in direct obligations of the
United States, obligations for which the full faith and credit of the United
States is pledged to provide for the payment of principal and interest,
commercial paper rated of the highest quality by Moody's Investors Services,
Inc. or Standard & Poor's Ratings Group or certificates of deposit, bank
repurchase agreements or bankers' acceptances of a commercial bank having at
least $100,000,000 in assets (collectively "Permitted Investments") or in money
market funds which are invested in Permitted Investments, and any net earnings
with respect thereto shall be paid to Parent as and when requested by Parent.
The Paying Agent shall, pursuant to irrevocable instructions, make the payments
referred to in Sections 2.1 and 2.2 hereof out of the Payment Fund. The Payment
Fund shall not be used for any other purpose except as otherwise agreed to by
Parent. Promptly following the date which is six months after the Effective
Time, the Paying Agent shall return to the Surviving Corporation all cash,
certificates and other instruments in its possession that constitute any portion
of the Payment Fund (other than net earnings on the Payment Fund which shall be
paid to Parent), and the Paying Agent's duties shall terminate. Thereafter, each
holder of a Company Certificate may surrender such Company Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat and
similar laws) receive in exchange therefor the Merger Consideration, without
interest, but shall have no greater rights against the Surviving Corporation or
Parent than may be accorded to general creditors of the Surviving Corporation or
Parent under applicable law. Notwithstanding the foregoing, neither the Paying
Agent nor any party hereto shall be liable to a holder of Shares for any Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws.
2.4 Transfer of Shares Immediately Prior to and After the Effective
Time. No transfers of Shares shall be made on the stock transfer books of the
Company after the close of business on the day prior to the date of the
Effective Time. No transfer of Shares shall be made on the stock transfer books
of the Surviving Corporation. Company Certificates presented to the Surviving
Corporation after the Effective Time shall be canceled and exchanged for cash as
provided in this Article. At and after the Effective Time, each holder of a
Company Certificate shall cease to have any rights as a stockholder of the
Company, except for, in the case of a holder of a Company Certificate (other
than Shares to be canceled pursuant to Section 2.1 hereof, and other than Shares
held by Dissenting Stockholders), the right to surrender his or her Company
Certificate in exchange for payment of the Merger Consideration or, in the case
of a Dissenting Stockholder, the right to perfect his or her right to receive
payment for his or her Shares pursuant to Delaware law if such holder has
validly perfected and not withdrawn his or her right to receive payment for his
or her Shares.
2.5 Dissenting Shares. Notwithstanding anything contained in this
Agreement to the contrary but only to the extent required by the DGCL, Shares
that are issued and outstanding immediately prior to the Effective Time and are
held by holders of Shares who comply with all the provisions of the law of the
State of Delaware concerning the right of holders of Shares to dissent from the
Merger and require appraisal of their Shares (such holders being referred to
hereinafter as "Dissenting Stockholders", and such Shares being referred to
hereinafter as "Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration but shall become the right to receive such
consideration as may be determined to be due such Dissenting Stockholder
pursuant to the law of the State of Delaware; provided, however, that (i) if any
Dissenting Stockholder shall subsequently deliver a written withdrawal of his or
her demand for appraisal (with the written approval of the Surviving
Corporation, if such withdrawal is not tendered within 60 days after the
Effective Time), or (ii) if any Dissenting Stockholder fails to establish and
perfect his or her entitlement to appraisal rights as provided by applicable
law, or (iii) if within 120 days of the Effective Time neither any Dissenting
Stockholder nor the Surviving Corporation has filed a petition demanding a
determination of the value of all Shares outstanding at the Effective Time and
held by Dissenting Stockholders in accordance with applicable law, then such
Dissenting Stockholder or Dissenting Stockholders, as the case may be, shall
forfeit the right to appraisal of such Shares and such Shares shall thereupon be
deemed to have been converted into the right to receive, as of the Effective
Time, the applicable Merger Consideration, without interest, as provided in
Section 2.3, and such Shares shall no longer be Dissenting Shares. The Company
shall give Parent and Merger Sub (x) prompt notice of any written demands for
appraisal, withdrawals of demands for appraisal and any other related
instruments received by the Company, and (y) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal. The Company
shall not voluntarily make any payment with respect to any demands for appraisal
and shall not, except with the prior written consent of Parent, settle or offer
to settle any such demand.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
All representations and warranties contained herein shall terminate at
the Effective Time. The Company represents and warrants to Parent and the Merger
Sub the following as of the date hereof.
3.1 Corporate Standing.
(a) The Company is organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation. The Company has full
corporate authority to own, lease and operate its properties and businesses.
Schedule 3.1 to the Company Disclosure Statement sets forth a list of the
jurisdictions in which the Company is qualified to conduct business as a foreign
corporation. The Company is in good standing as a foreign corporation under the
laws of the states listed in Schedule 3.1.
(b) The Company has made available to Parent and Merger Sub complete
and correct copies of the Company Charter and Bylaws and the certificates of
incorporation, bylaws and other similar organizational documents of each of its
Subsidiaries, in each case as amended to the date of this Agreement.
3.2 Subsidiaries. Schedule 3.2 to the Company Disclosure Statement
contains a complete and accurate list of all of the Subsidiaries of the Company
as of the date hereof. Each Subsidiary of the Company is a corporation or other
legal entity duly organized, validly existing and (if applicable) in good
standing under the laws of the jurisdiction of its organization and has all
requisite corporate, partnership or similar power and authority to own its
properties and conduct its business and operations as currently conducted.
Schedule 3.2 to the Company Disclosure Statement sets forth a list of the
jurisdictions in which each Subsidiary of the Company is qualified to conduct
business as a foreign corporation. Each Subsidiary is in good standing under the
laws of the states listed under their names in Schedule 3.2.
3.3 Authority.
---------
(a) The Company has the full corporate power and authority to enter
into, execute, deliver and perform this Agreement and all Exhibits to which it
is a party. The execution, delivery and performance of this Agreement and such
Exhibits, and the consummation of all transactions contemplated herein and
therein, have been duly authorized by all necessary corporate and other action
of the Company and no other corporate action on the part of the Company is
necessary to authorize the execution, delivery and performance of this Agreement
and such Exhibits by the Company and the consummation of the transactions
contemplated hereby except for the approval of the Company's stockholders
contemplated by Section 6.4. This Agreement has been duly executed and delivered
by a duly authorized officer of the Company and (assuming the due execution and
delivery of this Agreement by the other parties hereto) constitutes a valid and
binding agreement of the Company, enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency and other similar laws affecting the
rights of creditors generally and except that the remedies of specific
performance, injunction and other forms of equitable relief may not be
available. The Exhibits to which the Company is a party, when duly executed and
delivered by the Company (assuming the due execution and delivery of such
Exhibits by the other parties hereto) constitute valid and binding agreements of
the Company enforceable against it in accordance with their terms, subject to
bankruptcy, insolvency and other similar laws affecting the rights of creditors
generally and except that the remedies of specific performance, injunction and
other forms of mandatory equitable relief may not be available.
(b) The Board of Directors of the Company has approved the transactions
contemplated by this Agreement and the Exhibits to which the Company is a party,
including the Merger and, solely for purposes of Section 203 of the DGCL, the
provisions contained in the Stockholder Agreements which could result in Parent
or Merger Sub becoming an interested stockholder under Section 203 of the DGCL.
(c) The Board of Directors of the Company has directed that this
Agreement be submitted to the stockholders of the Company for their approval.
The affirmative approval, by vote or written consent, of the holders of Shares
representing a majority of the outstanding Shares is the only vote of the
holders of any class or series of capital stock of the Company necessary to
approve and adopt this Agreement and approve the Merger.
(d) Except as set forth in Schedule 3.3(d) to the Company Disclosure
Statement, neither the execution and delivery of this Agreement nor the
execution and delivery of the certificates and documents set forth as Exhibits
hereto nor the consummation of the transactions contemplated hereby or thereby
will (i) conflict with or violate any provision of the Company Charter or Bylaws
of the Company or the certificates of incorporation, bylaws or other similar
organizational documents of any Subsidiary of the Company, (ii) conflict with or
violate any law, rule, regulation, ordinance, order, writ, injunction, judgment
or decree applicable to the Company or any Subsidiary of the Company or their
businesses or by which any of their assets is affected, except to the extent any
such conflict or violation would not, individually or in the aggregate, have a
Material Adverse Effect, or (iii) conflict with or result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination or
cancellation of, or accelerate the performance required by or maturity of, or
result in the creation of any security interest, lien, charge or encumbrance on
the assets of the Company or any Subsidiary of the Company pursuant to any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
permit, license, franchise, lease, contract, or other instrument or obligation
to which either the Company or any Subsidiary of the Company is a party or by
which any of the assets of the Company or any Subsidiary of the Company are
affected, except to the extent any such conflict, breach, default, right of
termination or cancellation, acceleration or creation of any such security
interest, lien, charge or encumbrance would not, individually or in the
aggregate, have a Material Adverse Effect.
(e) Except as set forth in Schedule 3.3(e) to the Company Disclosure
Statement, none of the Company or any Subsidiary of the Company are required to
submit any notice, declaration, report or other filing or registration with any
governmental or regulatory authority or instrumentality, and no approvals or
non-objections are required to be obtained or made by the Company or any
Subsidiary of the Company in connection with the execution, delivery or
performance by the Company or any Subsidiary of the Company of this Agreement or
any Exhibit or the consummation of the transactions contemplated hereby or
thereby, except for approvals that may be required under the DGCL, the HSR Act
and the Exchange Act.
3.4 Capitalization.
--------------
(a) Schedule 3.4(a) to the Company Disclosure Statement sets forth the
aggregate number of the authorized, issued and outstanding shares of capital
stock of the Company as of the date hereof. The shares of issued and outstanding
capital stock of the Company have been duly authorized and validly issued and
are fully paid and non-assessable. None of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive or other similar
rights of any securityholder of the Company. Except as disclosed in Schedule
3.4(a) of the Company Disclosure Statement, (i) there are no shares of capital
stock of the Company authorized, issued or outstanding and (ii) there are not as
of the date hereof, and at the Closing Date there will not be, any outstanding
or authorized options, warrants, rights, subscriptions, claims of any character,
agreements, obligations, convertible or exchangeable securities, or other
commitments, contingent or otherwise, relating to Shares or any other shares of
capital stock of the Company, pursuant to which the Company is or may become
obligated to issue Shares or any other shares of its capital stock or any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of the capital stock of the Company. The Company has
no authorized or outstanding bonds, debentures, notes or other indebtedness the
holders of which have the right to vote (or convertible or exchangeable into or
exercisable for securities having the right to vote) with the stockholders of
the Company or any of its Subsidiaries on any matter ("Voting Debt"). After the
Closing Date, the Surviving Corporation will have no obligation, as a result of
the Company's actions, to issue, transfer or sell any Shares or any shares of
capital stock of the Surviving Corporation.
(b) No class of capital stock of the Company is entitled to pre-emptive
rights.
(c) There are no Warrants or Options held in the treasury of the Company.
(d) Except as disclosed in Schedule 3.4(d) to the Company Disclosure
Statement, all of the issued and outstanding capital stock of each Subsidiary of
the Company has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through its wholly-owned
Subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity and none of the outstanding shares of capital stock
of such Subsidiaries was issued in violation of any preemptive or similar rights
arising by operation of law, or under the charter or bylaws (or other similar
organizational documents) of any Subsidiary of the Company or under any
agreement to which the Company or any of its Subsidiaries is a party. No shares
of capital stock of any of the Subsidiaries are reserved for issuance and there
are no outstanding or authorized options, warrants, rights, subscriptions,
claims of any character, agreements, obligations, convertible or exchangeable
securities, or other commitments, contingent or otherwise, relating to the
capital stock of any Subsidiary of the Company, pursuant to which such
Subsidiary is or may become obligated to issue any shares of capital stock of
such Subsidiary or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of such Subsidiary. Except as
disclosed in Schedule 3.4(d) to the Company Disclosure Statement and except as
required by applicable Law, there are no restrictions of any kind which prevent
the payment of dividends by any of the Subsidiaries of the Company. Except as
disclosed in Schedule 3.4(d) to the Company Disclosure Statement, the Company
does not own, directly or indirectly, any capital stock or other equity interest
in any Person or have any direct or indirect equity or ownership interest in any
Person and neither the Company nor any of its Subsidiaries is subject to any
obligation or requirement to provide funds for or to make any investment (in the
form of a loan, capital contribution or otherwise) to or in any Person. The
Company's Subsidiaries have no Voting Debt.
3.5 Opinion of the Company's Financial Advisor. The Board of Directors
of the Company has received (i) the opinion, as of the date hereof, of Lincoln
Partners L.L.C. to the effect that the Merger Consideration is fair to the
stockholders of the Company from a financial point of view, subject to the
assumptions and qualifications contained in such opinion, and (ii) a commitment
from Lincoln Partners L.L.C. to deliver such opinion in written format to the
Board of Directors of the Company as promptly as reasonably practicable after
the date hereof.
3.6 Operation of the Company's Business. The Company and its
Subsidiaries own and retain all such assets, tangible or intangible,
contractual, license and leasehold rights necessary for the Surviving
Corporation (i) to operate the business of the Company and its Subsidiaries as
they operate them on the date hereof, and (ii) to utilize the assets and
contractual, license and leasehold rights in the same manner as they are used on
the date hereof, except to the extent such lack of ownership or failure to
retain would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. With the exception of those assets used in the
business of the Company and its Subsidiaries pursuant to license and leasehold
rights in favor of the Company and its Subsidiaries, all of the assets used in
the business of the Company and its Subsidiaries are owned by the Company and
its Subsidiaries, and none are owned by any other party.
3.7 Litigation. Except as set forth in Schedule 3.7 to the Company
Disclosure Statement, there are no actions, proceedings, suits, inquiries or
investigations before or by any Governmental Authority or any arbitrator or any
other alternative dispute resolution forum, now pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries which
would reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect, and none of the Company, any of its Subsidiaries or any
of their assets is subject to any judgment, order or decree entered in any
lawsuit, action or proceeding.
3.8 Employee Benefit Plans.
----------------------
(a) Schedule 3.8(a) to the Company Disclosure Statement contains a
complete and accurate list of all Company Plans, Company Multiemployer Plans and
Company Other Benefit Obligations (other than those Company Other Benefit
Obligations that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect).
(b) Schedule 3.8(b) to the Company Disclosure Statement sets forth the
financial cost of all obligations owed under any Company Plan or Company Other
Benefit Obligation (other than those Company Other Benefit Obligations that
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect) that is not subject to the disclosure and reporting
requirements of ERISA.
(c) Schedule 3.8(c) to the Company Disclosure Statement sets forth, for
each Company Multiemployer Plan, as of its last valuation date, the amount of
potential withdrawal liability of the Company and any ERISA Affiliates of the
Company, calculated according to information made available pursuant to ERISA
Section 4221(e).
(d) the Company has delivered to Parent and the Merger Sub:
(i) all documents that set forth the terms of each Company
Plan, Company Multiemployer Plan or Company Other Benefit Obligation
(other than those Company Other Benefit Obligations that would not
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect), and of any related trust, including all
summary plan descriptions, summaries and descriptions furnished to
participants and beneficiaries;
(ii) all personnel, payroll, and employment manuals and policies;
(iii) a written description of any Company Plan or Company
Other Benefit Obligation (other than those Company Other Benefit
Obligations that would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect) that is not otherwise
in writing;
(iv) all registration statements filed with respect to any
Company Plan;
(v) all insurance policies purchased by or to provide benefits
under any Company Plan;
(vi) all reports submitted to the Company or any Subsidiary
within the three years preceding the date of this Agreement by third
party administrators, actuaries, investment managers, trustees,
consultants, or other independent contractors with respect to any
Company Plan or Company Other Benefit Obligation (other than those
Company Other Benefit Obligations that would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect);
(vii) the Form 5500 filed in each of the most recent three
plan years with respect to each Company Plan and Company Other Benefit
Obligation, including all schedules thereto and the opinions of
independent accountants;
(viii) all notices that were given by the Company or any ERISA
Affiliate of the Company or any Company Plan to the IRS, the PBGC, or
any participant or beneficiary, pursuant to ERISA or the Code, within
the three years preceding the date of this Agreement, including notices
that are expressly mentioned elsewhere in this Section 3.8;
(ix) all notices that were given by the IRS, the PBGC, or the
Department of Labor to the Company, any ERISA Affiliate of the Company,
or any Company Plan within the three years preceding the date of this
Agreement;
(x) with respect to Qualified Plans, the most recent
determination letter for each Plan of the Company that is a Qualified
Plan;
(xi) with respect to Title IV Plans, the Form PBGC-1 filed for
each of the three most recent plan years for each Plan of the Company
that is a Title IV Plan; and
(xii) with respect to Company Multiemployer Plans, the most
recent estimate of potential withdrawal liability prepared by each
Company Multiemployer Plan for the Company and each ERISA Affiliate of
the Company.
