SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ___ to ___.
Commission File Number 1-9843
MORGAN PRODUCTS LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1095650
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
469 McLaws Circle, Williamsburg, Virginia 23185
(Address of principal executive offices) (Zip Code)
(757) 564-1700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Aggregate market value of voting stock of the Registrant held by
non-affiliates as of February 3, 1997: $85,057,979.
Number of shares of Common Stock outstanding as of February 3, 1997:
10,152,432 shares; 2,386 shares are held in treasury.
Documents incorporated by reference Part
Annual Report to Stockholders for the Year ended
December 31, 1996 I, II, IV
Proxy Statement for the Annual Meeting of Stockholders
to be held on May 14, 1997 III
<PAGE>
PART I
ITEM 1. Business
The Company
Morgan Products Ltd. ("Morgan" or the "Company") is a leading marketer,
manufacturer and distributor of premium wood door systems and other specialty
building products under the brand names "Morgan" and "Nicolai." The Company also
distributes premium window systems manufactured by Andersen Corporation
("Andersen"). The Company's manufactured products, Andersen window systems and
products manufactured by others are sold through 15 Company-operated
distribution centers. The Company's manufactured products also are sold
throughout most of the United States through independent distributors, home
improvement center chains and other retail stores. The Company believes that
approximately half of its sales are to the residential and light commercial
improvement, maintenance and repair markets, and the balance are to the
residential and light commercial new construction markets.
The Company is organized into three primary operating business units:
Morgan Manufacturing, which is headquartered in Oshkosh, Wisconsin and directs
the Company's manufacturing facilities; Morgan Distribution, which is
headquartered in Mechanicsburg, Pennsylvania and directs the Company-operated
distribution centers; and Morgan National Accounts which is headquartered in
Williamsburg, Virginia and serves large home center chains, marketing and
merchandising millwork and specialty building products for Morgan Manufacturing
and Morgan Distribution. The Company's manufactured and purchased products are
virtually all considered to be "millwork." In view of the nature of its products
and the method of distribution, management believes that the Company's business
constitutes a single industry segment.
Products
Products manufactured by the Company and sold under the "Morgan" and
"Nicolai" trade names constituted approximately 27% of 1996 sales. The Company
is a leader in the design and manufacture of premium wood interior and exterior
doors and entrance systems, and other specialty millwork. The Company offers a
broad product line, and many doors are available with special features such as
energy-efficient glass, carved panels, leaded glass and other options. Various
woods, including pine, fir and oak, are used to meet consumer preferences.
Substantially all of the Company's manufactured products are produced
at the Company's facility in Oshkosh, Wisconsin.
The Company distributes products it manufactures and specialty building
products of other manufacturers through its 15 Company-operated distribution
centers. The major products distributed by the Company are Morgan doors and
stairway systems, Andersen premium window systems, Therma-Tru steel and
composite doors, flush doors, molded doors, wood bi-fold and louvered doors, and
moldings.
Andersen products, which are sold under the "Andersen" trademark,
accounted for approximately 40% of the Company's sales in both 1996 and 1995.
Andersen produces high-quality, premium-priced windows, and has been a
technological leader in developing energy-efficient window systems. Andersen has
informed the Company that it sells exclusively through distributors such as the
Company. The Company's agreement with Andersen provides that Andersen can
terminate any of the Company's distributorships at any time upon 60 days notice.
The Company believes that such a termination provision is Andersen's standard
arrangement with its distributors.
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<PAGE>
An important part of the Company's distribution process is the assembly
and alteration work that is done at the distribution centers to prepare
distributed products for delivery to the customer and for efficient installation
at the building site. At these centers, window and door systems are assembled
and modified according to customer specifications.
Markets
Virtually all of the products manufactured and distributed by the
Company are part of the millwork (fabricated wood products) industry, which
includes wood (including vinyl-clad wood) windows, wood doors, moldings,
stairways and mantels. In 1995, based on information published by the United
States Department of Commerce, the estimated manufacturers' sales volume of wood
windows totaled $2.6 billion, estimated sales volume of wood doors totaled $3.2
billion and other millwork (including moldings, stairways and mantels) totaled
$4.6 billion (to date, 1996 data is unavailable). These products are sold into
the improvement, maintenance and repair markets and the new construction
markets.