(e) Except as set forth in Schedule 3.8(e) to the Company Disclosure
Statement:
(i) The Company and its Subsidiaries have performed all of
their respective obligations under all Company Plans, Company
Multiemployer Plans and Company Other Benefit Obligations other than
any such obligations that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
The Company and its Subsidiaries have made appropriate entries in their
financial records and statements for all obligations and liabilities
under such Plans, Company Multiemployer Plans and Company Other Benefit
Obligations that have accrued but are not due other than any such
obligations and liabilities that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
(ii) The Company and its Subsidiaries, with respect to all
Company Plans and Company Other Benefit Obligations, are, and each
Company Plan and Company Other Benefit Obligation is, in compliance
with ERISA, the Code, and other applicable Laws including the
provisions of such Laws expressly mentioned in this Section 3.8, and
with any applicable collective bargaining agreement other than any
noncompliance that would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect. Except to the extent
that any of the following would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect:
(A) No transaction prohibited by ERISA Section 406
and no "prohibited transaction" under Code Section 4975(c) has
occurred with respect to any Company Plan.
(B) Neither the Company nor any of its Subsidiaries
has any liability to the IRS with respect to any Plan,
including any liability imposed by Chapter 43 of the Code.
(C) Neither the Company nor any of its Subsidiaries
has any liability to the PBGC with respect to any Plan or has
any liability under ERISA Section 502 or Section 4071.
(D) All contributions and payments made or accrued
with respect to all Company Plans, Company Multiemployer Plans
and Company Other Benefit Obligations are deductible under
Code Section 162 or Section 404.
(iii) No event has occurred or, to Company's knowledge,
circumstance exists that could result in an increase in premium costs
of Company Plans and Company Other Benefit Obligations that are insured
or an increase in benefit costs of such Plans and Company Other Benefit
Obligations that are self-insured other than any such increases that
would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.
(iv) Other than routine claims for benefits submitted by
participants or beneficiaries, no claim against, or legal proceeding or
investigation involving, any Company Plan or Company Other Benefit
Obligation is pending or is threatened.
(v) Each Qualified Plan of the Company and each of its
Subsidiaries has received a favorable determination letter from the
Internal Revenue Service that it is qualified under Code Section 401(a)
and that its related trust is exempt from federal income tax under Code
Section 501(a), and each such Plan complies in form and in operation
with the requirements of the Code and meets the requirements of a
"qualified plan" under Section 401(a) of the Code except to the extent
that any noncompliance or failure to meet such requirements would not
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect. No event has occurred or circumstance exists
that will or could give rise to disqualification or loss of tax-exempt
status of any such Plan or trust other than any such events or
circumstances that would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect .
(vi) The Company and each ERISA Affiliate of the Company has
met the minimum funding standard, and has made all contributions
required under each Company Plan and Company Multiemployer Plan, under
ERISA Section 302 and Code Section 412, and there is no unfunded
liability under any Company Plan.
(vii) The Company and each of its Subsidiaries has paid all
amounts due to the PBGC pursuant to ERISA Section 4007.
(viii) Neither the Company nor any ERISA Affiliate of the
Company has ceased operations at any facility or has withdrawn from any
Title IV Plan in a manner that would subject the Company to liability
under ERISA Sections 4062(e), 4063, or 4064.
(ix) Neither the Company nor any ERISA Affiliate of the
Company has filed a notice of intent to terminate any Plan or has
adopted any amendment to treat a Plan as terminated. The PBGC has not
instituted proceedings to treat any Company Plan as terminated. No
event has occurred or circumstance exists that may constitute grounds
under ERISA Section 4042 for the termination of, or the appointment of
a trustee to administer, any Company Plan other than any such events or
circumstances that would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect.
(x) No amendment has been made, or is reasonably expected to
be made, to any Company Plan that has required or could require the
provision of security under ERISA Section 307 or Code Section
401(a)(29).
(xi) No accumulated funding deficiency, whether or not waived,
exists with respect to any Company Plan; no event has occurred or
circumstance exists that may result in an accumulated funding
deficiency as of the last day of the current plan year of any such Plan
other than any such events or circumstances that would not reasonably
be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(xii) The actuarial report for each Company Plan that is a
Pension Plan fairly presents the financial condition and the results of
operations of each such Plan in accordance with GAAP.
(xiii) The actuarially determined present value of all accrued
benefits under each Title IV Plan of the Company (determined on a
projected benefits basis) does not exceed, as of the Closing Date, the
fair market value of the assets of each such Title IV Plan.
(xiv) No reportable event (as defined in ERISA Section 4043
and in regulations issued thereunder) has occurred.
(xv) Neither the Company nor any of its Subsidiaries has ever
established or contributed to, or had an obligation to contribute to,
any VEBA, any organization or trust described in Code Section
501(c)(17) or Code Section 501(c)(20), or any welfare benefit fund as
defined in Code Section 419(e).
(xvi) Neither the Company nor any ERISA Affiliate of the
Company has withdrawn from any Multiemployer Plan with respect to which
there is any outstanding liability as of the date of this Agreement. No
event has occurred or circumstance exists that presents a risk of the
occurrence of any withdrawal from, or the participation, termination,
reorganization, or insolvency of, any Multiemployer Plan that could
result in any liability of either the Company or Parent to a
Multiemployer Plan other than any such events that would not reasonably
be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(xvii) Except to the extent required under ERISA Section 601
et seq. and Code Section 4980B, neither the Company nor any of its
ERISA Affiliates provides health or welfare benefits for any retired or
former employee or is obligated to provide health or welfare benefits
to any active employee following such employee's retirement or other
termination of service.
(xviii) The Company and each of its Subsidiaries have the
right to modify and terminate benefits to retirees (other than
pensions) with respect to both retired and active employees.
(xix) The Company and each of its Subsidiaries have complied
with the provisions of ERISA Section 601 et seq. and
Code Section 4980B and with the provisions of ERISA Section 701 et seq
and Subtitle K of the Code.
(xx) No payment that is owed or may become due to any
director, officer, employee, or agent of the Company will be
non-deductible to the Company or any of its Subsidiaries under Code
Section 280G or subject to tax under Code Section 4999; nor will the
Company or any of its Subsidiaries be required to "gross up" or
otherwise compensate any such person because of the imposition of any
excise tax on a payment to such person.
(xxi) Each Company Plan that is or is purported to be an
"employee stock ownership plan", as such term is defined in Code
Section 4975(e)(7) (the "ESOP"), complies with all of the requirements
set forth in Code Section 4975(e)(7), Treas. Reg. Section 54.4975-11
and ERISA Section 407(d)(6) except to the extent that any noncompliance
would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. To the extent that there is or has been
a loan or other extension of credit made to the ESOP, that loan or
other extension of credit meets or has met the requirements of Treas.
Reg. Section 54.4975-7 and ERISA Reg. Section 2550.408b-3 except to the
extent that any failure to meet such requirements would not reasonably
be expected, individually or in the aggregate, to have a Material
Adverse Effect. The execution, delivery and performance of this
Agreement by the parties hereto and the consummation of the
transactions contemplated hereby will not: (A) constitute a violation
of, or give rise to any liability under, Title I of ERISA or Code
Section 4975; (B) result in a disqualification of the ESOP under Code
Section 401(a); (C) cause the ESOP to fail to comply with all of the
requirements set forth in Code Section 4975(e)(7), Treas. Reg. Section
54.4975-11 and ERISA Section 407(d)(6); or (D) result in the imposition
of a tax under Chapter 43 of the Code or Code Section 4978A (as in
effect prior to the Revenue Reconciliation Act of 1989).
(f) Since May 31, 1999, except as set forth on Schedule 3.8 (f) to the
Company Disclosure Statement attached hereto or as required by applicable law,
neither the Company nor an ERISA Affiliate has (i) instituted or agreed to
institute any new employee benefit plan or practice for any employee, (ii) made
or agreed to make any change in any Company Plan, (iii) made or agreed to make
any increase in the compensation payable or to become payable by the Company or
an ERISA Affiliate to any employee, other than regularly scheduled increases, or
(iv) except pursuant to this Agreement and except for contributions required to
provide benefits pursuant to the provisions of the Company Plans, paid or
accrued or agreed to pay or accrue any bonus, percentage of compensation, or
other like benefit to, or for the credit of, any employee.
(g) Any contribution, insurance premium, excise tax, interest charge or
other liability or charge imposed or required with respect to any Company Plan
which is attributable to any period or any portion of any period prior to the
Closing shall, to the extent required by GAAP, be reflected as a liability on
the Company's balance sheet at Closing, including, without limitation, any
portion of the matching contribution required with respect to each Company Plan
for its respective plan year ending after the Closing which is attributable to
elective contributions made by employees in such plan prior to the Closing.
3.9 Taxes. Except as set forth on Schedule 3.9 to the Company
Disclosure Statement:
(a) The Company and its Subsidiaries have timely filed or caused to be
timely filed all federal income Tax Returns. The Company and its Subsidiaries
have timely filed all other United States federal, state county, local and
foreign Tax Returns required to be filed by or with respect to them, except to
the extent that a failure to file such Tax Returns would not, in the aggregate
with all other undisclosed items covered by this Section 3.9, have a Material
Adverse Effect. Such Tax Returns have accurately reflected the liability for
Taxes of the Company and its Subsidiaries for the periods covered thereby,
except to the extent that any inaccuracies would not, in the aggregate with all
other undisclosed items covered by this Section 3.9, have a Material Adverse
Effect. All Taxes shown to be payable on such Tax Returns or on subsequent
assessments with respect thereto have been paid in full on a timely basis other
than assessments which are being contested in good faith, except to the extent
that any failures to pay any such Taxes would not, in the aggregate with all
other undisclosed items covered by this Section 3.9, have a Material Adverse
Effect. The amount of the liability of the Company and its Subsidiaries for
unassessed and/or unpaid Taxes for all periods ending on or before the Closing
Date, would not exceed the amount of the current liability accrual for Taxes
(including reserves for deferred Taxes) reflected on the Company's November 30,
1999 balance sheet, by an amount that would, when aggregated with all other
undisclosed items covered by this Section 3.9, have a Material Adverse Effect.
(b) There are no Tax assessments or adjustments that have been asserted
against the Company or its Subsidiaries for any period that would, in the
aggregate with all other undisclosed items covered by this Section 3.9, have a
Material Adverse Effect.
(c) There are no audits, examinations, actions, suits, proceedings,
investigations, claims or assessments pending or threatened, in writing or
otherwise to the knowledge of the Company, against the Company or any of its
Subsidiaries for any alleged deficiency in any Tax (a "Tax Controversy") and the
Company has not been notified in writing of any proposed Tax Controversy against
the Company or any of its Subsidiaries (other than a Tax Controversy set forth
in Schedule 3.9 to the Company Disclosure Statement which is being contested in
good faith). There are no "deferred intercompany transactions" or "intercompany
transactions" the gain or loss on which has not yet been taken into account
under the appropriate consolidated return Treasury Regulations that would, in
the aggregate with all other undisclosed items covered by this Section 3.9, have
a Material Adverse Effect. Except for the consolidated return of the Company and
its Subsidiaries, neither the Company nor any of its Subsidiaries have been
included in any "consolidated," "unitary" or "combined" Tax Return with respect
to Taxes for any taxable period for which the statute of limitations has not
expired. The Company has delivered to Parent correct and complete copies of all
United States federal, state, and foreign income Tax Returns (to the extent
filed as of the date hereof or, if due but not filed, correct and complete
copies of extensions thereof), examination reports, statements of deficiencies
assessed against or agreed to by the Company and any of its Subsidiaries, or any
other similar correspondence from a taxing authority, relating to taxable years
1996, 1997, 1998 and 1999. Schedule 3.9 (c)(i) of the Company Disclosure
Statement lists all of the jurisdictions in which the Company has filed or is
filing returns on sales and use tax. Schedule 3.9 (c) (ii) of the Company
Disclosure Statement lists all of the jurisdictions in which the Company has
filed or is filing returns on income tax.
(d) There are no liens on the assets of the Company or any of its
Subsidiaries for Taxes that would, in the aggregate with all other undisclosed
items in this Section 3.9, have a Material Adverse Effect.
(e) (i) Neither the Company nor any of its Subsidiaries has entered
into an agreement or waiver or been requested to enter into an
agreement or waiver extending any statute of limitations relating
to the payment or collection of Taxes of the Company or any of its
Subsidiaries.
(ii) All Taxes which the Company or any of its Subsidiaries is (or
was) required by law to withhold or collect (other than immaterial
amounts) have been duly withheld or collected, and have been
timely paid over to the proper authorities to the extent due and
payable.
(iii) No claim has ever been made by any taxing authority in a
jurisdiction where the Company or any of its Subsidiaries does not
file a Tax Return that the Company or any of its Subsidiaries is
or may be subject to taxation by that jurisdiction, except to the
extent that a failure to file such Tax Returns would not, in the
aggregate with all other undisclosed items covered by this Section
3.9, have a Material Adverse Effect.
(iv) There are no tax sharing, allocation, indemnification or
similar agreements in effect as between the Company or its
Subsidiaries or any predecessor or affiliate thereof or any other
party under which the Company, Parent or Merger Sub could be
liable for Taxes.
(v) Neither the Company nor any of its Subsidiaries has applied
for, been granted, or agreed to any accounting method change for
which it will be required to take into account any adjustment
under Section 481 of the Code or any similar provision of the Code
or the corresponding tax laws of any nation, state or locality.
(vi) No election under Section 341(f) of the Code has been made or
shall be made prior to the Closing Date to treat the Company or
any of its Subsidiaries as a consenting corporation, as defined in
Section 341 of the Code.
(vii) Neither the Company nor any of its Subsidiaries is a party
to any agreement that would require the Company or any of its
Subsidiaries or any affiliate thereof to make any payment that
would constitute an "excess parachute payment" for purposes of
Sections 280G and 4999 of the Code.
(viii) Neither the Company nor any of its Subsidiaries is a
"United States real property holding corporation" within the
meaning of Section 897(c)(2) of the Code.
(f) For purposes of this Agreement, the term "Tax" means any United
States federal, state, county or local, or foreign or provincial income, gross
receipts, profits, capital gains, capital stock, occupation, severance, stamp,
withholding, property, sales, use, license, excise, franchise, employment,
payroll, value added, alternative or added minimum, ad valorem or transfer tax,
or any other tax, levy, custom, duty or governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty imposed by any Governmental Authority, and shall include any liability
for such amounts as a result either of being a member of a combined,
consolidated, unitary or affiliated group or of a contractual obligation to
indemnify any person or other entity. The term "Tax Return" means a report,
return or other information (including any attached schedules or any amendments
to such report, return or other information) required to be supplied to or filed
with any Governmental Authority with respect to any Tax, including an
information return, claim for refund, amended return or declaration or estimated
Tax.
3.10 Intellectual Property. Except as disclosed in Schedule 3.10 to the
Company Disclosure Statement, the Company and its Subsidiaries own or have a
valid and enforceable license to use the rights to all patents, trademarks,
tradenames, service marks and copyrights, together with any registrations and
applications therefor, licenses, inventions, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) or other intellectual property
(collectively, "Intellectual Property") used in and necessary to carry on the
business now operated by them; provided, however, that the enforceability of
such license may be subject to bankruptcy, insolvency and other similar laws
affecting debtors' rights or creditors' rights generally and except that the
remedies of specific performance, injunction and other forms of equitable relief
may not be available. Except as disclosed in Schedule 3.10 to the Company
Disclosure Statement, neither the Company nor any of its Subsidiaries has
received any written notice or otherwise has knowledge of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any Intellectual
Property invalid or inadequate to protect the interest of the Company or any of
its Subsidiaries therein, and which infringement or conflict (if the subject of
any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly
or in the aggregate, would result in a Material Adverse Effect. There are no
amounts owing or to be owed by the Company to any other Person, as a result of
the consummation of the Merger or otherwise, with respect to any claims relating
to any Intellectual Property (or any intellectual property rights of any other
Person) or any settlement thereof.
3.11 Reports and Financial Statements.
--------------------------------
(a) The Company has filed all forms, reports and documents with the SEC
required to be filed by it since January 1, 1997 pursuant to the federal
securities laws and the SEC rules and regulations thereunder (collectively, the
"Company SEC Reports"). None of the Company SEC Reports, as of their respective
dates, contained any untrue statement of material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets (including the related
notes) included in the Company SEC Reports presents fairly, in all material
respects, the consolidated financial position of the Company and its
Subsidiaries as of the respective dates thereof, and the other related
statements (including the related notes) included in the Company SEC Reports
present fairly, in all material respects, the results of operations and the
changes in financial position of the Company and its Subsidiaries for the
respective periods or as of the respective dates set forth therein, all in
conformity with generally accepted accounting principles consistently applied
during the periods involved, except as otherwise noted therein and subject, in
the case of the unaudited interim financial statements, to normal year-end
adjustments. All of the Company SEC Reports, as of their respective dates,
complied as to form in all material respects with the requirements of the
Exchange Act or the Securities Act, as applicable, and the applicable rules and
regulations thereunder.
(b) Except (i) as and to the extent disclosed or reserved against on
the balance sheet of the Company as of November 30, 1999 included in the Company
SEC Reports or (ii) as incurred after the date thereof in the ordinary course of
business consistent with prior practice and not prohibited by this Agreement and
not involving borrowing by the Company or its Subsidiaries, the Company does not
have any liabilities or obligations of any nature, absolute, accrued, contingent
or otherwise and whether due or to become due, that, individually or in the
aggregate, have or would reasonably be expected to have a Material Adverse
Effect on the Company.
3.12 Absence of Certain Changes or Events. During the period since
May 31, 1999, except as disclosed in the Company SEC
Reports filed prior to the date hereof:
(a) The business of the Company and its Subsidiaries has been conducted
only in the ordinary course, consistent with past practice, except for
activities related to possible strategic alternatives for the Company, including
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and except as otherwise expressly permitted or
required by this Agreement;
(b) Neither the Company nor any of its Subsidiaries has taken any
action or omitted to take any action, or entered into any contract, agreement,
commitment or arrangement to take any action or omit to take any action, which,
if taken or omitted after the date hereof, would violate Section 6.1.; and
(c) There has not been, and, to the best knowledge of the Company,
nothing has occurred that would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
3.13 Registration Rights and Certain Other Agreements. Set forth in
Schedule 3.13 to the Company Disclosure Statement is an accurate and complete
listing, as of the date hereof, of (a) all contracts, leases, agreements or
understandings, whether written or (to the knowledge of the Company) oral, to
which the Company or any of its Subsidiaries is a party or is otherwise bound
which contain any restriction or limitation on the ability of the Company or any
of its Affiliates to engage in any business anywhere in the world, and (b) all
contracts, leases, agreements or understandings, whether written or (to the
knowledge of the Company) oral, giving any Person the right to require the
Company to register securities of any type or to participate in any registration
of securities of any type. The Company has previously provided or made available
to Parent true and complete copies of each of the foregoing agreements.
3.14 Brokers and Finders. Except for the fees and expenses payable to
Lincoln Partners L.L.C. (whose fees and expenses will be paid by the Company),
which fees and expenses are reflected in its agreements with the Company, copies
of which have been furnished to Parent by the Company, no agent, broker, Person
or firm acting on behalf of the Company is, or will be, entitled to any fee,
commission or broker's or finder's fees from any of the parties hereto, or from
any Person controlling, controlled by, or under common control with any of the
parties hereto, in connection with this Agreement or any of the transactions
contemplated hereby.
3.15 Proxy Statement. The definitive proxy statement and related
materials to be furnished to the holders of Common Stock in connection with the
Merger (the "Proxy Statement") will comply in all material respects with the
Exchange Act and the rules and regulations thereunder and any other applicable
laws. If at any time prior to the Company Stockholders' Meeting any event occurs
which should be described in an amendment or supplement to the Proxy Statement,
the Company will file and disseminate, as required, an amendment or supplement
which complies in all material respects with the Exchange Act and the rules and
regulations thereunder and any other applicable laws. Prior to its filing with
the SEC, the amendment or supplement shall be delivered to Parent and Merger Sub
and their counsel. None of the information supplied by the Company for inclusion
or incorporation by reference in the Proxy Statement, will, at the date such
information is supplied and at the Closing Date, contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made, in light of the circumstance under which they are made, not
misleading. Notwithstanding the foregoing, no representation or warranty is made
by the Company with respect to any information with respect to Parent, Merger
Sub or their officers, directors or affiliates provided to the Company by Parent
or Merger Sub for inclusion or incorporation by reference in the Proxy
Statement.
3.16 Title To Assets. Except as reflected in the Company's financial
statements as of November 30, 1999 or disclosed in Schedule 3.16 to the Company
Disclosure Statement, the Company and each of its Subsidiaries has good and
marketable title to (or in the case of leases or other contracts, the full and
unencumbered right to exercise its rights under such leases or other agreements)
the properties and assets used by it, free and clear of all mortgages, deeds of
trust, liens, security interests, pledges, encumbrances, encroachments,
easements, leases, agreements, covenants, charges, restrictions, option, joint
ownership or adverse claims or rights whatsoever (collectively, "Liens"), except
for Permitted Liens, and except for properties and assets disposed of in the
ordinary course of business since November 30, 1999. "Permitted Liens" means:
(i) rights of lessors or lessee under the terms of leases (x) which have been
disclosed to Parent in this Agreement or Schedule 3.16 to the Company Disclosure
Statement or (y) for office equipment entered into in the ordinary course of
business; (ii) Liens for Taxes not yet due or payable; (iii) Liens imposed by
applicable law and incurred in the ordinary course of business for obligations
not yet due and payable to laborers, materialmen and the like; (iv) liens in
favor of the lender listed on Schedule 3.16 in connection with the Company's
secured credit facilities; (v) zoning and other restrictions, variances,
covenants, rights-of-way, encumbrances, easements and or other minor
irregularities of title, none of which, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the value of any of
the real property of the Company or of any Subsidiary of the Company, or would
impair in any material respect the ability of the Company or the relevant
Subsidiary of the Company to utilize such property for its current use; and (vi)
rights which would not, singly or in the aggregate, have a Material Adverse
Effect.
3.17 Contracts. Schedule 3.17 to the Company Disclosure Statement sets
forth the following oral or written contracts and other agreements to which the
Company or any of its Subsidiaries is a party:
(a) Any agreement (or group of related agreements, with the same third
party or any of its Affiliates) for the lease of personal property providing for
lease payments in excess of $50,000 per annum;
(b) Any agreement (or group of related agreements) for the purchase or
sale of supplies, products or other personal property, or for the furnishing or
receipt of services, the performance of which involve consideration in excess of
$50,000 per annum, except for agreements for the sale of inventory in the
ordinary course of business, for the purchase of raw materials, for the purchase
of machine component parts and for the receipt of legal services; provided,
however, that this clause (b) shall not include any employment agreement
included pursuant to clause (e) below;
(c) Any agreement concerning a partnership or joint venture;
(d) Any agreement (or group of related agreements, with the same third
party or any of its Affiliates) under which the Company or any of its
Subsidiaries has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation the performance of which
involves consideration in excess of $50,000 per annum, or under which it has
imposed a Lien (excluding Permitted Liens as that term is defined in Section
3.16 of this Agreement) on any of its material assets, tangible or intangible;
(e) Any individual agreement with an employee of the Company or any of
its Subsidiaries;
(f) Any other agreement (or group of related agreements with the same
third party) the performance of which involves consideration in excess of
$25,000 per annum.
The foregoing are referred to hereafter as the "Material Contracts".
With respect to each of the Material Contracts, except as set forth in Schedule
3.17 to the Company Disclosure Statement: (i) they are in full force and effect
and enforceable against the counterparties in accordance with their terms,
except that such enforceability may be subject to bankruptcy, insolvency and
other similar laws affecting debtors' rights or creditors' rights generally and
except that the remedies of specific performance, injunction and other forms of
equitable relief may not be available; (ii) neither the Company nor any of its
Subsidiaries and to the Company's knowledge no other party thereto is in breach
or default, and no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration under the agreement; (iii) neither the Company nor any of its
Subsidiaries has assigned any of its rights or obligations under any of the
Material Contracts; (iv) neither the Company nor any of its Subsidiaries has
received any outstanding notice of cancellation or termination in connection
with any of them; and (v) neither the Company nor any of its Subsidiaries is,
and to the Company's knowledge no party thereto is, the subject of bankruptcy
proceedings, nor has had a trustee appointed on its behalf or is insolvent. The
Company has delivered to the Parent and Merger Sub a correct and complete copy
of each written Material Contract (as amended to the date of this Agreement) and
a written summary setting forth the terms and conditions of each oral agreement
constituting a Material Contract referred to in Schedule 3.17 to the Company
Disclosure Statement. With respect to agreements for the purchase or receipt of
legal services, there are no such agreements in which the Company or any of its
Subsidiaries are obligated to pay any type of success fee, contingency fee or
fee determined with reference to the size or consummation of the transactions
contemplated by this Agreement.
3.18 Compliance. Except as set forth in Schedule 3.18 to the Company
Disclosure Statement, neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of any law, rule, regulation, order,
judgment or decree applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected, except for such conflicts, defaults or violations that would not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect.
3.19 Insurance. The Company and its Subsidiaries have obtained and
maintained in full force and effect insurance (including director's and
officer's insurance) with insurance companies or associations in such amounts as
disclosed in Schedule 3.19 to the Company Disclosure Statement.
3.20 Company Preference Shares. Except as set forth in Schedule 3.20 to
the Company Disclosure Statement, the former holders of the Preferred Shares are
not entitled to receive any accrued dividends or redemption payments which have
not been paid when due.
3.21 Year 2000. Except to the extent that it would not reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect,
all internal computer systems, computer software or technology that are material
to the business, finances or operations of the Company and its Subsidiaries or
were sold or licensed to customers of the Company and its Subsidiaries
(collectively, "Material Systems") are (i) able to receive, record, store,
process, calculate, manipulate and output dates from and after September 9,
1999, time periods that include any Relevant Date and information that is
dependent on or relates to such dates or time periods, in the same manner and
with the same accuracy, functionality, data integrity and performance as when
dates or time periods prior to September 9, 1999 are involved and (ii) able to
store and output date information in a manner that is unambiguous as to century
(the circumstances set forth in clauses (i) and (ii), collectively, "Year 2000
Compliant"). The Company's costing system for inventory properly reflects the
actual costs of any inventory with a maximum deviation of plus or minus five
percent (5%) of such actual costs in the aggregate at any given date of
determination. The term "Relevant Date" means each of the following dates:
September 9, 1999, December 31, 1999, January 1, 2000, February 28, 2000,
February 29, 2000, March 1, 2000, December 31, 2000, and January 1, 2001.
3.22 Disposition of Assets. Other than inventory sold in the ordinary
course of business, no tangible asset of the Company having a fair value in
excess of $20,000 per item, or $50,000 in the aggregate, and no intangible asset
which is part of the assets of the Company, has been disposed of since November
30, 1999, except as set forth on Schedule 3.22 to the Company Disclosure
Statement.
3.23 Environmental and Health and Safety Matters.
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(a) Set forth on Schedule 3.23(a) to the Company Disclosure Statement attached
hereto is a true, accurate and complete list of all real property, currently
owned, leased and/or otherwise used or occupied by the Company (the "Property").
(b) Except as set forth in Schedule 3.23(b) to the Company Disclosure Statement,
the Company, and the Property, have been at all times and are in compliance with
(and the formerly owned real property located at Rockford, Illinois (the
"Rockford Property") was, subsequent to April 12, 1988, and prior to December 7,
1993, in compliance with) the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation, and Liability Act, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act, the Clean Water Act, the Clean Air Act, the Occupational Safety and
Health Act, and all other federal, state and local laws, regulations and
ordinances relating to pollution, health and safety, or protection of the
environment, including, without limitation, those relating to containment,
emissions, discharges, releases or threatened releases of industrial, toxic or
hazardous substances, materials or wastes or other pollutants, contaminants,
petroleum products, asbestos, polychlorinated biphenyls ("PCBs"), or chemicals
(collectively, "Hazardous Substances") into the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacturing, processing, recycling,
distribution, use, treatment, labeling, storage, disposal, release, abatement,
transport or handling of Hazardous Substances (the "Environmental Laws"), except
for such failures to comply which would not reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect.
(c) The Company has obtained and is in compliance (except for such failures to
comply which would not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect) with all permits, licenses and other
consents or authorizations which are required with respect to the operation of
its business at the Property under the Environmental Laws ("Environmental
Permits"), including without limitation those that are required to (a) operate
or install any equipment or facilities and (b) generate, manufacture, formulate,
store, treat, handle, transport, discharge, emit or dispose of Hazardous
Substances generated by its business, a true and complete list of which
Environmental Permits is included in Schedule 3.23(c) to the Company Disclosure
Schedule.
(d) Except as listed in Schedules 3.23(b) and (d) to the Company Disclosure
Statement, there are and have been no Hazardous Substances generated, used,
treated, stored, maintained, disposed of, or otherwise deposited in, located on,
released from, under or on, the Property or the Rockford Property (or released
onto, from or on any geologically or hydrologically adjoining property), the
business of the Company, or any premises at which the business of the Company is
being conducted, or is located, except in compliance with Environmental Laws.
Additionally, except as described in Schedule 3.23(d) to the Company Disclosure
Statement, there are and were no underground storage tanks maintained or located
on the Property or the Rockford Property, the business of the Company, or any
premises at which the business of the Company is located.
(e) Except as set forth in Schedules 3.23(b), (d) and (e) of the Company
Disclosure Statement, neither the Company nor its predecessors have any basis to
expect, nor have they, or any other Person for whose conduct they are or may be
held responsible received, any actual or threatened notice, document,
information, report or other communication (written or oral) from any Person,
Governmental Authority or person acting in the public interest, of any actual or
threatened failure to comply with any Environmental Law, or that any of them
have any potential liability with respect to Environmental Health and Safety
Liabilities.
(f) The Company has made available to Parent and Merger Sub true and complete
copies and results of any reports, correspondence, information or studies
possessed or initiated by the Company since January 1, 1990, pertaining to
Hazardous Substances in, on, under, or adjacent to the Property or the Rockford
Property, or concerning compliance by the Company or any other Person for whose
conduct they are or may be held responsible, with Environmental Laws.
3.24 Related Party Transactions. No officer or director of the Company
or any affiliate thereof has, directly or indirectly, entered into any
transaction with the Company, except for any arrangements which are either (i)
expressly disclosed on or incorporated by reference in the Company's Annual
Report on Form 10-K or (ii) listed on Schedule 3.24 to the Company Disclosure
Statement. For purposes of this Section 3.24 only, the term "affiliate" of the
Company shall mean and include any officer or director of the Company or any
shareholder owning or controlling more than 5% of the outstanding Common Stock
or any person related to any such officer, director or shareholder of the
Company by blood or by marriage, or any corporation, partnership,
proprietorship, trust or other entity in which such officer or director or
shareholder of the Company (or any spouse, ancestor or descendant of the same)
has more than a 5% legal or beneficial interest, or any corporation,
partnership, proprietorship, trust or other entity which controls, is controlled
by or is under common control with the Company.
3.25 Increases in Salaries and Wages. Except in the ordinary course of
business or as listed in Schedule 3.25 to the Company Disclosure Statement, the
Company has not, since November 30, 1999, paid any salary, wage, bonus payments
or any other benefits to its employees at rates exceeding the respective rates
paid to such employees which were in effect at November 30, 1999.
3.26 Employee Salaries and Benefits. The Company has provided Parent
with an accurate list of all salaried employees of the Company and its
Subsidiaries, and the current rate of compensation for each such employee
(including a separate statement of bonuses and fringe benefits). Except in the
ordinary course of business or as listed on Schedule 3.26 to the Company
Disclosure Statement, there is no liability for unpaid salary or wages, bonuses,
vacation time, or other employee benefits due or accrued, nor liability for
withheld or deducted amounts from employees' earnings, for the period ending on
or immediately prior to the Closing Date, including without limitation
commission payments to agents, representatives or employees. There are no labor
disputes, strikes, work stoppages or other interruptions in service or
performance that would reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect, and, to the Company's knowledge, all
relationships between the Company and each of its Subsidiaries and their
employees are generally stable and satisfactory.
3.27 Customer and Supplier Relationships; Warranty Claims. Neither the
Company nor any of its Subsidiaries has received any written notice or otherwise
has knowledge that any of the ten largest customers or suppliers of The
Lockformer Company or any of the ten largest customers or suppliers of Iowa
Precision Industries, Inc. intends to discontinue or alter the prices or terms
of, or substantially diminish, its relationship with the Company or any of its
Subsidiaries. Outstanding warranty claims against the Company or any of its
Subsidiaries by any customers with respect to products sold or services rendered
do not, in the aggregate, exceed two percent (2%) of the Company's and its
Subsidiaries' aggregate gross sales in the 12 months prior to the date hereof
and in the 12 months prior to the date of any subsequent determination. There
are no defects in any of the product lines designed or manufactured by the
Company or any of its Subsidiaries, except for defects which would not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect.
3.28 Accounts Receivable and Notes Receivable. The accounts receivable
and notes receivable of the Company and its Subsidiaries, other than those
listed on Schedule 3.28 to the Company Disclosure Schedule, represent bona fide
claims which the Company or its Subsidiaries have against debtors for sales or
services arising on or before the Closing Date are not subject to counterclaims,
setoffs or deductions of any kind except to the extent such counterclaims,
setoffs or deductions would not reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect, and are not subject to additional
requirements of performance by the Company or any Subsidiary of the Company. The
aggregate amount of customer advance payments (i.e., payments in excess of
actual work performed or materials supplied as of the date of such payment)
received by the Company or any Subsidiary of the Company at or prior to the
Closing Date with respect to such accounts receivable does not exceed $750,000.
All of the accounts receivable and notes receivable have been created since the
date of incorporation of the Company or any Subsidiary of the Company, pursuant
to shipments of goods or services conforming to the terms of purchase orders
executed by and received from unrelated third parties in the normal course of
business. Such receivables have been recorded in accordance with the Company's
historical revenue recognition policy. To the Company's knowledge, there are no
pending insolvency, bankruptcy or similar proceedings involving any of the
Company's or its Subsidiaries' customers, distributors, dealers or
representatives.