According to Department of Commerce data, overall sales in the
residential improvement, maintenance and repair markets grew from $46 billion in
1980 to $117.4 billion in 1996, representing an increase of 155%. New
construction housing starts were cyclical over the same period, with a high of
approximately 1.8 million units in 1986 and a low of slightly over 1.0 million
units in 1991. The 1991 level is the lowest level of starts since 1945. The
following table, using an index with 1984 as the base year (equal to 100%),
compares the level of housing starts and the Company's unit sales of Morgan
doors (including the Nicolai brand in all years and the Shasta brand from the
date of purchase of Shasta in March 1986) and Andersen windows during the period
1984 through 1996:
Housing Morgan Andersen
Starts Doors Windows
1984................ 100.0% 100.0% 100.0%
1985................ 99.5 104.4 118.0
1986................ 103.1 124.1 149.9
1987................ 92.6 130.9 156.8
1988................ 85.0 114.4(1) 175.1
1989................ 78.6 115.4 158.4
1990................ 68.2 124.4 120.1
1991................ 58.0 95.7 118.4
1992................ 68.7 99.0 125.4
1993................ 73.4 91.5 122.1
1994................ 81.4 79.9(2) 96.8(3)
1995................ 77.0 71.6 89.8
1996................ 84.2 78.6(4) 97.6
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(1) Employees at the Company's Springfield, Oregon facility engaged in a work
stoppage beginning in July 1988. Production at this facility was resumed
near the end of 1988 at reduced levels.
(2) Reflects closing of the Company's Springfield, Oregon facility in May 1994.
Production of some of this volume was transferred to the Company's
Lexington, North Carolina facility.
(3) Reflects realignment of Andersen sales territories in 1994.
(4) Reflects closing of the Company's Lexington, North Carolina facility in
August 1996.
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<PAGE>
The Company believes that its principal opportunities for growth are in
the further penetration of its existing markets, the internal development of new
products, the establishment of new Company-operated distributorships, the
addition of new product lines for distribution through the Company-operated
distribution centers and the addition of independent distributor outlets.
Distribution
The Company's manufactured products, Andersen window systems and
products manufactured by others are sold through 15 Company-operated
distribution centers. The Company's manufactured products also are sold in most
of the United States through independent distributors, home improvement center
chains and other retail stores. Approximately 80% of the Company's total sales
are generated by its Company-operated distribution centers, which includes
certain sales of products produced by the Company's manufacturing business unit.
The following is a list of Company-operated distribution centers as of
February 1, 1997:
Birch Run, Michigan
Charlotte, North Carolina
Chattanooga, Tennessee
Decatur, Illinois
Denver, Colorado
Gainesville, Virginia
Greenville (Greer), South Carolina
Harrisburg (Mechanicsburg), Pennsylvania
Huntsville, Alabama
Kansas City (Shawnee), Kansas
Nashville, Tennessee
Scranton (Dunmore), Pennsylvania
West Chicago, Illinois
West Columbia (Cayce), South Carolina
Wilmington (Newark), Delaware
The Company's distribution centers warehouse, assemble, and ship
products to customers, provide sales, service and marketing functions and
maintain vehicles to deliver products to customers, who are generally within a
150-mile radius of each center. The distribution centers are operated as
stand-alone profit centers. Major supplier purchasing negotiations are
controlled centrally in order to obtain the best prices for total volume
purchased and to minimize inventory levels.
Additionally, the Company has relationships with approximately 200
independent distributors and home improvement center chains, which, in 1996
purchased approximately 81% of the products manufactured by the Company's
manufacturing unit. The Company does not have formal distribution agreements
with any of its independent distributors or home improvement center chains. Such
distribution relationships may generally be terminated by either party at any
time. The Company's largest independent distributor purchased approximately 14%
of the products manufactured by the Company, accounting for approximately 3% of
total Company sales. The Company's largest home improvement center chain
customer purchased approximately 28% of the products manufactured by the
Company, accounting for slightly less than 9% of total Company sales. The
Company is unable to predict whether the loss of one or more independent
distributors or home improvement center chains would have a material adverse
effect on the Company.
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<PAGE>
Many of the products distributed by the Company, including Andersen
products, are modified and assembled at the Company's distribution centers
before shipping. Such products include pre-hung doors purchased from the Company
and other suppliers; bay and bow window systems; and half-round, octagon, and
specialty-shaped windows. The Company's assembly operations allow the builder,
contractor or consumer to install pre-assembled units at a lower cost than
modifying and assembling component parts at the job site. The Company has also
developed the capability to provide complete job site installation for repair
and remodeling projects.
Sales and Marketing
Most of the Company's advertising and promotion for its manufactured
products is directed to the wholesale and retail trade through catalogs,
brochures, retail product displays, newspapers, trade magazines and trade shows.
In addition, the Company engages in a cooperative advertising program with its
distributors and dealers through brochures, product displays, radio and
television. Through its advertising program, the Company emphasizes the
residential improvement, maintenance and repair markets and promotes the Morgan
Doorman logo, the Morgan name and logo, and the Nicolai name and logo. Certain
of the Company's suppliers, especially Andersen, advertise both to the trade and
directly to the consumer through nationwide print and television advertising.
In 1995, the Company added Morgan National Accounts, which serves large
home center chains, marketing and merchandising millwork and specialty building
products for Morgan Manufacturing and Morgan Distribution.
As of December 31, 1996, the Company employed approximately 130
salespersons, who sell directly to independent distributors, building supply
dealers, builders and remodelers, home improvement centers and factory home
manufacturers. The Company trains independent distributors and building supply
dealers through seminars held at its Oshkosh, Wisconsin marketing and training
facility.