3.29 Bonds; Guarantees. Other than as listed on Schedule 3.29 to the
Company Disclosure Schedule, there are no bonds, guarantees, notes, sureties,
letters of credit, or other similar credit agreements or debt obligations that
exist with respect to the Company or any of its Subsidiaries, their businesses
or any of their assets. Neither the Company nor any Subsidiary of the Company is
in default on the payment of any principal or interest on any indebtedness for
borrowed money, nor is the Company or any Subsidiary of the Company otherwise in
default under any indemnity, fidelity or contract bond or letter of credit,
note, guarantee or other credit agreement or debt obligation or instrument.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
As of the date of this Agreement, Parent represents and warrants to the
Company as follows:
4.1 Corporate Standing. Parent is a corporation duly organized, validly
existing, and in good standing under the laws of its state of incorporation.
Parent has full corporate authority to own, lease and operate its properties and
businesses. Schedule 4.1 to the Parent Disclosure Statement sets forth a list of
the jurisdictions in which Parent is qualified to conduct business as a foreign
corporation. Parent is in good standing as a foreign corporation under the laws
of the states listed in Schedule 4.1.
4.2 Authority.
---------
(a) Parent has full corporate power and authority to enter into,
execute, deliver, and perform this Agreement and all Exhibits to which it is a
party. The execution, delivery and performance of this Agreement and such
Exhibits, and the consummation of all transactions contemplated herein and
therein, have been duly authorized by all necessary corporate action of Parent.
This Agreement has been duly executed and delivered by a duly authorized officer
of the Parent and (assuming the due execution and delivery of this Agreement by
the other parties hereto other than Merger Sub and Ultimate Parent) constitutes
a valid and binding agreement of the Parent, enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency and other similar
laws affecting the rights of creditors generally and except that the remedies of
specific performance, injunction and other forms of equitable relief may not be
available. Such Exhibits, when duly executed and delivered by Parent (assuming
the due execution and delivery of such Exhibits by the other parties hereto
other than Merger Sub and Ultimate Parent) shall be valid and binding agreements
of Parent enforceable against it in accordance with the terms hereof and
thereof, subject to bankruptcy, insolvency and other similar laws affecting the
rights of creditors generally and except that the remedies of specific
performance, injunction and other forms of equitable relief may not be
available.
(b) The Board of Directors of Parent has approved the transactions
contemplated by this Agreement and the Exhibits to which Parent is a party.
(c) Neither the execution and delivery of this Agreement nor the
execution and delivery of the certificates and documents set forth as Exhibits
hereto nor the consummation of the transactions contemplated hereby or thereby
will (i) conflict with or violate any provision of the Articles of Incorporation
or Bylaws of Parent, (ii) conflict with or violate any law, rule, regulation,
ordinance, order, writ, injunction, judgment or decree applicable to Parent or
its business or by which any of its assets are affected, except to the extent
any such conflict or violation would not have a Material Adverse Effect, or
(iii) conflict with or result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination or cancellation of or accelerate the
performance required by or maturity of, or result in the creation of any
security interest, lien, charge or encumbrance on the assets of Parent pursuant
to any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, permit, license, franchise, lease, contract, or other instrument or
obligation to which Parent is a party or by which any of its assets are
affected, except to the extent any such conflict, breach, default, right of
termination or cancellation, acceleration or creation of any such security
interest, lien, charge, or encumbrance would not have a Material Adverse Effect.
(d) Parent is not required to submit any notice, declaration, report or
other filing or registration with any governmental or regulatory authority or
instrumentality, and no approvals or non-objections are required to be obtained
or made by Parent in connection with the execution, delivery or performance by
Parent of this Agreement or any Exhibit or the consummation of the transactions
contemplated hereby or thereby, except for approvals that may be required under
the DGCL, the HSR Act and the Exchange Act.
4.3 Information Supplied. None of the information supplied by Ultimate
Parent, Parent or Merger Sub for inclusion or incorporation by reference in the
Proxy Statement (and provided to Ultimate Parent, Parent and Merger for review
and comment prior to printing of the Proxy Statement) will, on the date it is
first mailed to the Company's stockholders or at the time of the Company's
stockholders meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
4.4 Adequate Financing. Parent has adequate funds to consummate
the Merger and perform its other obligations under this
Agreement, including payment of the Merger Consideration and the Cash Payment.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
As of the date of this Agreement, Merger Sub represents and warrants to
the Company as follows:
5.1 Corporate Standing. Merger Sub is a corporation duly organized,
validly existing, and in good standing under the laws of its state of
incorporation. Merger Sub has full corporate authority to own, lease and operate
its properties and businesses. Schedule 5.1 to the Merger Sub Disclosure
Statement sets forth a list of the jurisdictions in which Merger Sub is
qualified to conduct business as a foreign corporation. Merger Sub is in good
standing as a foreign corporation under the laws of the states listed in
Schedule 5.1.
5.2 Authority.
---------
(a) Merger Sub has full corporate power and authority to enter into,
execute, deliver, and perform this Agreement and all Exhibits to which it is a
party. The execution, delivery and performance of this Agreement and such
Exhibits, and the consummation of all transactions contemplated herein and
therein, have been duly authorized by all necessary corporate action of Merger
Sub. This Agreement has been duly executed and delivered by a duly authorized
officer of Merger Sub and (assuming the due execution and delivery of this
Agreement by the other parties hereto other than Parent and Ultimate Parent)
constitutes a valid and binding agreement of Merger Sub, enforceable against it
in accordance with its terms, subject to bankruptcy, insolvency and other
similar laws affecting the rights of creditors generally and except that the
remedies of specific performance, injunction and other forms of equitable relief
may not be available. Such Exhibits, when duly executed and delivered by Merger
Sub (assuming the due execution and delivery of such Exhibits by the other
parties hereto other than Parent and Ultimate Parent) shall be valid and binding
agreement of Merger Sub enforceable against it in accordance with the terms
hereof and thereof, subject to bankruptcy, insolvency and other similar laws
affecting the rights of creditors generally and except that the remedies of
specific performance, injunction and other forms of equitable relief may not be
available.
(b) The Board of Directors and stockholders of Merger Sub have approved
the transactions contemplated by this Agreement and the Exhibits to which Merger
Sub is a party.
(c) Neither the execution and delivery of this Agreement nor the
execution and delivery of the certificates and documents set forth as Exhibits
hereto nor the consummation of the transactions contemplated hereby or thereby
will (i) conflict with or violate any provision of the Articles of Incorporation
or Bylaws of Merger Sub, (ii) conflict with or violate any law, rule,
regulation, ordinance, order, writ, injunction, judgment or decree applicable to
Merger Sub or its business or by which any of its assets are affected, except to
the extent any such conflict or violation would not have a Material Adverse
Effect, or (iii) conflict with or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination or cancellation of
or accelerate the performance required by or maturity of, or result in the
creation of any security interest, lien, charge or encumbrance on the assets of
Merger Sub pursuant to any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, permit, license, franchise, lease, contract, or other
instrument or obligation to which Merger Sub is a party or by which any of its
assets are affected, except to the extent any such conflict, breach, default,
right of termination or cancellation, acceleration or creation of any such
security interest, lien, change or encumbrance would not have a Material Adverse
Effect.
(d) Merger Sub is not required to submit any notice, declaration,
report or other filing or registration with any governmental or regulatory
authority or instrumentality, and no approvals or non-objections are required to
be obtained or made by Merger Sub in connection with the execution, delivery or
performance by Merger Sub of this Agreement or any Exhibit or the consummation
of the transactions contemplated hereby or thereby, except for approvals that
may be required under the DGCL, the HSR Act and the Exchange Act.
5.3 No Business Activities. Merger Sub is not a party to any
material agreements and has not conducted any activities other than in
connection with the organization of Merger Sub, the negotiation and execution of
this Agreement and the consummation of the transactions contemplated hereby.
Merger Sub has no Subsidiaries.
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 Conduct of Business of the Company. Except as set forth in Schedule
6.1 to the Company Disclosure Statement, as expressly permitted by this
Agreement (including any transaction permitted by Schedule 6.1 to the Company
Disclosure Statement), as required by any change in applicable Law, or as
otherwise agreed by Parent in writing, during the period from the date of this
Agreement to the Closing Date, (i) the Company will, and will cause each of its
Subsidiaries to, conduct their businesses in the ordinary course of business
consistent with past practice, and (ii) to the extent consistent with the
foregoing, the Company will, and will cause each of its Subsidiaries to, use
their reasonable best efforts to preserve intact their current business
organizations, keep available the service of their current officers and
employees, and preserve their relationships with customers, suppliers and others
having business dealings with them (but without the obligation to pay any
additional compensation to any such officers, employees, customers, suppliers
and other persons), in each case with respect to the Company's and its
Subsidiaries' current businesses. Without limiting the generality of the
foregoing, from and including the date hereof to the Closing Date, the Company
will not, and will not permit any of its Subsidiaries to, without the prior
written consent of Parent (except to the extent set forth in Schedule 6.1 to the
Company Disclosure Statement):
(a) Except for Shares issued upon exercise of Options or other rights
outstanding as of the date hereof under Stock Incentive Plans or Company Plans
in accordance with the terms thereof, issue, deliver, sell, dispose of, pledge
or otherwise encumber, or authorize or propose the issuance, sale, disposition
or pledge or other encumbrance (in each instance, whether through the issuance
or granting of options, warrants, commitments, subscriptions, rights to purchase
or otherwise) of (A) any additional shares of its capital stock of any class, or
any Voting Debt or any securities or rights convertible into, exchangeable for,
or evidencing the right to subscribe for any shares of its capital stock or
Voting Debt or any rights, warrants, options, calls, commitments or any other
agreements of any character to purchase or acquire any shares of its capital
stock or Voting Debt or any securities or rights convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of its capital stock,
or (B) any other securities in respect of, in lieu of, or in substitution for,
Shares outstanding on the date hereof;
(b) Redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding securities, other than
pursuant to existing agreements requiring the Company to repurchase or acquire
any shares of its capital stock (provided that such repurchase or acquisition is
in accordance with the terms of such agreement as in effect on the date hereof);
(c) Split, combine, subdivide or reclassify any shares of its capital
stock or declare, set aside for payment or pay any dividend, or make any other
actual, constructive or deemed distribution in respect of any shares of its
capital stock or otherwise make any payments to stockholders in their capacity
as such (other than dividends or distributions paid by any Wholly Owned
Subsidiary of the Company to the Company or another Wholly Owned Subsidiary of
the Company);
(d) (i) grant any increases in the compensation of any of its
directors, officers or employees, except for increases granted to employees
other than officers in the ordinary course of business consistent with past
practice, (ii) pay or award or agree to pay or award any pension, retirement
allowance, or other non-equity incentive awards, or other employee benefit, not
required by any of the Company Plans to any current or former director, officer
or employees, whether past or present, or to any other Person, except for
payments or awards to current employees other than officers that are in the
ordinary course of business, consistent with past practice, (iii) pay or award
or agree to pay or award any stock option or equity incentive awards, (iv) enter
into any new or amend any existing employment agreement with any director,
officer or employee, (v) enter into any new or amend any existing severance
agreement with any current or former director, officer or employee, or (vi)
become obligated under any new Company Plan which was not in existence on the
date hereof, or amend any such Company Plan in existence on the date hereof,
except as may be contemplated by this Agreement;
(e) Adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or any Subsidiary of the Company (other than the Merger);
(f) Make any acquisition, by means of stock or asset purchase,
recapitalization, merger, consolidation or otherwise, of (i) any direct or
indirect ownership interest in or assets comprising any business enterprise or
operation or (ii) except in the ordinary course and consistent with past
practice, any other assets; provided that such acquisitions do not and would not
prevent or materially delay the consummation of the Merger;
(g) (i) dispose of any interest in any material business enterprise or
operation of the Company or any of its Subsidiaries; (ii) make any other
disposition of any other direct or indirect ownership interest in any material
assets of the Company or any of its Subsidiaries; or (iii) except in the
ordinary course and consistent with past practice, dispose of any other assets
of the Company or any of its Subsidiaries;
(h) Adopt any amendments to the Company Charter or its Bylaws or alter
through merger, liquidation, reorganization, restructuring or in any other
fashion the corporate structure or ownership of any Subsidiary of the Company,
except as required by this Agreement or as required by applicable laws, rules or
regulations, including any NASDAQ rule or regulation;
(i) Incur any indebtedness (other than pursuant to and not exceeding
its existing secured credit facilities listed on Schedule 6.1(i) in the ordinary
course) for borrowed money or guarantee any indebtedness of any other Person or
make any loans, advances or capital contributions to, or investments in, any
other Person (other than to any Wholly Owned Subsidiary of the Company);
(j) Engage in the conduct of any business other than the Company's
existing businesses;
(k) Enter into any agreement or exercise any discretion providing for
acceleration of payment or performance as a result of a change of control of the
Company or its Subsidiaries, except in connection with the Merger;
(l) enter into any contracts, arrangements or understandings requiring
in the aggregate the purchase of equipment, materials, supplies or services in
excess of the Company's budget attached hereto as Schedule 6.1(l) plus $250,000
in the aggregate;
(m) enter into or amend, modify, terminate or waive any right under any
agreement with any Affiliates of the Company (other than its Subsidiaries);
(n) settle or compromise any litigation or Tax Controversy with respect
to the Company or its Subsidiaries or waive, release or assign any rights or
claims with respect to any litigation or Tax Controversy involving the Company
or its Subsidiaries;
(o) effect any change in any of its methods of accounting, except as
may be required by law or generally accepted accounting principles;
(p) Take any action, including without limitation, the adoption of any
shareholder rights plan or amendments to the Company Charter, which would,
directly or indirectly, restrict or impair the ability of Parent to vote, or
otherwise to exercise the rights and receive the benefits of a stockholder with
respect to, securities of the Company that may be acquired or controlled by
Parent or Merger Sub or permit any stockholder to acquire securities of the
Company on a basis not available to Parent in the event that Parent were to
acquire securities of the Company; or
(q) Authorize, recommend or propose (other than to Parent), or announce
an intention to do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
The Company shall also continue to undertake all usual corporate,
stockholder, accounting and regulatory matters on a routine and regular basis.
The Company shall notify Parent in advance in writing of any material
developments or activities that would be outside of the ordinary course of
business in manufacturing carried on at the Company's facilities in Cedar
Rapids, Iowa and Lisle, Illinois, including, without limitation, the proposed
acquisition and/or disposition of assets material to the efficient operation of
the business, the pending or threatened loss of an important customer of the
Company, the receipt of a pending or threatened claim that would be material to
the business or the assets of the Company and its Subsidiaries taken as a whole,
or the existence of labor unrest at the Company or any of its Subsidiaries.
6.2 No Solicitation of Other Offers.
-------------------------------
(a) The Company and its Affiliates and each of their respective
officers, directors, employees, representatives, consultants, investment
bankers, attorneys, accountants and other agents shall immediately cease any
discussions or negotiations with any other parties that may be ongoing with
respect to any Acquisition Proposal. Neither the Company nor any of its
Affiliates shall, directly or indirectly, take (and the Company shall not
authorize or permit its or its Affiliates' officers, directors, employees,
representatives, consultants, investment bankers, attorneys, accountants or
other agents or Affiliates, to so take) any action to (i) encourage, solicit,
initiate or facilitate the making of any Acquisition Proposal (including,
without limitation, by taking any action that would make Section 203 of the DGCL
inapplicable to an Acquisition Proposal) or (ii) participate in any way in
discussions or negotiations with, or, furnish or disclose any information to,
any Person (other than Parent or Merger Sub) in connection with, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal;
provided, however, that the Company, in response to an unsolicited Acquisition
Proposal and in compliance with its obligations under Section 6.2(b) hereof, may
participate in discussions or negotiations with or furnish information (pursuant
to a confidentiality agreement with terms not more favorable to such third party
than the terms of the Confidentiality Agreement) to any third party which makes
an Acquisition Proposal if (i) the Board of Directors reasonably determines (in
consultation with the Company's independent financial advisor) that such
Acquisition Proposal is likely to lead to a Superior Proposal and (ii) the Board
of Directors reasonably believes (in consultation with the Company's independent
legal counsel) that failing to take such action would constitute a breach of its
fiduciary duties. In addition, neither the Board of Directors of the Company nor
any committee thereof shall (A) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or Merger Sub the approval and
recommendation of the Merger and this Agreement, (B) approve or recommend, or
propose to approve or recommend, any Acquisition Proposal, or (C) enter into any
agreement with respect to any Acquisition Proposal or enter into any
arrangement, understanding or agreement requiring it to abandon, terminate or
fail to consummate the Merger or any other transactions contemplated by this
Agreement; provided that the Company may recommend to its stockholders an
Acquisition Proposal and in connection therewith withdraw or modify its approval
or recommendation of the Merger and enter into an agreement with respect to such
Acquisition Proposal if (1) a third party makes a Superior Proposal, and (2) (a)
three (3) business days have elapsed following delivery to Parent of a written
notice of the determination by the Board of Directors of the Company to take
such action and during such (3) business day period the Company has informed
Parent of the terms and conditions of such Superior Proposal, and the identity
of the Person making such Superior Proposal, and (b) at the end of such three
(3) business day period the Acquisition Proposal continues to constitute a
Superior Proposal.
"Acquisition Proposal" shall mean (i) any inquiry, proposal or offer
from any Person relating to any direct or indirect acquisition or purchase of a
substantial amount of assets of the Company or any of its material Subsidiaries
or of 50% or more of any class of equity securities of the Company or any of its
material Subsidiaries, (ii) any tender offer or exchange offer that, if
consummated, would result in any Person beneficially owning 50% or more of any
class of equity securities of the Company or any of its Subsidiaries, or (iii)
any merger, consolidation, business combination, sale of substantially all the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries.
"Superior Proposal" shall mean a bona fide proposal made by a third
party to acquire all of the Shares pursuant to a tender offer, a merger or a
sale of all of the assets of the Company (w) on terms which a majority of the
members of the Board of Directors of the Company determines in its good faith
reasonable judgment (in consultation with the Company's independent financial
advisor) to be more favorable to the Company and its stockholders than the
transactions contemplated hereby, (x) for which financing is then available (it
being understood that financing evidenced by highly confident letters and
similar letters shall be considered "available" for purposes of this Section),
and (y) which is not subject to any financing condition.
(b) From and after the date hereof, in addition to the obligations of
the Company set forth in paragraph (a), on the date of receipt thereof, the
Company shall advise Parent of any request for information or of any Acquisition
Proposal, or any inquiry, proposal, discussions or negotiation with respect to
any Acquisition Proposal. The Company shall promptly provide to Parent any
non-public information concerning the Company provided to any other Person in
connection with any Acquisition Proposal which was not previously provided to
Parent.
(c) Immediately following the execution of this Agreement, the Company
shall request each Person which has heretofore executed a confidentiality
agreement in connection with its consideration of acquiring the Company or any
portion thereof to return all confidential information heretofore furnished to
such Person by or on behalf of the Company.
6.3 Proxy Statement. As promptly as practicable, the Company will
prepare and file a preliminary Proxy Statement with the SEC and will use its
reasonable best efforts to respond to the comments of the SEC, if any, in
connection therewith and to furnish all information regarding the Company
required in the definitive Proxy Statement (including, without limitation,
financial statements and supporting schedules and certificates and reports of
independent public accountants). Parent, Merger Sub and Company will cooperate
with each other in the preparation of the Proxy Statement. Without limiting the
generality of the foregoing, each of Parent and Merger Sub will furnish to the
Company the information relating to it required by the Exchange Act to be set
forth in the Proxy Statement. As promptly as is reasonably practicable, the
Company will cause the definitive Proxy Statement to be mailed to the
stockholders of the Company and, if necessary, after the definitive Proxy
Statement shall have been so mailed, promptly circulate amended, supplemental or
supplemented proxy material and, if required in connection therewith, re-solicit
proxies. The Company will provide Ultimate Parent, Parent and Merger Sub the
opportunity to review and comment on the Proxy Statement (and any amended,
supplemental or supplemented proxy material) before it is printed and mailed to
the stockholders of the Company. The Company's obligations under this Section
6.3 are subject to its right to withdraw or modify its approval or
recommendation of the Merger in accordance with Section 6.2.
6.4 Stockholder Approval. As promptly as is reasonably practicable, the
Company, acting through its Board of Directors, shall, in accordance with
applicable Law, duly call, give notice of, convene and hold a meeting of the
holders of Shares (the "Company Stockholders' Meeting") for the purpose of
voting upon this Agreement and the Merger, and the Company agrees that this
Agreement and the Merger shall be submitted at such meeting. The Company shall
use its reasonable best efforts to solicit from its stockholders proxies, and
shall take all other action necessary and advisable, to obtain the approval of
stockholders required by applicable law and the Company Charter or its Bylaws
for this Agreement and the Merger. The Company agrees that it will include in
the Proxy Statement the recommendation of its Board of Directors that holders of
Shares approve and adopt this Agreement and approve the Merger. The Company's
obligations under this Section 6.4 are subject to its right to withdraw or
modify its approval or recommendation of the Merger in accordance with Section
6.2.
6.5 Commercially Reasonable Efforts. The Company and Parent shall, and
shall use their commercially reasonable efforts to cause their respective
Subsidiaries, as applicable, to: (i) promptly make all filings and seek to
obtain all Authorizations (including, without limitation, all filings required
under the HSR Act) required under all applicable Laws with respect to the Merger
and the other transactions contemplated hereby and will reasonably consult and
cooperate with each other with respect thereto; (ii) not take any action
(including effecting or agreeing to effect or announcing an intention or
proposal to effect, any acquisition, business combination or other transaction
except as set forth in the Company Disclosure Statement) which would impair the
ability of the parties to consummate the Merger; and (iii) use their
commercially reasonable efforts to promptly (x) take, or cause to be taken, all
other actions and (y) do, or cause to be done, all other things reasonably
necessary, proper or appropriate to satisfy the conditions set forth in Articles
VII and VIII (unless waived) and to consummate and make effective the
transactions contemplated by this Agreement on the terms and conditions set
forth herein (including seeking to remove promptly any injunction or other legal
barrier that may prevent such consummation); provided, however, that no loan
agreement or contract for borrowed money shall be repaid except as currently
required by its terms, in whole or in part, and, subject to Section 6.1, no
contract shall be amended to increase the amount payable thereunder or otherwise
to be more burdensome to the Company or any of its Subsidiaries in order to
obtain any such consent, approval or authorization without first obtaining the
written approval of Parent and Merger Sub. Each party shall promptly notify the
other party of any communication to that party from any Governmental Authority
in connection with any required filing with, or approval or review by, such
Governmental Authority in connection with the Merger and the other transactions
contemplated hereby and permit the other party to review in advance any proposed
communication to any Governmental Authority in such connection to the extent
permitted by applicable law.
6.6 Access to Information. Subject to currently existing contractual
and legal restrictions applicable to the Company, the Company shall (and shall
cause each of its Subsidiaries to) afford to officers, employees, counsel,
accountants and other authorized representatives of Parent ("Parent
Representatives") reasonable access, during normal business hours throughout the
period prior to the Closing Date, to its properties, books and records
(including, subject to execution of customary access letters, the work papers of
independent accountants), such access not to unreasonably interfere with the
Company's business or operations, and, during such period, shall (and shall
cause each of its Subsidiaries to) furnish promptly to such Parent
Representatives all information concerning its business, properties and
personnel as may reasonably be requested, including but not limited to all
purchase order and customer order logs. In addition, Parent Representatives may
conduct, within the two-week period prior to the Closing Date expected by
Parent, a complete investigation of the Company's financial and other records
and accounts (including but not limited to the work papers of the Company's
independent accountants), and Company will permit and cooperate fully with such
investigation. Parent may further conduct, and the Company will permit and
cooperate fully with, environmental audits of the Company's Cedar Rapids and
Lisle facilities. The Company shall, at its discretion which shall not be
unreasonably withheld, introduce Parent Representatives to the Company's
principal suppliers, customers, dealers and employees to facilitate discussions
between such persons and Parent in regard to Parent's conduct of the business
following the Closing Date. The officers and management of the Company agree to
cooperate with the Parent Representatives and agents and to make themselves
available to the extent necessary to complete the Parent Representatives'
investigation process and the closing of the Merger. All information obtained
pursuant to this Section 6.6 shall be subject to the Confidentiality Agreement,
which shall remain in full force and effect until consummation of the Merger or,
if the Merger is not consummated, for the period specified therein; provided,
however, that neither Parent nor the Company shall be precluded from making any
disclosure which it deems required by law or applicable rule or regulation of
any Governmental Authority or self-regulatory organization in connection with
the Merger. Parent acknowledges the Company's interest that the Parent
Representatives' investigations be as discreet as possible and not unduly
disrupt the operations of the Company, and Parent will work diligently to
complete the Parent Representatives' investigations in a timely manner so long
as the Company cooperates in making the records and personnel available to
Parent in a timely fashion.
6.7 Employee Matters.
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(a) Starting on the day after the Closing Date and ending on the
earlier of (i) one year from the Closing Date and (ii) May 31, 2001 (the
"Initial Period"), Parent will cause Surviving Corporation to provide employee
benefit plans for eligible employees of the Company (i.e., employees who satisfy
the eligibility requirements of the Company Plans as in effect immediately prior
to the date of this Agreement, and who continue to satisfy such eligibility
requirements through the end of the Initial Period) that are not materially less
favorable in the aggregate than the employee benefit plans provided to them as
set forth on Schedule 3.8(a) of the Company Disclosure Statement on the date of
this Agreement. With respect to any employee benefit plans established by Parent
and made available by Parent to employees of the Company or any of its
Subsidiaries, to the extent an employee of the Company or any of its
Subsidiaries becomes eligible to participate in any such plans, Parent shall
grant to such employee from and after the Closing Date, credit for all service
with the Company and its Subsidiaries (and any other service credited by the
Company under similar Company Plans) prior to the Closing Date for eligibility
to participate and vesting purposes. Notwithstanding the preceding sentence, no
employee of the Company or any of its Subsidiaries shall receive credit for
service with the Company and its Subsidiaries prior to the Closing Date for
purposes of eligibility for, or vesting of, profit sharing contributions under
the Mestek, Inc. Savings & Retirement Plan. To the extent Parent employee
benefit plans provide medical or dental welfare benefits and an employee of the
Company or any of its Subsidiaries becomes eligible to participate in any such
plans, such plans shall waive any preexisting conditions and actively at-work
exclusions with respect to employees of the Company and any of its Subsidiaries
(but only to the extent such employees were covered under corresponding Company
Plans immediately prior to the date they became eligible for coverage under such
Parent employee benefit plans) and shall provide that any expenses incurred on
or before the Closing Date in the applicable plan year by or on behalf of such
employees shall be taken into account under such Parent employee benefit plans
for the purposes of satisfying applicable deductible, co-insurance and maximum
out-of- pocket provisions for such employees.
(b) The Company may amend and/or take action with respect to its Stock
Incentive Plans prior to the Closing Date to provide that upon the Merger, all
options, stock appreciation rights or other awards granted under such plans and
outstanding as of the Closing Date shall be fully vested, and in the case of
stock options or stock appreciation rights, be immediately exercisable.
(c) Katie Michael (the "Agent") shall be appointed and constituted
agent by the Company for and on behalf of the employees of the Company, to take
all actions necessary or appropriate for the accomplishment and enforcement of
Section 6.7 (a), for the time period stated therein, including but not limited
to (i) giving and receiving notices and communications, (ii) negotiating and
entering into agreements and settlements with the parties of this Agreement, and
(iii) filing lawsuits to enforce Section 6.7(a), and enforcing and complying
with any orders of courts. The Agent, as far as required to perform her duties
hereunder, shall have reasonable access to information about the employee
benefit plans provided to the employees of the Company, and the reasonable
assistance of the parties to this Agreement with respect thereto; provided,
however, that the Agent shall treat such information as confidential and not
disclose any nonpublic information from or about the Company, Ultimate Parent,
any of their Subsidiaries, any employee of the Company or any of its
Subsidiaries, any employee benefit plan of the Company, Ultimate Parent or any
of their Subsidiaries, any fiduciary of such employee benefit plans, or any
insurance company under contract with the Company, Ultimate Parent or any of
their Subsidiaries, to anyone (except on a need to know basis to his legal
counsel and other individuals who agree in writing with the Company to treat
such information as confidential). The Agent shall receive no compensation for
her services, and shall not be personally liable to the parties of this
Agreement or to any employee of the Company for any act done or omitted
hereunder as Agent while acting in good faith, and any act performed or omitted
pursuant to the advice of counsel shall be conclusive evidence of good faith.
6.8 Preparation of Tax Returns and Payment of Taxes. The Company and
its Subsidiaries shall prepare and timely file all Tax Returns and amendments
thereto required to be filed by or with respect to them on or before the Closing
Date. Parent shall have a reasonable opportunity to review all such Tax Returns
and amendments thereto prior to filing. The Company and its Subsidiaries shall
timely pay all Taxes shown to be payable on such Tax Returns.
6.9 Indemnification.
---------------
(a) From the Effective Time and for a period of six years
after the Effective Time, Parent and Merger Sub shall jointly and severally (i)
indemnify, defend and hold harmless the present and former officers, directors,
employees and agents of the Company and its Subsidiaries and of Merger Sub
(collectively, the "Indemnified Parties"), from and against, and pay or
reimburse the Indemnified Parties for, all losses, obligations, expenses,
claims, damages or liabilities resulting from third party claims (and involving
claims by or in the right of the Company) and including interest, penalties,
out-of-pockets expenses and attorneys' fees incurred in the investigation or
defense of any of the same or in asserting any of their rights hereunder
resulting from or arising out of actions or omissions of such Indemnified
Parties occurring on or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) to the fullest
extent permitted or required under (A) applicable law, (B) the certificate of
incorporation or Bylaws of the Company or its applicable Subsidiary in effect on
the date of this Agreement, including, without limitation, provisions relating
to advances of expenses incurred in the defense of any action or suit, or (C)
any indemnification agreement between the Indemnified Party and the Company or
its Subsidiaries; and (ii) advance to any Indemnified Parties expenses incurred
in defending any action or suit with respect to such matters, in each case to
the extent such Indemnified Parties are entitled to indemnification or
advancement of expenses under the Company's or its applicable Subsidiary's
certificate of incorporation and Bylaws in effect on the date hereof and subject
to the terms of such certificate of incorporation and Bylaws; provided, however,
that in the event any claim or claims are asserted or made within such six-year
period, all rights to indemnification in respect of each such claim shall
continue until final disposition of such claim.
(b) Any Indemnified Party wishing to claim indemnification
under Section 6.9(a) shall provide notice to Parent promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and the Indemnified Party shall permit the Parent (at its expense) to
assume the defense of any claim or any litigation resulting therefrom; provided,
however, that (i) counsel for Parent who shall conduct the defense of such claim
or litigation shall be reasonably satisfactory to the Indemnified Party and the
Indemnified Party may participate in such defense at such Indemnified party's
expense, and (ii) the omission by any Indemnified Party to give notice as
provided herein shall not relieve Parent of its indemnification obligation under
this Agreement, except to the extent that such omission results in a failure of
actual notice to Parent, and Parent is actually prejudiced as a result of such
failure to give notice. In the event that Parent does not accept the defense of
any matter as above provided, or counsel for the Indemnified Parties advises the
Indemnified Parties in writing that there are issues that raise conflicts of
interest between Parent and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and Parent shall pay all reasonable fees
and expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, however, that Parent shall not be liable for
any settlement effected without its prior written consent (which consent shall
not be unreasonably withheld); provided, further, however, that Parent shall not
be responsible for the fees and expenses of more than one counsel for all of the
Indemnified Parties. In any event, Parent and the Indemnified Parties shall
cooperate in the defense of any action or claim. Parent shall not, in the
defense of any such claim or litigation, except with the consent of the
Indemnified Party, consent to entry of any judgment or enter into any settlement
that provides for injunctive or other nonmonetary relief affecting the
Indemnified Party or that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability with respect to such claim or litigation.
(c) This Section 6.9 is intended for the benefit of, and to
grant third party rights to, persons entitled to indemnification under this
Section 6.9, whether or not parties to this Agreement, and each of such persons
shall be entitled to enforce the covenants contained in this Section 6.9.
(d) If Parent or Merger Sub, as the case may be, or any of
their respective successors or assigns (i) reorganizes or consolidates with or
merges into any other person and is not the resulting, continuing or surviving
corporation or entity of such reorganization, consolidation or merger, or (ii)
liquidates, dissolves or transfers all or substantially all of its properties
and assets to any person or persons, then, and in such case, proper provision
will be made so that the successors and assigns of Parent or Merger Sub assume
all of the obligations of Parent or Merger Sub, as the case may be, as set forth
in this Section 6.9.
6.10 Employment Agreements. During the period from the date of this
Agreement to the Closing Date, the Company shall use its best efforts to
assist Merger Sub to obtain employment agreements with James Heitt, to be
effective as of the Effective Time and containing terms which are reasonably
satisfactory to Merger Sub.
ARTICLE VII
CONDITIONS PRECEDENT TO PARENT'S AND MERGER SUB'S OBLIGATIONS
Parent and Merger Sub shall not be required to proceed on the Closing
Date with the transactions contemplated by this Agreement unless the following
conditions precedent shall have been fulfilled and satisfied, or shall have been
waived in writing by Parent or Merger Sub:
7.1 Representations and Warranties. Each of the warranties and
representations of the Company contained herein shall be true and correct as of
the date of this Agreement, and shall also be true and correct as of the Closing
Date as if then originally made (other than representations and warranties which
address matters only as of a certain date which shall be true and correct as of
such certain date ), except as affected by the transactions contemplated hereby
and except where such failures would not, individually or in the aggregate have
a Material Adverse Effect.
7.2 Covenants. The Company shall have complied with each of the
covenants required of it on or prior to the Closing Date, except where such
failures would not, individually or in the aggregate, have a Material Adverse
Effect.
7.3 Board and Shareholder Approval. This Agreement and the Merger
shall have been approved and adopted by the Board of Directors of the Company
and by the necessary vote of holders of the capital stock of the Company.
7.4 Certificate. The Company shall have delivered to Parent and Merger
Sub a certificate of its President and Chief Financial Officer, dated the date
of the Closing Date, certifying, to the best of the knowledge and belief of such
persons, that each of the warranties and representations of the Company
contained herein are true and correct as of the Closing Date (other than
representations and warranties which address matters only as of a certain date
which shall be true and correct as of such certain date) except as affected by
the transactions contemplated hereby and except where such failures would not,
individually or in the aggregate, have a Material Adverse Effect, and that the
Company shall have complied with each of the covenants required of it on or
prior to the Closing Date, except where such failures would not, individually or
in the aggregate, have a Material Adverse Effect.