Raw Materials
The Company's primary raw material is wood. The Company purchases
softwoods from a variety of suppliers located in Idaho, Washington, Oregon and
California and hardwoods from various suppliers in Tennessee and in the Great
Lakes region. During 1992, 1993 and 1994 the cost of solid, long clear lengths
of the Company's traditional softwoods and hardwoods increased dramatically to
record high levels at the end of 1994. This increase in cost has generally been
the result of the cessation of logging on almost all U.S. government owned land.
As a result the Company has and continues to expand the utilization, where
appropriate, of veneered and laminated solid wood components in the manufacture
of its products. In 1996, the prices of pine lumber declined 10.7% from the 1994
record level, oak prices dropped 14.0%, and fir prices were down 10.7%. While
pine prices were down on average, there was a significant increase during 1996,
with the fourth quarter cost 30% higher than the first quarter cost. In
addition, the Company has developed foreign sources for some of its raw material
requirements. Glass, hardware and miscellaneous components are purchased from
suppliers located in proximity to the Company's manufacturing facilities. The
Company believes that it is not dependent upon any single supplier for any of
its raw material.
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<PAGE>
Backlog
The Company's backlogs of orders for manufactured products at December
31, 1996 and 1995 were approximately $9.6 million in 1996 and $6.5 million in
1995. The Company anticipates that substantially all of the backlog orders in
existence on December 31, 1996 will be delivered by the end of the current
fiscal year. All of such current backlog orders are cancelable prior to shipment
from the factory. Backlog levels vary during the course of the year because of
the seasonality of the Company's business. Customer orders at the
Company-operated distribution centers are generally filled within one to five
days and, accordingly, there is no appreciable backlog level.
Seasonal Nature of Business
The building products industry is seasonal, particularly in the
Northeast and Midwest regions of the United States, where inclement weather
during the winter months usually reduces the level of building activity in the
improvement, maintenance and repair markets and in the new construction markets.
The Company's lowest sales traditionally occur during the first and fourth
quarters. However, the Company's acquisition of Tennessee Building Products,
Inc., which serves the more moderate climates, should partially offset the
seasonal effect on the Company's operations.
Competition
Manufacturers of residential specialty millwork products in the United
States are a highly fragmented group and include approximately 2,000 companies
with annual revenues ranging from less than $1 million to several hundred
million dollars. Competition in the residential specialty building products
market is substantial. The Company's distribution centers compete principally
with other distributors of window systems, distributors of specialty building
products manufactured by companies other than the Company and manufacturers of
specialty building products which sell directly to the Company's target
customers. The Company believes that it competes primarily on the basis of the
breadth of its product lines, the quality and design of its products and the
quality and speed of its service. The Company's manufactured product lines are
positioned primarily at the premium end of their respective markets. The Company
believes that producers and distributors of lower priced or lower cost products
may enjoy a competitive advantage where price is the consumer's primary concern.
The Company has approximately 18 major competitors at the
manufacturers' level in the interior and exterior premium wood door market and
believes that it has the largest market share among such manufacturers of
interior and exterior premium wood panel doors. The Company further believes
that Andersen has 5 principal competitors in the premium wood window markets in
which it competes. The Company also believes that it has a leading position in
premium interior and exterior doors and wood windows in the market areas
surrounding most of its distribution centers.
Trademarks and Name
The Company's name, the Morgan Doorman logo and the trade names,
"Marquis," "GlassWrap," "Compression Glazed," and the Nicolai name and logo are
registered trademarks. The Company uses its stylized "M" and its trademarks and
trade names "Centry," "SwingSet," "Energy Guard," "Fire-Guard," "Sureguard,"
"Triomphe," "NORTHWOODS," "WHERE QUALITY COMES NATURALLY," "Tennessee Building
Products, Inc." "Titan Building Products, Inc." "Windows, Doors & More, Inc."
"Tennessee Kitchen and Bath," "Tennessee Glass Company," "Tennessee Kitchen
Center, Inc.," "Doorway Yourway," "Rail Easy," and "Morgan Door Store" name and
logo in connection with the sale of Company-manufactured products and/or the
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<PAGE>
Company's distribution operations. The Company considers its trademarks, trade
names and logos to be valuable to the conduct of its business. The Company has
filed several patent applications related to its new high-speed door assembly
line with the U.S. Patent and Trademark Office . The Company also owns certain
patents which it does not consider material to the operation of its business.
Employees
As of December 31, 1996, the Company employed 1,639 persons, of whom
557 were employed at the Company's manufacturing facilities, 1,070 were employed
at the Company's distribution centers, and 12 were employed at the corporate
headquarters. Approximately 650 employees are represented by labor unions.
During 1996, the Company negotiated labor agreements at West Chicago, Illinois;
Scranton, Pennsylvania; and Decatur, Illinois. These agreements were negotiated
without any work interruption.