7.5 Legal Opinion. The Company shall have delivered to Parent and
Merger Sub a legal opinion, in substantially the form attached hereto as Exhibit
A, from Shuttleworth & Ingersoll, P.L.C., Cedar Rapids, Iowa, counsel to the
Company.
7.6 Material Adverse Change. There shall have been no change
resulting in a Material Adverse Effect (or changes which in the aggregate result
in a Material Adverse Effect) since the date hereof.
7.7 Bankruptcy. The Company shall not be the subject of a petition for
reorganization or liquidation under the Federal bankruptcy laws, or under state
or foreign insolvency laws, nor shall an assignment for the benefit of creditors
or any similar protective proceeding or act or event of bankruptcy have
occurred.
7.8 Employment Agreements. Merger Sub shall have obtained an
employment agreement with James Heitt which has been duly executed by the
employee and by Merger Sub and is effective as of the Closing Date.
7.9 Lawsuits. No action, suit or proceeding shall have been instituted
before a court, arbitration panel or Governmental Authority, and no regulatory
enforcement proceeding shall be pending before any governmental agency or
Governmental Authority, with respect to the business or operations of the
Company or its Subsidiaries or any products manufactured or services rendered by
the Company or its Subsidiaries, except where such actions, suits or proceedings
would not reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect.
7.10 No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by a court or other
Governmental Authority of competent jurisdiction shall be in effect and have the
effect of making the Merger illegal or otherwise prohibiting consummation of the
Merger.
7.11 HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the Merger shall have expired or been terminated.
7.12 Dissenters' Rights. Holders of more than 25% of the outstanding
Shares shall not have perfected or otherwise provided written notice of their
intention to perfect their dissenters' rights.
7.13 Market Condition. There shall not have occurred (i) any general
suspension of trading in or limitation on prices for, securities on the Nasdaq
Stock Market's National Market or Small Cap Market, the New York Stock Exchange
or the American Stock Exchange (excluding any coordinated trading halt triggered
solely as a result of a specified decrease in a market index), (ii) a
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States or any state, or (iii) any material limitation
(whether or not mandatory) by any United States or state Governmental Authority
which would prohibit Parent's bank or other financial institution from lending
funds to Parent for the purpose of consummating the Merger.
ARTICLE VIII
CONDITIONS PRECEDENT TO CLOSING BY THE COMPANY
The Company shall not be required to proceed at the Closing Date with
the transactions contemplated by this Agreement unless the following conditions
precedent shall have been fulfilled and satisfied, or shall have been waived in
writing by the Company:
8.1 Representations and Warranties. Each of the representations and
warranties of Parent and Merger Sub contained herein shall be true and correct
as of the date of this Agreement and shall be true and correct as of the Closing
Date as if then originally made (other than representations and warranties which
address matters only as of a certain date which shall be true and correct as of
such certain date ), except as affected by the transactions contemplated hereby
and except where such failure would not, individually or in the aggregate, have
a Material Adverse Effect.
8.2 Covenants. Parent and Merger Sub shall have complied with each of
the covenants required of them on or prior to the Closing Date, except where
such failure would not, individually or in the aggregate, have a Material
Adverse Effect.
8.3 Officers' Certificate. Parent and Merger Sub shall each have
delivered to the Company a certificate of the Chief Executive Officer and Chief
Financial Officer of Parent and Merger Sub, dated the date of the Closing Date,
certifying, to the best of the knowledge and belief of such officers, that each
of the warranties and representations of Parent and Merger Sub contained herein
are true and correct as of the Closing Date (other than representations and
warranties which address matters only as of a certain date which shall be true
and correct as of such certain date), except as affected by the transactions
contemplated hereby, and except where such failures would not, individually or
in the aggregate, have a Material Adverse Effect and that Parent and Merger
shall have complied with each of the covenants required of them on or prior to
the Closing Date, except where such failures would not, individually or in the
aggregate, have a Material Adverse Effect.
8.4 Legal Opinion. Parent and Merger Sub shall have delivered to the
Company, a legal opinion as of the Closing Date, in substantially the form
attached hereto as Exhibit B, from Baker & McKenzie, counsel to Parent and
Merger Sub.
8.5 HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the Merger shall have expired or been terminated.
8.6 No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by a court or other
Governmental Authority of competent jurisdiction shall be in effect and have the
effect of making the Merger illegal or otherwise prohibiting consummation of the
Merger.
ARTICLE IX
TERMINATION
9.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Closing Date, before or
after the approval by stockholders, by the mutual written consent of Parent,
Merger Sub and the Company.
9.2 Termination by Either Parent or the Company. This Agreement may be
terminated (upon notice from the terminating party to the other parties) and the
Merger may be abandoned by either Parent or the Company if:
(a) The Closing Date shall not have occurred by June 15, 2000 (the
"Termination Date"); provided that the right to terminate this Agreement under
this clause shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the failure
of the Closing Date to occur on or before the Termination Date; and provided
further that the Termination Date shall be June 29, 2000 if (i) any waiting
period (and any extension thereof) under the HSR Act applicable to the Merger
shall not have expired or been terminated by June 15, 2000, or (ii) the SEC
shall have refused to allow the Company to file a definitive proxy statement
with respect to the Merger by June 1, 2000.
(b) Any court of competent jurisdiction or Governmental Authority shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the payment of the Merger
Consideration for the Shares or the making of any Cash Payment pursuant to the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable.
9.3 Termination by the Company. This Agreement may be terminated
(upon notice to Parent) by the Company and the Merger may be abandoned by the
Company if:
(a) Parent or Merger Sub breaches or fails to perform or comply with
its covenants and agreements contained herein or breaches its representations
and warranties in any material respect and such breach cannot or has not been
cured within 15 days after the giving of written notice of such breach to Parent
and Merger Sub, other than any breach which is not reasonably likely to result
in a Material Adverse Effect; or
(b) the Board of Directors of the Company, after complying with all of
the provisions of Section 6.2, accepts and enters into a definitive agreement
with respect to a Superior Proposal.
9.4 Termination by Parent and Merger Sub. This Agreement may be
terminated (upon notice to the Company) by Parent or Merger Sub, and the Merger
may be abandoned by Parent or Merger Sub if:
(a) The Board of Directors of the Company shall have withdrawn or
modified its approval or recommendation of this Agreement or the Merger;
(b) In the event of a breach by the Company of any representation,
warranty, covenant or agreement contained in this Agreement which cannot or has
not been cured prior to 15 days after the giving of written notice of such
breach to the Company and has not been waived by Parent or Merger Sub pursuant
to the provisions hereof, other than any breach which is not reasonably likely
to result in a Material Adverse Effect; or
(c) Any parties (other than Parent or the Merger Sub) to any
Stockholder Agreements whose signatories own of record or beneficially more than
ten percent (10%) of the Common Stock of the Company issued and outstanding on
the date of this Agreement shall have materially breached or repudiated any such
agreements.
9.5 Effect of Termination and Abandonment. In the event of termination
of this Agreement and abandonment of the Merger pursuant to this Article IX, no
party hereto (or any of its directors or officers) shall have any liability or
further obligation to any other party to this Agreement, except as provided in
Section 9.6 and 10.1, except that nothing herein will relieve any party from
liability for any breach of this Agreement.
9.6 Payment of Certain Fees upon Termination.
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(a) (i) If either (A)(i) the Company receives a bona fide Acquisition
Proposal at any time after the date of this Agreement and prior to the
termination of this Agreement, (ii) this Agreement terminates prior to the
consummation of the Merger for any reason (other than a breach of this Agreement
by Parent or Merger Sub), and (iii) by the date which is twelve (12) months
after the date of termination of this Agreement, either (1) an Acquisition
Proposal with a third party is consummated, or (2) the Company enters into an
agreement for an Acquisition Proposal with a third party which is thereafter
consummated, or (B) the Company terminates this Agreement pursuant to Section
9.3(b), then, in either event, the Company shall pay to Parent, by wire transfer
of immediately available funds, within two days after the consummation of the
Acquisition Proposal or Superior Proposal, as the case may be, a fee in the
amount of One Million Two Hundred Seventy-Seven Thousand Dollars ($1,277,000).
(b) In the event of termination of this Agreement by Parent or Merger
Sub pursuant to Section 9.4(b) or Section 9.4(c), then the Company shall
reimburse Parent for its reasonable out-of-pocket expenses (including but not
limited to expenses referenced in Section 10.1(i) and 10.1(ii)) actually
incurred in connection with this Agreement and the transactions contemplated
hereby, up to an aggregate amount of One Million Dollars ($1,000,000), which
amount shall be payable by wire transfer of immediately available funds within
three business days of written demand therefor, accompanied by a reasonable
detailed statement of such expenses and appropriate supporting documentation
therefor.
(c) In the event of termination of this Agreement by the Company
pursuant to Section 9.3(a), then Parent shall reimburse the Company for its
reasonable out-of-pocket expenses (including but not limited to expenses
referenced in Section 10.1(i)) actually incurred in connection with this
Agreement and the transactions contemplated hereby, up to an aggregate amount of
One Million Dollars ($1,000,000), which amount shall be payable by wire transfer
of immediately available funds within three business days of written demand
therefor, accompanied by a reasonably detailed statement of such expenses and
appropriate supporting documentation therefor.
ARTICLE X
MISCELLANEOUS AND GENERAL
10.1 Expenses. Each party shall bear its own expenses, including the
fees and expenses of any attorneys, accountants, investment bankers, brokers,
finders or other intermediaries or other Persons engaged by it, incurred in
connection with this Agreement and the transactions contemplated hereby, except
(i) the expenses incurred in connection with the printing, filing and mailing to
stockholders of the Proxy Statement and the solicitation of stockholder
approvals shall be shared equally by the Company and Parent, (ii) all filing
fees incurred, or to be incurred, in connection with filings under the HSR Act
and any other applicable antitrust laws and regulations shall be the sole
responsibility of Parent, and (iii) as otherwise provided in Section 9.6.
10.2 Notices, Etc. All notices, requests, demands or other
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed to have been duly given to any party when
delivered personally, when scheduled for delivery when sent by courier service
guaranteeing delivery by a specific date, when sent by telecopy and confirmed by
return telecopy, or upon receipt after being mailed by first-class mail (or
other class of mail), postage prepaid and return receipt requested in each case
to the applicable addresses set forth below:
If to the Company:
Met-Coil Systems Corporation
5486 Sixth Street, SW
Cedar Rapids, IA 52404
Attn: James D. Heitt
President and Chief Operating Officer
Facsimile: (319) 362-0225
With a copy to:
Carroll Reasoner, Esq.
Shuttleworth & Ingersoll
115 Third Street SE, Suite 500
Cedar Rapids, IA 52406-2107
Facsimile: (319)-365-8725
If to Parent or Merger Sub:
Formtek, Inc.
260 North Elm Street
Westfield, MA 01085
Attn: Stephen Shea
Senior Vice President and Chief Financial Officer
Facsimile: (413) 568-7428
With a copy to:
Baker & McKenzie
815 Connecticut Ave, N.W.
Washington, DC 20006
Attn: Marc R. Paul, Esq.
Facsimile: (202) 452-7074
or to such other address as such party shall have designated by notice so given
to each other party.
10.3 Amendments, Waivers, Etc. This Agreement may be amended, changed,
supplemented, waived or otherwise modified only by an instrument in writing
signed by the party against whom enforcement is sought; provided that, after the
adoption of this Agreement by the stockholders of the Company, no such
amendment, change, supplement or waiver shall be made without the further
requisite approval of such stockholders if such amendment, change, supplement or
waiver by law requires the further approval by such stockholders.
10.4 No Assignment. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns; provided that, except as otherwise expressly set forth
in this Agreement, neither the rights nor the obligations of any party may be
assigned or delegated without the prior written consent of the other parties.
10.5 Entire Agreement. Except as otherwise provided herein, this
Agreement (together with the Company Disclosure Statement, the Parent/Merger Sub
Disclosure Statement, Exhibits, and the Confidentiality Agreement and the other
agreements expressly contemplated hereby) embodies the entire agreement and
understanding between the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. There are no representations, warranties or covenants by the parties
hereto relating to such subject matter other than those expressly set forth in
this Agreement (including the Company Disclosure Statement, the Parent/Merger
Sub Disclosure Statement, Exhibits and the Confidentiality Agreement) and any
writings expressly required hereby.
10.6 Specific Performance. The parties acknowledge that money damages
are not an adequate remedy for violations of this Agreement and that any party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunctive or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable Law, each party waives any
objection to the imposition of such relief.
10.7 Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise or beginning of
the exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
10.8 No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
10.9 No Third Party Beneficiaries. Except as otherwise provided in
Section 6.7 (with respect to the Agent only) and Section 6.9, this Agreement is
not intended to be for the benefit of and shall not be enforceable by any Person
or entity who or which is not a party hereto.
10.10 Public Announcements. Parent and the Company will agree upon the
timing and content of the initial press release to be issued describing the
transactions contemplated by this Agreement, and will not make any public
announcement thereof prior to reaching such agreement unless required to do so
by applicable Law or regulation or NASDAQ or stock exchange requirement. To the
extent reasonably requested by any other party, each party will thereafter
consult with and provide reasonable cooperation to the others in connection with
the issuance of further press releases or other public documents describing the
transactions contemplated by this Agreement.
10.11 Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Delaware, without regard to principles of conflict of laws.
10.12 Name, Captions, Etc. The names assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Unless otherwise specified,
(a) the terms "hereof", "herein" and similar terms refer to this Agreement as a
whole and (b) references herein to Articles or Sections refer to articles or
sections of this Agreement. Wherever appearing herein, the word "including"
shall be deemed to be followed by the words "without limitation."
10.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
10.14 Survival of Representations, Warranties, Covenants and
Agreements. The respective representations and warranties of the Company
contained herein or in any certificates or other documents delivered prior to or
at the Closing Date shall terminate at the Effective Time. The respective
representations and warranties of the Parent and Merger Sub contained herein or
in any certificates or other documents delivered prior to or at the Closing Date
shall terminate at the Effective Time. The respective covenants and agreements
of the parties contained herein or in any other documents delivered prior to or
at the Closing Date shall survive the execution and delivery of this Agreement
and shall only terminate in accordance with their respective terms.
10.15 Severability. In case any provision in this Agreement shall be
held invalid, illegal or unenforceable in a jurisdiction, such provision shall
be modified or deleted, as to the jurisdiction involved, only to the extent
necessary to render the same valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby nor shall the validity, legality or
enforceability of such provision be affected thereby in any other jurisdiction.
10.16 Disclosure Statements. The parties acknowledge that the
disclosures contained in the Company Disclosure Statement and Parent/Merger Sub
Disclosure Statement to this Agreement (i) relate to certain matters concerning
the disclosures required and transactions contemplated by this Agreement, (ii)
are qualified in their entirety by reference to specific provisions of this
Agreement, and (iii) are not intended to constitute and shall not be construed
as indicating that such matter is required to be disclosed, nor shall such
disclosure be construed as an admission that such information is material with
respect to the Company, Parent or Merger Sub, as the case may be, except to the
extent required by this Agreement.
10.17 Waiver.
------
(a) Any of the parties may:
(i) Extend in writing the time for the performance of any of the
obligations herein contained to be performed for the benefit of
such party;
(ii) Waive in writing any inaccuracies in the representations and
warranties made to it contained in this Agreement or any Exhibit
or Company Disclosure Statement or Parent/Merger Sub Disclosure
Statement or any certificate or certificates delivered by another
party to this Agreement;
(iii) Waive in writing the failure in performance of any of the
conditions herein expressed for its benefit; and
(iv) Waive in writing compliance with any of the covenants herein
contained for its benefit.
(b) No such waiver or extension shall be valid unless in writing and
signed by the party granting the waiver or extension, and no such waiver or
extension shall be construed to excuse or mitigate any subsequent breach or
violation of this Agreement not specifically covered by such waiver.
ARTICLE XI
DEFINITIONS
As used in this Agreement, the following terms shall have the respective
meanings set forth below:
"Acquisition Proposal": As defined in Section 6.2(a).
"Affiliate": As defined in Rule 12b-2 under the Exchange Act.
"Agent": As defined in Section 6.7(c).
"Agreement": As defined in the preamble hereto.
"Authorization": Any consent, approval or authorization of, expiration
or termination of any waiting period requirement (including pursuant to the HSR
Act) by, or filing, registration, qualification, declaration or designation
with, any Governmental Authority.
"Bylaws": In respect of any Person, the bylaws of such Person.
"Cash Payment": As defined in Section 2.2(a).
"Certificate of Merger": The certificate of merger with respect to the
merger of the Company with and into Merger Sub, containing the provisions
required by, and executed in accordance with, Section 251 of the DGCL.
"Closing": As specified in Section 1.2.
"Closing Date": As defined in Section 1.2.
"Code": The Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder, as in effect from time to time.
"Common Stock": The Company's common stock, par value $0.01 per share.
"Company": Met-Coil Systems Corporation, a Delaware corporation.
"Company Certificates": As defined in Section 2.3.