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ITEM 2. Properties
The Company owned the following manufacturing facility as of February
1, 1997:
Approximate
Square Feet
Location Occupied
- -------- --------
Oshkosh, Wisconsin (28 buildings; 27.6 acres)........... 512,000
The Oshkosh, Wisconsin facility is subject to a mortgage in connection
with certain industrial revenue bonds. See Note 6 of Notes to Consolidated
Financial Statements which appears on page 15 of the Company's 1996 Annual
Report to Stockholders and is incorporated by reference in this Annual Report on
Form 10-K.
The Company leased the following facilities as of February 1, 1997:
<TABLE>
<CAPTION>
Approximate
Square Feet Lease
Occupied Expiring
<S> <C> <C>
Birch Run, Michigan.......................................................... 113,022 2005
Charlotte, North Carolina.................................................... 115,010 2000
Chattanooga, Tennessee (3 facilities):
Warehouse............................................................... 20,000 2006
Peachtree Planning Center (showroom).................................... 2,100 1998
Tennessee Kitchen & Bath (showroom)..................................... 2,200 1997 <F2>
Decatur, Illinois............................................................ 93,000 2001 <F3>
Denver, Colorado............................................................. 39,970 1997
Greenville (Greer), South Carolina........................................... 15,000 1999 <F3>
Harrisburg (Mechanicsburg), Pennsylvania (2 facilities):
Office.................................................................. 15,569 1998 <F3>
Warehouse............................................................... 134,906 2002 <F3>
Huntsville, Alabama (showroom)............................................... 1,737 1999
Kansas City, Kansas (2 facilities):
Shawnee Warehouse....................................................... 79,500 2000 <F3>
Renewal(TM)by Andersen Center............................................. 2,860 1999
Nashville, Tennessee (2 facilities):
Glass facility and Peachtree Planning Center (showroom)................. 26,000 2000
Warehouse and showroom.................................................. 170,000 2011
Oshkosh, Wisconsin:
Manufacturing Division Office........................................... 16,000 2000
Scranton (Dunmore), Pennsylvania............................................. 80,917 1998 <F4>
Washington, D.C. (Gainesville, Virginia)..................................... 79,500 2006 <F3>
Weed, California............................................................. 417,605 <F1> 1999 <F2>
West Chicago, Illinois....................................................... 100,925 2001 <F2>
West Columbia (Cayce), South Carolina........................................ 89,480 2001 <F2>
Williamsburg, Virginia: Corporate Headquarters............................... 6,909
Wilmington (Newark), Delaware................................................ 97,421 2000 <F2>
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<FN>
<F1> In 1990, the Company ceased production of fir doors at this facility. In
May 1994, the Company ceased production of veneer at this location. The
Company continues to use approximately 50,000 square feet for patio door
assembly and warehousing. The Company has sublet 50,000 square feet to a
third party.
<F2> Optional renewal term of five years or less.
<F3> Optional renewal term in excess of five years.
<F4> In January 1997, the Company sublet 20,145 square feet to a third party.
</FN>
</TABLE>
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Distribution center leases generally provide for fixed monthly rental
payments, plus the payment, in most cases, of real estate taxes, utilities,
liability insurance and maintenance. In a few locations, the leases provide
escalation clauses requiring the payment of additional rent according to certain
indices or in specified amounts. The termination dates of these leases vary
widely. See Note 7 of Notes to Consolidated Financial Statements which appears
on page 20 of the Company's 1996 Annual Report to Stockholders and is
incorporated by reference in this Annual Report on Form 10-K.
The Company believes that its distribution facilities and manufacturing
capacity are sufficient to serve its needs in its existing markets.
ITEM 3. Legal Proceedings
The Company is not involved in any material pending legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders since the last
annual meeting held May 15, 1996.
ITEM 4A. Executive Officers of the Registrant
In respect of information as to the Company's executive officers, see
caption "Executive Officers of the Company" in Part III, Item 10 of this Annual
Report on Form 10-K.
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PART II
ITEM 5. Market for the Company's Common Equity and Related Stockholder Matters
(a) The information set forth under "Common Stock Market Price Range
and Dividend Policy" which appears on page 23 of the Company's 1996 Annual
Report to Stockholders is incorporated by reference in this Annual Report on
Form 10-K.
(b) Note: The number of shares of the Company's Common Stock held by
non-affiliates shown on the cover of this Annual Report on Form 10-K was
calculated on the assumption that there were no affiliates other than officers
and directors of the Company.
(c) The Rights Agreement, dated as of March 15, 1989, between the
Company and Manufacturers Hanover Trust Company, as Rights Agent, was terminated
by the Board of Directors on September 30, 1996.
ITEM 6. Selected Financial Data
The selected financial data for the five years ended December 31, 1996
which appears on page 1 of the Company's 1996 Annual Report to Stockholders is
incorporated by reference in this Annual Report on Form 10-K.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" which appears on pages 10
through 13 of the Company's 1996 Annual Report to Stockholders, is incorporated
by reference in this Annual Report on Form 10-K.
ITEM 8. Financial Statements and Supplementary Data
The financial statements, together with the report thereon of Price
Waterhouse LLP dated February 4, 1997, except as to Note 13, which is as of
March 13, 1997, appearing on pages 14 through 23 of the Company's 1996 Annual
Report to Stockholders, including Note 14 (page 23), which includes unaudited
quarterly financial data, are incorporated by reference in this Annual Report on
Form 10-K.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
ITEM 10. Directors and Executive Officers of the Company
DIRECTORS OF THE COMPANY
The information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 14, 1997 under "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein
by reference.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the executive
officers of the Company as of December 31, 1996. Company officers are appointed
by the Board of Directors and such appointments are effective until resignation
or earlier removal by the Board of Directors.
NAME AGE POSITION
- ---- --- --------
Frank J. Hawley, Jr............ 69 Chairman of the Board
Larry R. Robinette............. 53 President and Chief Executive Officer
Douglas H. MacMillan........... 50 Vice President, Chief Financial
Officer and Secretary
Dennis C. Hood................. 59 Senior Vice President-Human Resources
and Administration
Peter Balint................... 47 Executive Vice President-Market
Development and National Accounts
David A. Braun................. 39 Vice President; President-Morgan
Distribution
Duane R. Greenly............... 46 Vice President; President-Morgan
Manufacturing
Dawn E. Neuman................. 34 Treasurer and Assistant Secretary
Mr. Hawley has been Chairman of the Board of the Company since December
1983. Since September 1986, he has been a Managing partner of Bedford Partners,
the General Partner of Saugatuck Capital Company Limited Partnership II
("Saugatuck II"), a venture capital partnership. Since October 1992, he has been
a Managing partner of Greyrock Partners Limited Partnership, the General partner
of Saugatuck Capital Company Limited Partnership III ("Saugatuck III"), a
venture capital partnership. Since September 1986, he has been President and
principal stockholder of Saugatuck Associates, Inc. and Saugatuck Associates II,
Inc., each a risk capital management firm which provides investment advice and
assistance to Saugatuck II and Saugatuck III. During the period from 1982 to
1996, he was Managing partner of Saugatuck Capital Company Limited Partnership
("Saugatuck"), a venture capital partnership, which was terminated in 1996.
Mr. Robinette was appointed President and Chief Executive Officer of
Morgan Products Ltd. on September 6, 1994. He is the former President and CEO of
Anchor Hocking Packaging of Cincinnati, Ohio, a subsidiary of CarnaudMetalbox.
From 1980 to 1993, he held a series of executive assignments at Newell Company,
including operations vice presidencies in the EZ Paintr Division, Newell Window
Furnishings, and the Mirro Foley Division and the presidency of Anchor
Industrial Glass. Prior to that, Mr. Robinette was employed at General Motors.
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<PAGE>
Mr. MacMillan joined the Company in August 1991 as Vice President,
Chief Financial Officer and Secretary of the Company. From 1987 to July 1991, he
was the Chief Financial Officer of Varlen Corporation, a diversified
manufacturer serving the scientific instrument, automotive, heavy truck and
railroad markets. From 1981 to 1987, he held various executive financial
positions with Sealy Incorporated.
Mr. Hood was appointed Senior Vice President--Human Resources and
Administration in December 1994. Mr. Hood joined the Company as Vice
President--Human Resources in June 1986. From January 1985 until he joined the
Company, Mr. Hood was Vice President--Human Resources of the Air Systems
Division of the Trane Company, a subsidiary of American Standard, Inc., engaged
in the manufacture of commercial and residential heating and air conditioning
equipment. From March 1978 until January 1985, Mr. Hood was manager of
industrial relations, branch operations of the Trane Company.
Mr. Balint was appointed Executive Vice President--Market Development
and National Accounts in September 1996. He joined the Company in May 1995 as a
Vice President of the Company and President of the Company's Morgan
Manufacturing unit. From 1992 to May 1995, he was Vice President of Sales and
Marketing for the SNE Enterprises Division of Plygem Industries. From 1983 to
1992, Mr. Balint held various marketing and management positions with
Sherwin-Williams Corporation.
Mr. Braun was appointed Vice President of the Company and President of
the Company's Morgan Distribution unit on May 15, 1996. Mr. Braun was named
General Manager of Morgan Distribution on February 5, 1996. From August of 1995
to February 4, 1996, Mr. Braun served as Vice President and Controller of Morgan
Distribution. Prior to that, Mr. Braun served as Division Controller of
RobertShaw Controls form 1994 to August of 1995. Mr. Braun served as Senior Vice
President of Lisa Frank, Inc. from 1993 to 1994 and served as Vice President and
Chief Financial Officer of HGP Industries, Inc. from 1991 to 1993. From 1987 to
1991, Mr. Braun served as Vice President and Controller of EZ Paintr, a division
of the Newell Company. From 1986 to 1987 he served in various managerial
positions at EZ Paintr.
Mr. Greenly joined the Company in December 1996 as Vice President of
the Company and President of the Company's Morgan Manufacturing unit. Prior to
that, Mr Greenly served as Vice President and Business Manager of Newell's
Amerock Corporation. From 1987 to 1996, he was Vice President-Operations for
three different Newell companies. Previously, Mr. Greenly held various positions
with Newell, Milliken, and B.F. Goodrich.