"Company Charter": The Certificate of Incorporation of the Company, as
amended to the date hereof and as it may be further amended prior to the Closing
Date with the consent of Parent pursuant to Section 6.1.
"Company Disclosure Statement": The disclosure statement, dated the
date of this Agreement, delivered by the Company to Parent.
"Company Multiemployer Plan" means all Multiemployer Plans to which the
Company or an ERISA Affiliate of the Company contributes or has contributed, or
in which the Company or an ERISA Affiliate of the Company otherwise participates
or has participated.
"Company Other Benefit Obligation" means an Other Benefit Obligation
owed, adopted, or followed by the Company or an ERISA Affiliate of the Company.
"Company Plan" means all Plans, other than Multiemployer Plans, of
which the Company or an ERISA Affiliate of the Company is or was a Plan Sponsor,
or to which the Company or an ERISA Affiliate of the Company otherwise
contributes or has contributed, or in which the Company or an ERISA Affiliate of
the Company otherwise participates or has participated. All references to Plans
are to Company Plans unless the context requires otherwise.
"Company SEC Reports": As defined in Section 3.11.
"Company Stockholders' Meeting": As defined in Section 6.4.
"Confidentiality Agreement": That certain Confidentiality Agreement
dated July 21, 1999 between the Company and Ultimate Parent.
"Control": With respect to any Person, the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract, or otherwise.
"DGCL": The Delaware General Corporation Law.
"Dissenting Shares": As defined in Section 2.5.
"Dissenting Stockholder": As defined in Section 2.5.
"Effective Time": As defined in Section 1.2.
"Environmental, Health, and Safety Liabilities": Any cost, damages,
attorneys' fees, expense, liability, obligation, or
other responsibility arising from or under Environmental Laws and consisting of
or relating to:
(a) any environmental, health, or safety matters or conditions including
on-site or off-site contamination, occupational safety
and health, and regulation of Hazardous Substances;
(b) any events, facts, conditions or circumstances which may give rise to common
law or other legal liability, or otherwise form the basis of any fines,
penalties, judgments, awards, settlements, suits, notices of violation, legal
or administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses;
(c) financial responsibility under Environmental Laws for cleanup costs or
corrective action, including any investigation, cleanup, removal, containment,
or other remediation or response actions ("Cleanup") required by applicable
Environmental Laws (whether or not such Cleanup has been required or requested
by any Governmental Authority or any other Person) and for any natural resource
damages; or
(d) any other compliance, corrective, investigative, response, removal or
remedial measures required under Environmental Laws.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq., as
amended ("CERCLA"), or equivalent state "Superfund" laws, and include removal,
remedial and investigatory activities under federal, state, or local voluntary
site remediation programs.
"Environmental Laws": As defined in Section 3.23.
"ERISA Affiliate" means, with respect to the Company, any other person
that, together with the Company, would be treated as a single employer under
Code Section 414.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, and all regulations promulgated thereunder, as in
effect from time to time.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Executive Agreements": As defined in Section 6.7.
"Governmental Authority": Any
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
"Hazardous Substances": As defined in Section 3.23.
"HSR Act": The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Initial Period": As defined in Section 6.7(a).
"Intellectual Property": As defined in Section 3.10.
"Knowledge of the Company", "to the Company's knowledge" and words of
similar import shall mean the actual knowledge of Raymond Blakeman, James Heitt,
Gary Dickerson, Rian Sheel, Randall Stodola, J.R. Svehla, John Toben or John
Welty.
"Law": Any foreign or domestic law, statute, code, ordinance, rule,
regulation promulgated, or order, judgment, writ, stipulation, award, injunction
or decree entered by any Governmental Authority.
"Lien": As defined in Section 3.16.
"Material Adverse Effect": In respect of any Person, a material adverse
effect on the business, properties, assets, liabilities, operations, results of
operations or condition (financial or otherwise) of such Person and its
Subsidiaries taken as a whole, or which would prevent the consummation of the
transactions contemplated by this Agreement on the terms and conditions
contained herein.
"Material Contracts": As defined in Section 3.17.
"Material Systems": As defined in Section 3.21.
"Merger": As defined in the recitals hereto.
"Merger Consideration": As defined in Section 2.1.
"Merger Sub": Formtek Acquisition, Inc., a Delaware corporation.
"Merger Sub Common Stock": Merger Sub's common stock, par value $0.01
per share.
"Multiemployer Plan" has the meaning given in ERISA Section 3(37)(A).
"NASDAQ": The Nasdaq Stock Market, National Market System.
"Options": Options to purchase Shares.
"Other Benefit Obligation" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans or Multiemployer Plans. Other Benefit Obligations
include consulting agreements under which the compensation paid does not depend
upon the amount of service rendered, sabbatical policies, severance payment
policies, and fringe benefits within the meaning of Code Section 132.
"Parent": Formtek, Inc., a Delaware corporation.
"Parent/Merger Sub Disclosure Statement": The disclosure statement,
dated the date hereof, delivered by Parent and Merger Sub to the
Company.
"Parent Representatives": As defined in Section 6.6.
"Paying Agent": As defined in Section 2.3.
"Payment Fund": As defined in Section 2.3.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Pension Plan" has the meaning given in ERISA Section 3(2)(A).
"Permitted Investments": As defined in Section 2.3.
"Permitted Liens": As defined in Section 3.16.
"Person": Any individual or corporation, company, partnership, trust,
incorporated or unincorporated association, limited liability company, joint
venture or other entity of any kind.
"Plan" has the meaning given in ERISA Section 3(3).
"Plan Sponsor" has the meaning given in ERISA Section 3(16)(B).
"Preferred Shares": The Company's Cumulative Preferred Shares, par
value $1.00 per share.
"Property": As defined in Section 3.23.
"PCBs": As defined in Section 3.23.
"Proxy Statement": As defined in Section 3.15.
"Qualified Plan" means any Plan that meets or purports to meet the
requirements of Code Section 401(a).
"Relevant Date": As defined in Section 3.21.
"SEC": The Securities and Exchange Commission.
"Securities Act": The Securities Act of 1933, as amended.
"Shares": Shares of common stock of the Company, par value $0.01 per
share.
"Stockholder Agreements": As defined in the recitals hereof.
"Stock Incentive Plans": As defined in Section 2.2(b).
"Subsidiary": As to any Person, any other Person of which more than (i)
50% of the equity and (ii) 50% of the voting interests are owned, directly or
indirectly, by such first Person. For the avoidance of doubt, the term
"Subsidiary", when applied to the Company, includes any Person listed as a
Subsidiary on Schedule 3.2 to the Company Disclosure Statement.
"Superior Proposal": As defined in Section 6.2.
"Surviving Corporation": Shall mean the Merger Sub in its capacity as
the surviving corporation in the Merger pursuant to Section 1.1 of
this Agreement.
"Tax": As defined in Section 3.9.
"Tax Controversy": As defined in Section 3.9.
"Tax Return": As defined in Section 3.9.
"Termination Date": As defined in Section 9.2.
"Title IV Plans" means all Pension Plans that are subject to Title IV
of ERISA other than Multiemployer Plans.
"Ultimate Parent": Mestek, Inc., a Pennsylvania corporation.
"VEBA" means a voluntary employees' beneficiary association under Code
Section 501(c)(9).
"Voting Debt": As defined in Section 3.4(a).
"Warrants": Warrants to purchase Shares.
"Welfare Plan" has the meaning given in ERISA Section 3(1).
"Wholly Owned Subsidiary": As to any Person, a Subsidiary of such
Person 100% of the equity and voting interest in which (other than directors'
qualifying shares) is owned, directly or indirectly, by such Person.
"Year 2000 Compliant": As defined in Section 3.21.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties set forth below.
FORMTEK, INC.
By: _/S/Stephen M. Shea________
Name:Stephen M. Shea
Title:Sr. Vice President-Finance
FORMTEK ACQUISITION, INC.
By: _/S/ Stephen M.Shea__________
Name:Stehpen M. Shea
Title: Sr. Vice President-Finance
MET-COIL SYSTEMS CORPORATION
By: /S/ Raymond Blakeman_________
Name: Raymond Blakeman
Title: Chairman
In order to induce the Company to execute this Agreement,
Ultimate Parent hereby jointly and severally unconditionally guarantees to the
Company the full and timely performance of all of the obligations and agreements
of Parent and Merger Sub in accordance with the terms hereof. The Company may,
at its option, proceed against Ultimate Parent for the performance of any such
obligation or agreement, or for damages for default in the performance thereof,
without first proceeding against Parent or Merger Sub or against any of their
properties. Ultimate Parent further agrees that its guarantee shall be an
irrevocable guarantee and shall continue in effect notwithstanding any extension
or modification of any guaranteed obligation, any assumption of any such
guaranteed obligation by any other party, or any other act or thing which might
otherwise operate as a legal or equitable discharge of a guarantor and Ultimate
Parent hereby waives all special suretyship defenses and notice requirements.
Ultimate Parent represents and warrants to the Company that (i) Ultimate Parent
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation; (ii) Ultimate Parent has full corporate
power and authority to enter into, execute, deliver and perform its obligations
under this Agreement, (iii) this Agreement has been duly executed and delivered
by a duly authorized officer of Ultimate Parent and (assuming the due execution
and delivery of this Agreement by the other parties hereto other than Merger Sub
and Parent) constitutes a valid and binding agreement of the Ultimate Parent,
enforceable against it in accordance with its terms, subject to bankruptcy,
insolvency and other similar laws affecting the rights of creditors generally
and except that the remedies of specific performance, injunction and other forms
of equitable relief may not be available, and (iv) neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will conflict with or violate any provision of the Articles of
Incorporation or Bylaws of Ultimate Parent or conflict with or violate any law,
rule, regulation, ordinance, order, writ, injunction, judgment or decree
applicable to Ultimate Parent or its business or by which any of its assets are
affected, except to the extent any such conflict or violation would not have a
Material Adverse Effect.
MESTEK, INC.
By: _/s/ Stephen M. Shea________
Name: Stephen M. Shea
Title: Sr. Vice President-Finance
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that ELIZABETH C. REED TRUST ("Seller"), in
consideration of Ninety-Nine Thousand Seven Hundred Fifty and /oo Dollars
($99,750.00) and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, does hereby grant, convey, assign,
transfer and deliver to Mestek, Inc., a Pennsylvania corporation ("Buyer"), free
and clear of all liens, encumbrances, restrictions and adverse claims
whatsoever, all of the machinery, equipment, fixtures, jigs, dies, tooling,
patterns, tooling fixtures identified in Schedule 1 attached hereto (the
"Machinery & Equipment"), together with any rights of Seller to all warranties,
if any, and to the extent assignable, received from the manufacturers and
sellers of such items.
Seller does for itself, and its successors and assigns, covenant and agree, at
its own expense, to warrant and defend the title to and the sale and transfer of
the Machinery & Equipment unto Buyer, its successors and assigns, against all
claims whatsoever.
Seller shall, at the request of Buyer and without further consideration, execute
and deliver such other instruments of conveyance, assignment and transfer and
take such other actions as Buyer may reasonably require to more effectively
convey, assign, transfer to and vest in Buyer, good and marketable title and
possession in the Machinery & Equipment.
Buyer hereby accepts the Equipment "AS IS" and "WHERE IS" and understands that
there are NO WARRANTEES EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE granted or given with
respect to the Machinery & Equipment.
By acceptance hereof, Buyer agrees to utilize, guard and equip the Machinery &
Equipment as required under the applicable rules and regulations of the
Occupational Safety and Health Administration ("OSHA") and to comply with any
and all applicable OSHA standards in its sale, use, modification, repair or
refurbishment of the Equipment with all appropriate disclaimers for and in favor
of the Seller, and to hold Seller harmless for any claims related thereto.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this 1st day of
January, 1999.
WITNESS: ELIZABETH C. REED TRUST
/S/ JOHN E. REED
- --------------------------- ---------------------------
By: John E. Reed
Its: Trustee
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that STERLING REALTY TRUST ("Seller"), in
consideration of One Hundred Thirty-Eight Thousand Five Hundred and /oo Dollars
($138,500.00) and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, does hereby grant, convey, assign,
transfer and deliver to Mestek, Inc., a Pennsylvania corporation ("Buyer"), free
and clear of all liens, encumbrances, restrictions and adverse claims
whatsoever, all of the machinery, equipment, fixtures, jigs, dies, tooling,
patterns, tooling fixtures identified in Schedule 1 attached hereto (the
"Machinery & Equipment"), together with any rights of Seller to all warranties,
if any, and to the extent assignable, received from the manufacturers and
sellers of such items.
Seller does for itself, and its successors and assigns, covenant and agree, at
its own expense, to warrant and defend the title to and the sale and transfer of
the Machinery & Equipment unto Buyer, its successors and assigns, against all
claims whatsoever.
Seller shall, at the request of Buyer and without further consideration, execute
and deliver such other instruments of conveyance, assignment and transfer and
take such other actions as Buyer may reasonably require to more effectively
convey, assign, transfer to and vest in Buyer, good and marketable title and
possession in the Machinery & Equipment.
Buyer hereby accepts the Equipment "AS IS" and "WHERE IS" and understands that
there are NO WARRANTEES EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE granted or given with
respect to the Machinery & Equipment.
By acceptance hereof, Buyer agrees to utilize, guard and equip the Machinery &
Equipment as required under the applicable rules and regulations of the
Occupational Safety and Health Administration ("OSHA") and to comply with any
and all applicable OSHA standards in its sale, use, modification, repair or
refurbishment of the Equipment with all appropriate disclaimers for and in favor
of the Seller, and to hold Seller harmless for any claims related thereto.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this 1st day of
January, 1999.
WITNESS: STERLING REALTY TRUST
/S/ JOHN E. REED
- --------------------------- ---------------------------
By: John E. Reed
Its: Trustee
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that STERLING REALTY TRUST ("Seller"), in
consideration of One Hundred Twenty-Five Thousand and /oo Dollars ($125,000.00)
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, does hereby grant, convey, assign, transfer and deliver
to Mestek, Inc., a Pennsylvania corporation ("Buyer"), free and clear of all
liens, encumbrances, restrictions and adverse claims whatsoever, all of the
machinery, equipment, fixtures, jigs, dies, tooling, patterns, tooling fixtures
identified in Schedule 1 attached hereto (the "Machinery & Equipment"), together
with any rights of Seller to all warranties, if any, and to the extent
assignable, received from the manufacturers and sellers of such items.
Seller does for itself, and its successors and assigns, covenant and agree, at
its own expense, to warrant and defend the title to and the sale and transfer of
the Machinery & Equipment unto Buyer, its successors and assigns, against all
claims whatsoever.
Seller shall, at the request of Buyer and without further consideration, execute
and deliver such other instruments of conveyance, assignment and transfer and
take such other actions as Buyer may reasonably require to more effectively
convey, assign, transfer to and vest in Buyer, good and marketable title and
possession in the Machinery & Equipment.
Buyer hereby accepts the Equipment "AS IS" and "WHERE IS" and understands that
there are NO WARRANTEES EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE granted or given with
respect to the Machinery & Equipment.
By acceptance hereof, Buyer agrees to utilize, guard and equip the Machinery &
Equipment as required under the applicable rules and regulations of the
Occupational Safety and Health Administration ("OSHA") and to comply with any
and all applicable OSHA standards in its sale, use, modification, repair or
refurbishment of the Equipment with all appropriate disclaimers for and in favor
of the Seller, and to hold Seller harmless for any claims related thereto.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this 1st day of
January, 1999.
WITNESS: STERLING REALTY TRUST
/S/ JOHN E. REED
- --------------------------- ---------------------------
By: John E. Reed
Its: Trustee
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that Machinery Rental Company ("Seller"), in
consideration of Two Hundred Fifty-Seven Thousand and /oo Dollars ($257,000.00)
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, does hereby grant, convey, assign, transfer and deliver
to Mestek, Inc., a Pennsylvania corporation ("Buyer"), free and clear of all
liens, encumbrances, restrictions and adverse claims whatsoever, all of the
machinery, equipment, fixtures, jigs, dies, tooling, patterns, tooling fixtures
identified in Schedule 1 attached hereto (the "Machinery & Equipment"), together
with any rights of Seller to all warranties, if any, and to the extent
assignable, received from the manufacturers and sellers of such items.
Seller does for itself, and its successors and assigns, covenant and agree, at
its own expense, to warrant and defend the title to and the sale and transfer of
the Machinery & Equipment unto Buyer, its successors and assigns, against all
claims whatsoever.
Seller shall, at the request of Buyer and without further consideration, execute
and deliver such other instruments of conveyance, assignment and transfer and
take such other actions as Buyer may reasonably require to more effectively
convey, assign, transfer to and vest in Buyer, good and marketable title and
possession in the Machinery & Equipment.
Buyer hereby accepts the Equipment "AS IS" and "WHERE IS" and understands that
there are NO WARRANTEES EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE granted or given with
respect to the Machinery & Equipment.
By acceptance hereof, Buyer agrees to utilize, guard and equip the Machinery &
Equipment as required under the applicable rules and regulations of the
Occupational Safety and Health Administration ("OSHA") and to comply with any
and all applicable OSHA standards in its sale, use, modification, repair or
refurbishment of the Equipment with all appropriate disclaimers for and in favor
of the Seller, and to hold Seller harmless for any claims related thereto.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this 1st day of
January, 2000.