Ms. Neuman was appointed Treasurer and Assistant Secretary in May 1995.
From May 1994 to May 1995, she was Assistant Treasurer and Assistant Secretary,
from July 1989 to May 1994 she was the Company's Tax Manager, and from May 1988
to June 1989 she was the Company's Senior Tax and Benefits Specialist. Prior to
joining the Company, she was a tax consultant with Price Waterhouse from August
1984 to May 1988.
Family Relationships
To the best of the Company's knowledge and belief, there is no family
relationship between any of the Company's directors, executive officers or
persons nominated or chosen by the Company to become a director or an executive
officer.
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ITEM 11. Executive Compensation
The information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 14, 1997 under "Executive Compensation" is
incorporated by reference in this Annual Report on Form 10-K.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 14, 1997 under "Security Ownership of Certain
Beneficial Owners and Management" is incorporated by reference in this Annual
Report on Form 10-K.
ITEM 13. Certain Relationships and Related Transactions
The information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 14, 1997 under "Certain Transactions" is
incorporated by reference in this Annual Report on Form 10-K.
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PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
Financial Statements:
Page in
Annual
Report*
Consolidated Income Statements for the three years
ended December 31, 1996........................................ 14
Consolidated Balance Sheets at December 31, 1996
and 1995....................................................... 15
Consolidated Statements of Cash Flows for the
three years ended December 31, 1996............................ 16
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1996............................ 17
Notes to Consolidated Financial Statements.......................... 18-23
Report of Management and
Report of Independent Accountants.............................. 24
Financial Statement Schedule:
Page
Report of Independent Accountants on Financial
Statement Schedule............................................. 21
Schedule II - Valuation and Qualifying Accounts..................... 22
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* Incorporated by reference from the indicated pages of the 1996 Annual Report
to Stockholders.
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
Exhibits:
Exhibit No. Description
----------- -----------
3.1 The Company's restated Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the Fiscal Year ended December
31, 1987 (Commission File No. 0-13911)).
3.2 By-laws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1987 (Commission File No.
0-13911)).
-14-
<PAGE>
10.1 Loan and Security Agreement among the Company, certain banks,
and Barclay's Business Credit, Inc. as agent, dated as of July
14, 1994 (incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1994 (Commission File No. 1-9843)).
10.2 Trust Indenture, dated as of December 1, 1991, by and between
the City of Oshkosh, Wisconsin and Marine Bank of Springfield,
as Trustee (incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1991 (Commission File No. 1-9843)).
10.3 Loan Agreement, dated as of December 1, 1991, by and between the
City of Oshkosh, Wisconsin and the Company (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1991
(Commission File No. 1-9843)).
10.4 Mortgage and Security Agreement with Assignment of Rents, dated
as of December 1, 1991, from the Company to Harris Trust and
Savings Bank (incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1991 (Commission File No. 1-9843)).
10.5 Employment Agreement and Trust Under Employment Agreement
between the Company and Larry R. Robinette dated August 19, 1994
(incorporated by reference to Exhibit 10.9 of the Company's
Annual Report on Form 10-K for the Fiscal Year ended December
31, 1994 (Commission File No. 1-9843)).
+10.6 Severance policy for certain Covered Executives (incorporated by
reference to Exhibit 10.13 of the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1992
(Commission File No. 1-9843)).
+10.7 Consulting and Management Assistance Agreement between the
Company and Hawley Management Company (now named Saugatuck
Associates, Inc.) dated as of January 13, 1984 (incorporated by
reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (Registration No. 33-00344)).
+10.8 Amended 1994 Executive Performance Incentive Plan (incorporated
by reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1994
(Commission File No. 1-9843)).
+10.9 Convertible Appreciation Rights Plan, dated June 1, 1992
(incorporated by reference to Exhibit 10.1 of the Company's
quarterly Report on Form 10-Q for the Quarter ended July 4, 1992
(Commission File No. 1-9843)).
+10.10 Morgan Products Ltd. 1992 Non-employee Director Stock Option
Plan (incorporated by reference to Exhibit 10.19 of the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1992 (Commission File No. 1-9843)).
+10.11 The Company's 1985 Incentive Stock Option Plan (incorporated by
reference to Exhibit 10.19 of the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1994
(Commission File No. 1-9843)).
10.12 The Company's 1988 Stock Purchase Plan (incorporated by
reference to the Appendix to the Prospectus contained in
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-8 (Registration No. 33-23882)).
+10.13 Amendments and modifications to the Severance Agreements of
Messrs. LaCroix, Schlegel, MacMillan, and Hood (incorporated by
reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995
(Commission File No. 1-9843)).
-15-
<PAGE>
+10.14 Change in Control Severance Policy between the Company and Larry
R. Robinette dated September 13, 1995 (incorporated by reference
to Exhibit 10.15 of the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1995 (Commission File No.