WITNESS: MACHINERY RENTAL COMPANY
/S/ JOHN E. REED
- --------------------------- ---------------------------
By: John E. Reed
Its: Trustee
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that Machinery Rental Company ("Seller"), in
consideration of Two Hundred Fifty Thousand and /oo Dollars ($250,000.00) and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, does hereby grant, convey, assign, transfer and deliver to
Mestek, Inc., a Pennsylvania corporation ("Buyer"), free and clear of all liens,
encumbrances, restrictions and adverse claims whatsoever, all of the machinery,
equipment, fixtures, jigs, dies, tooling, patterns, tooling fixtures identified
in Schedule 1 attached hereto (the "Machinery & Equipment"), together with any
rights of Seller to all warranties, if any, and to the extent assignable,
received from the manufacturers and sellers of such items.
Seller does for itself, and its successors and assigns, covenant and agree, at
its own expense, to warrant and defend the title to and the sale and transfer of
the Machinery & Equipment unto Buyer, its successors and assigns, against all
claims whatsoever.
Seller shall, at the request of Buyer and without further consideration, execute
and deliver such other instruments of conveyance, assignment and transfer and
take such other actions as Buyer may reasonably require to more effectively
convey, assign, transfer to and vest in Buyer, good and marketable title and
possession in the Machinery & Equipment.
Buyer hereby accepts the Equipment "AS IS" and "WHERE IS" and understands that
there are NO WARRANTEES EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE granted or given with
respect to the Machinery & Equipment.
By acceptance hereof, Buyer agrees to utilize, guard and equip the Machinery &
Equipment as required under the applicable rules and regulations of the
Occupational Safety and Health Administration ("OSHA") and to comply with any
and all applicable OSHA standards in its sale, use, modification, repair or
refurbishment of the Equipment with all appropriate disclaimers for and in favor
of the Seller, and to hold Seller harmless for any claims related thereto.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this 1st day of
January, 2000.
WITNESS: MACHINERY RENTAL COMPANY
/S/ JOHN E. REED
- --------------------------- ---------------------------
By: John E. Reed
Its: Trustee
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") made as of the 1st day of July,
1999, 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
Technology, Inc., and its successors and assigns (the "Tenant") a Delaware
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.abLease of Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord a portion of the 3rd and 4th Floors, representing 1,702 square
feet, of the premises commonly known as 125 North Elm Street ("Torrington
Building"), Westfield, MA 01085 (the "Premises"), indicated by the drawing
attached as Exhibit A to this Lease, which Premises is situated on that certain
parcel of land described in Exhibit B to this Lease (the "Property"), together
with the right and license to enter and use the adjacent property located on the
corner of North Elm Street and Westminster Street as described in Exhibit C to
this Lease, for the purposes of automobile parking for occupants and guests of
the Premises.
2.abTerm
2.1 Term. The term of the Lease shall be month-to-month, subject
to termination as provided in this Lease.
2.2 Termination.
-----------
2.2.1 This Lease may be terminated by either party upon thirty
(30) days' prior written notice to the other party.
2.2.2 This Lease may be immediately terminated at the election
of Landlord in the event of any default of Tenant as described in Article 11
below.
<PAGE>
2.2.3 Upon the expiration or sooner termination of this Lease,
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 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.abRent.
3.1ab Tenant shall pay to the Landlord at its offices in Westfield, MA 01085 or
such other address as Landlord may designate, a rate of Eleven Dollars ($11.00)
per square foot of floor area or One Thousand Five Hundred Sixty Dollars
($1,560.00), in advance of the first day of each month ("Monthly Rent"), without
any deduction, counterclaim, abatement or set-off whatsoever (except as may be
expressly authorized by the terms of this Lease).
3.2ab The Monthly Rent to be paid by Tenant includes all real estate taxes, real
property insurance, and utilities but excluding telecommunications including
water, gas, heat, light, power, electricity, fuel, sewer charges, and any and
all other services and utilities supplied to the Premises together with any
taxes or surcharges thereon.
4.abInsurance.
4.1ab Property Insurance. Landlord shall obtain and keep in force during the
Term of this Lease a policy of fire and extended coverage insurance with respect
to the Premises.
4.2ab Liability Insurance. Tenant shall 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 use,
occupancy, or maintenance of the 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.
4.3ab Personal Property Insurance. Tenant shall, at Tenant's own expense, obtain
and keep in force during the term of this Lease a policy of personal property
insurance in an amount necessary to cover Tenants personal property on the
Premises. 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) 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 (b) 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 current prime rate of BankBoston, N.A. or any successor thereto,
less one percentage point (1%), shall be deemed Additional Rent and shall be
payable upon Landlord's demand.
<PAGE>
5.abImprovements and Alterations.
----------------------------
5.1ab 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.
5.2ab 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. 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 ninety
(90) days after the filing thereof. If Tenant shall fail to cause such lien to
be discharged of record within such ninety (90) 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.
5.3ab 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.abUse of Premises. Tenant's use and occupancy of the Premises shall be for the
purpose of conducting marketing, sales, customer service, and administrative
services associated with its computer software activities and all other
ancillary uses relating thereto. Tenant shall not use or permit the Premises to
be used for any significantly different purposes without the prior written
consent of Landlord.
6.1ab 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 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. 6.2ab 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.abMaintenance and Repairs. Responsibility for maintenance and repairs shall
be allocated between Landlord and Tenant as follows:
7.1ab 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 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, painting and repair of any doors, door frames, windows, window
casements, glass, floors and floor coverings, walls and wall surfaces and
coverings, plumbing, pipes, electrical service, including panels, boxes, wiring
and conduits. 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.
7.2ab 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 and which include the foundation, exterior and
load-bearing walls, structural members and roof, and shall maintain (without the
requirement of notice) the exterior grounds, common areas, parking lots,
sidewalks and walkways of the Property, including removal of snow and ice as
required. 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 7.2, 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 9.1.
8.abHold 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 fire,
explosion, falling plaster, steam, gas, electricity, water, or rain which may
leak from any part of the Torrington 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.abEntry 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 Torrington 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 or the Torrington Building 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.abAssignment 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; provided, however, that Tenant may assign this Lease or sublet the
Premises to an affiliate of Tenant without the consent of Landlord. Any such
assignment or subletting without such required 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 Monthly
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.abTenant'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:
11.1ab Abandonment. Tenant vacates or abandons the Premises for a continuous
period in excess of five (5) business days.
11.2ab Failure to Pay Obligations. Tenant fails to make any payment of Monthly
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.
11.3ab 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 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.abRemedies 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:
12.1ab 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
Monthly Rent and other obligations of Tenant under this Lease including without
limitation, accrued interest, the cost of recovering possession of the Premises,
the expenses of reletting, 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, and any other costs or damages arising out of Tenant's default.
Notwithstanding any termination of this Lease, re-entry or reletting of the
Premises, the liability of Tenant for the Monthly 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.
12.2ab 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 Monthly 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.
12.3ab 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 the exercise of any right or
remedy shall not constitute a waiver, merger or extinguishment of any other
right or remedy.
12.4ab 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.abDamage 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:
13.1ab Insured Damage. In the event the Premises are damaged by fire or other
perils covered by 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 Monthly 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. If the damage is due to the
fault or neglect of Tenant or Tenant's employees, there shall be no abatement of
the Monthly Rent.
13.2ab Other Damage. In the event the Premises are damaged as the result of any
cause other than the perils covered by 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 Monthly 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 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 Monthly
Rent shall be fully abated, and all other obligations of Tenant under this Lease
shall be deemed performed as of 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 Monthly 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.
13.3ab 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.abEminent Domain.
--------------
14.1ab 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.
14.2ab 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 Monthly Rent thereafter to be paid shall be equitably
reduced.
14.3ab 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.abSigns.
15.1ab 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.
15.2ab "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.abSubordination. 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.abTenant'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 Monthly 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.abAuthority of Parties. Each of Tenant and Landlord represents and warrants
that it is a 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 Tenant and
Landlord 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 organization, 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.abGeneral Provisions. Landlord and Tenant agree to the following general
provisions:
19.1ab 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.
19.2ab Time. Time is of the essence of this Lease and each and all its
provisions in which performance is a factor.
19.3ab 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.
19.4ab 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.
<PAGE>
19.5ab 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.
19.6ab 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.
19.7ab 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.
19.8ab 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.
19.9ab 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.
19.10ab Real Estate Commission. There are no brokers eligible to receive
commissions.
19.11ab 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
If to Tenant:
Mestek Technology, Inc.
260 North Elm Street
Westfield, MA 01085
Attention: Stephen M. Shea, Sr. Vice President-Finance
19.12ab 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.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement as
of the date first set forth above.
LANDLORD:
STERLING REALTY TRUST
/S/ JOHN E. REED
-----------------------------
By: John E. Reed
Its: Trustee
TENANT:
MESTEK TECHNOLOGY, INC.
/S/ STEPHEN M. SHEA
-----------------------------
By: Stephen M. Shea
Its: Sr. Vice President-Finance
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") made as of the 1st day of July,
1999, 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.abLease of Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord a portion of the 1st Floor of the premises commonly known as 125
North Elm Street ("Torrington Building"), Westfield, Massachusetts, 01085,
representing 6,864 square feet, as indicated by the drawing attached as Exhibit
A to this Lease (the "Premises"), which Premises is situated on that certain
parcel of land described in Exhibit B to this Lease (the "Property"), together
with the right and license to enter and use the adjacent property located on the
corner of North Elm Street and Westminster Street as described in Exhibit C to
this Lease, for the purposes of automobile parking for Tenant, its officers,
employees, agents and invitees.
2.abTerm
2.1ab Term. The term of the Lease shall be for a period of five (5) years
beginning on July 1, 1999 (the "Commencement Date") and ending on June 30, 2004
(the "Termination Date") at 5:00 p.m., subject to (a) earlier termination as
provided in this Lease, or (b) the renewal of this Lease at the option of the
Tenant for an additional five (5) year period upon three (3) months advance
notice to Landlord, at an annual rent set forth in Section 3.3 below (the
"Term").
2.2ab Termination.
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2.2.1 This Lease shall terminate at the end of the Term, as it
may be extended, pursuant to Section 2.1(b), 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.
<PAGE>
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 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.abRent.
3.1ab Tenant shall pay to the Landlord at its offices in Westfield, MA 01085 or
such other address as Landlord may designate, a rate of Eleven Dollars ($11.00)
per square foot of floor area, which is equal to an annual rent (the "Annual
Rent") of Seventy-Five Thousand Five Hundred Four Dollars and No/100
($75,504.00), payable in monthly installments of Six Thousand Two Hundred
Ninety-Two Dollars and No/100 ($6,292.00), 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).
3.2ab Tenant shall also pay to Landlord, as additional rent during the initial
term of this Lease ("Additional Rent"), the sum of $257,820.00, which is equal
to the costs of $217,000 incurred by Landlord in the buildout of the Premises at
7% interest, payable in sixty equal installments of $4,297.00 each month on the
day reserved hereunder for the payment of the Annual Rent, without any
deduction, counterclaim, abatement or set-off whatsoever.
3.3ab The Annual Rent to be paid by Tenant includes all real estate taxes, real
property insurance, and utilities, including water, gas, heat, light, power,
electricity, fuel, sewer charges, but excluding telecommunications, and any and
all other services and utilities supplied to the Premises together with any
taxes or surcharges thereon.
3.4ab If Tenant shall elect to extend the term of this Lease, as provided in
Section 2.1(b), then the Annual Rent shall be adjusted (the "Adjusted Annual
Rent") as follows:
3.4.1ab The Consumer Price Index for All Urban Consumers (CPI-U) as published on
the Commencement Date ( the "Base Index") shall be compared to such index as
published on the Termination Date (the "Current Index") and the change in the
Consumer Price Index shall be expressed as a percentage where a number equal to
the Current Index minus the Base Index shall be the numerator, and the Current
Index shall be the denominator (the "Percentage Increase"); provided however
that the Percentage Increase shall not be less than zero.
3.4.2ab The Adjusted Annual Rent shall equal the Annual Rent plus the product of
the Annual Rent multiplied by one-half of the Percentage Increase; provided
however that if the Percentage Increase is equal to zero percent (0.00%), then
the Adjusted Annual Rent shall equal $11 per square foot. For purposes of
illustration only; the Base Index is equal to 166.7, and assuming the Current
Index is 200 as of June 30, 2004, then the Percentage Increase would equal
16.65% (200 - 166.7 / 200), and the Adjusted Annual Rent would equal $11.91 per
square foot ($11 + ($11* (16.65% / 2)).
4.abInsurance.
4.1ab Property Insurance. Landlord shall obtain and keep in force during the
Term of this Lease a policy of fire and extended coverage insurance with respect
to the Premises.
4.2ab Liability Insurance. Tenant shall 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 use,
occupancy, or maintenance of the 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.
4.3ab Personal Property Insurance. Tenant shall, at Tenant's own expense, obtain
and keep in force during the term of this Lease a policy of personal property
insurance in an amount necessary to cover Tenants personal property on the
Premises. 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) 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 (b) 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 current prime rate of BankBoston, N.A., or any successor thereto,
less two percentage points (2%), shall be deemed Additional Rent and shall be
payable upon Landlord's demand.
5.abImprovements and Alterations.
----------------------------
5.1ab 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.
5.2ab 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. 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 ninety
(90) days after the filing thereof. If Tenant shall fail to cause such lien to
be discharged of record within such ninety (90) 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.
5.3ab 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.abUse of Premises. Tenant's use and occupancy of the Premises shall be for the
purpose of conducting marketing, sales, customer service, and administrative
services associated with its gas products division and all other ancillary uses
relating thereto. Tenant shall not use or permit the Premises to be used for any
significantly different purposes without the prior written consent of Landlord.
6.1ab 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 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. 6.2ab 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.abMaintenance and Repairs. Responsibility for maintenance and repairs shall
be allocated between Landlord and Tenant as follows:
7.1ab 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 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, painting and repair of any doors, door frames, windows, window
casements, glass, floors and floor coverings, walls and wall surfaces and
coverings, plumbing, pipes, electrical service, including panels, boxes, wiring
and conduits. 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.
7.2ab 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 and
load-bearing walls, structural members and roof, and shall maintain (without the
requirement of notice) the exterior grounds, common areas, parking lots,
sidewalks and walkways of the Property, including removal of snow and ice as
required. 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 7.2, 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.abHold 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 fire,
explosion, falling plaster, steam, gas, electricity, water, or rain which may
leak from any part of the Torrington 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.abEntry 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 Torrington 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 or the Torrington Building 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.abAssignment 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; provided, however, that Tenant may assign this Lease or sublet the
Premises to an affiliate of Tenant without the consent of Landlord. Any such
assignment or subletting without such required 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 and/or the Adjusted 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.abTenant'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:
11.1ab Abandonment. Tenant vacates or abandons the Premises for a continuous
period in excess of five (5) business days.
11.2ab Failure to Pay Obligations. Tenant fails to make any payment of Annual
Rent or the Adjusted Annual 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.
11.3ab 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 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.abRemedies 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:
12.1ab 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 or the Adjusted Annual Rent and other obligations of Tenant under
this Lease including without limitation, accrued interest, the cost of
recovering possession of the Premises, the expenses of reletting, 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, and any other costs or
damages arising out of Tenant's default. Notwithstanding any termination of this
Lease, re-entry or reletting of the Premises, the liability of Tenant for the
Annual Rent or the Adjusted Annual 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.
12.2ab 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 or the Adjusted Annual 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.
12.3ab 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 the exercise of any right or
remedy shall not constitute a waiver, merger or extinguishment of any other
right or remedy.
12.4ab 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.abDamage 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:
13.1ab Insured Damage. In the event the Premises are damaged by fire or other
perils covered by 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 and/or
the Adjusted 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. 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.
13.2ab Other Damage. In the event the Premises are damaged as the result of any
cause other than the perils covered by 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
and/or the Adjusted Annual Rent shall 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 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 and/or the Adjusted Annual Rent shall be
fully abated, and all other obligations of Tenant under this Lease shall be
deemed fully performed as of 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 and/or the Adjusted 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.
13.3ab 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.abEminent Domain.
--------------
14.1ab 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.
14.2ab 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.
14.3ab 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.abSigns.
15.1ab 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.
15.2ab "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.abSubordination. 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.
<PAGE>
17.abTenant'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.abAuthority of Parties. Each of Tenant and Landlord represents and warrants
that it is a 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 Tenant and
Landlord 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 organization, 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.abGeneral Provisions. Landlord and Tenant agree to the following general
provisions:
19.1ab 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.
19.2ab Time. Time is of the essence of this Lease and each and all its
provisions in which performance is a factor.
19.3ab 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.
19.4ab 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.
19.5ab 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.
<PAGE>
19.6ab 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.
19.7ab 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.
19.8ab 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.
19.9ab 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.
19.10ab Real Estate Commission. There are no brokers eligible to receive
commissions.
19.11ab 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
If to Tenant:
Mestek, Inc.
260 North Elm Street
Westfield, MA 01085
Attention: Stephen M. Shea, Sr. Vice President-Finance
19.12ab 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.
Signatures on next page.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement 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
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