1-9843)).
+10.15 Updated and revised Special Severance/Retention Plan for
Executive Officers (incorporated by reference to Exhibit 10.16
of the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995 (Commission File No. 1-9843)).
+10.16 Employment agreement between the Company and Peter Balint dated
May 1, 1995 (incorporated by reference to Exhibit 10.17 of the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1995 (Commission File No. 1-9843)).
+10.17 Amendments dated May 17, 1995 to the Company's 1985 Incentive
Stock Option Plan (incorporated by reference to Exhibit 10.18 of
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995 (Commission File No. 1-9843)).
+10.18 Amendments dated December 20, 1995 to the Morgan Products Ltd.
Deferred Compensation Plan (incorporated by reference to Exhibit
10.19 of the Company's Annual Report on Form 10-K for the Fiscal
Year ended December 31, 1995 (Commission File No. 1-9843)).
10.19 Agreement between Morgan Distribution, Mechanicsburg,
Pennsylvania and the United Steelworkers of America,
AFL-CIO-CLC, Local 7415, dated February 18, 1995 (incorporated
by reference to Exhibit 10.20 of the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995
(Commission File No. 1-9843)).
10.20 Agreement between Morgan Distribution, Shawnee, Kansas, and
Building Material, Excavating, Heavy Haulers, Drivers, Helpers
and Warehousemen, Local No. 541, Kansas City, Missouri,
affiliated with the International Brotherhood of Teamsters,
dated April 1, 1995 (incorporated by reference to Exhibit 10.21
of the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995 (Commission File No. 1-9843)).
10.21 Agreement between Morgan Products Ltd., Oshkosh, Wisconsin, and
the Midwestern Industrial Council and affiliated Local 1363 of
the United Brotherhood of Carpenters and Joiners of America,
dated May 7, 1995 (incorporated by reference to Exhibit 10.22 of
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995 (Commission File No. 1-9843)).
10.22 Agreement between Morgan Products Ltd., Oshkosh, Wisconsin, and
Teamsters "General," Local 200, dated May 21, 1995 (incorporated
by reference to Exhibit 10.23 of the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995
(Commission File No. 1-9843)).
10.23 Agreement between Morgan Products Ltd., Decatur, Illinois, and
the International Brotherhood of Teamsters, AFL-CIO, Local 279,
dated July 15, 1995 (incorporated by reference to Exhibit 10.24
of the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995 (Commission File No. 1-9843)).
10.24 Agreement between Morgan Distribution, Birch Run, Michigan, and
the International Brotherhood of Teamsters, Local 486, dated
November 4, 1995 (incorporated by reference to Exhibit 10.25 of
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995 (Commission File No. 1-9843)).
-16-
<PAGE>
+10.25 Form of Indemnification Agreement, dated November 3, 1994,
between the Company and each of William R. Holland; Alton F.
Doody, Jr.; Patrick J. McDonough, Jr.; Larry R. Robinette; Byron
H. Stebbins; Edward T. Tokar; Douglas H. MacMillan; and Dawn E.
Neuman; and dated October 30, 1995 between the Company and Peter
Balint (incorporated by reference to Exhibit 10.26 of the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1995 (Commission File No. 1-9843)).
10.26 Amendment #4, dated October 30, 1995, to the Loan and Security
Agreement among the Company, certain banks, and Barclay's
Business Credit, Inc. (succeeded by Fleet Capital), dated July
14, 1994 (incorporated by reference to Exhibit 10.27 of the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1995 (Commission File No. 1-9843)).
10.27 Lease for office space in Williamsburg, Virginia, between the
Company and Jim Griffith Builder, Inc. dated March 2, 1995 and
amended October 3, 1995 (incorporated by
10.28 Letter agreement exercising Morgan Products Ltd.'s option to
extend the current lease at the Morgan Manufacturing facility in
Weed, California (incorporated by reference to Exhibit 10.29 of
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995 (Commission File No. 1-9843)).
10.29 Office lease for Morgan Manufacturing Division Office in
Oshkosh, Wisconsin, dated October 13, 1995 (incorporated by
reference to Exhibit 10.30 of the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995
(Commission File No. 1-9843)).
10.30 Letter Agreement, dated December 1994, between each of the
Company's eleven distribution centers and Andersen Windows, Inc.
(incorporated by reference to Exhibit 10.31 of the Company's
Annual Report on Form 10-K for the Fiscal Year ended December
31, 1995 (Commission File No. 1-9843)).
10.31 Purchase agreement with JELD-WEN, inc. for the Lexington, North
Carolina door manufacturing facility (incorporated by reference
to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
for the Second Quarter of the Fiscal Year ended December 31,
1996 (Commission File No. 1-9843)).
10.32 Agreement between Local 705, International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America,
AFL-CIO, and Morgan Distribution at West Chicago, Illinois,
dated January 13, 1996 (incorporated by reference to Exhibit
10.2 of the Company's Quarterly Report on Form 10-Q for the
Second Quarter of the Fiscal Year ended December 31, 1996
(Commission File No. 1-9843)).
10.33 Asset Purchase Agreement dated as of July 22, 1996 by and among
Morgan Products Ltd.; Tennessee Building Products, Inc.; Titan
Building Products, Inc.; James Fishel; and James Schulman
(incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q/A-1 for the Second Quarter of the
Fiscal Year ended December 31, 1996 (Commission File No.
1-9843)).
10.34 Amendment #5, dated June 30, 1996, to the Loan and Security
Agreement among the Company, certain banks and Barclay's
Business Credit, Inc. (succeeded by Fleet Capital), dated July
14, 1994 (incorporated by reference to Exhibit 1 of the
Company's Current Report on Form 8-K/A filed September 27, 1996
(Commission File No. 1- 9843)).
-17-
<PAGE>
10.35 Amendment #6, dated August 30, 1996, to the Loan and Security
Agreement among the Company, certain banks and Barclay's
Business Credit, Inc. (succeeded by Fleet Capital), dated July
14, 1994 (incorporated by reference to Exhibit 2 of the
Company's Current Report on Form 8-K/A filed September 27, 1996
(Commission File No. 1- 9843)).
+10.36 Employment agreement between the Company and Dawn Neuman dated
May 30, 1995 (incorporated by reference to Exhibit 3 of the
Company's Current Report on Form 8- K/A filed September 27, 1996
(Commission File No. 1-9843)).
+10.37 Amendment dated February 8, 1996 to the Employment Agreement of
Dawn Neuman (incorporated by reference to Exhibit 4 of the
Company's Current Report on Form 8- K/A filed September 27, 1996
(Commission File No. 1-9843)).
+10.38 Severance Agreement between the Company and David A. Braun dated
October 1, 1995 (incorporated by reference to Exhibit 5 of the
Company's Current Report on Form 8- K/A filed September 27, 1996
(Commission File No. 1-9843)).
10.39 Agreement between United Paperworkers International Union,
Region IX, AFL-CIO, Local No. 7828, Decatur, Illinois dated
January 2, 1996 (incorporated by reference to Exhibit 6 of
Exhibit 6 of the Company's Current Report on Current Report on
Form 8- K/A filed September 27, 1996 (Commission File No.
1-9843)).
10.40 Non-Competition Agreement by and among the Company; Tennessee
Building Products, Inc.; Titan Building Products, Inc.; James
Fishel; James Schulman and John Whipple dated August 30, 1996
(incorporated by reference to Exhibit 7 of the Company's Current
Report on Form 8-K/A filed September 27, 1996 (Commission File
No. 1- 9843)).
10.41 Lease Agreement by and between Titan Building Products, Inc. and
Sunbelt Properties for property located at 37-A Freedom Court,
Greer, South Carolina, dated February 15, 1995 (incorporated by
reference to Exhibit 8 of the Company's Current Report on Form
8-K/A filed September 27, 1996 (Commission File No. 1-9843)).
10.42 Lease Agreement by and between Titan Building Products, Inc. and
SCI NC Limited Partnership for property located at 1407-A
Westinghouse Blvd., Charlotte, North Carolina, dated February
15, 1995 (incorporated by reference to Exhibit 9 of the
Company's Current Report on Form 8-K/A filed September 27, 1996
(Commission File No. 1-9843)).
10.43 Lease Agreement by and between the Company and F&S Properties
for property located at Foster and Glenrose Avenue, Nashville,
Tennessee, dated August 30, 1996 (incorporated by reference to
Exhibit 10 of the Company's Current Report on Form 8- K/A filed
September 27, 1996 (Commission File No. 1-9843)).
10.44 Lease Agreement by and between the Company and F&S Properties
for property located at 651 Thompson Lane, Nashville, Tennessee,
dated August 30, 1996 (incorporated by reference to Exhibit 11
of the Company's Current Report on Form 8-K/A filed September
27, 1996 (Commission File No. 1-9843)).
10.45 Lease Agreement by and between the Company and F&S Properties
for property located at 2131 Polymar Drive, Chattanooga,
Tennessee, dated August 30, 1996 (incorporated by reference to
Exhibit 12 of the Company's Current Report on Form 8-K/A filed
September 27, 1996 (Commission File No. 1-9843)).
-18-
<PAGE>
10.46 Amendment #7, dated October 22, 1996, to the Loan & Security
Agreement among the Company, certain banks and Barclay's
Business Credit, Inc. (succeeded by Fleet Capital), dated July
14, 1994 (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the Third Quarter of
the Fiscal Year ended December 31, 1996 (Commission File No.
1-9843)).
+*10.47 Employment agreement between the Company and Duane R. Greenly
dated November 23, 1996.
+*10.48 Form of Indemnification Agreement, dated December 18, 1996,
between the Company and Duane R. Greenly.
+*10.49 Agreement between Morgan Distribution, Scranton, Pennsylvania and
Teamsters Local Union 229, affiliated with the International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of
America, dated January 27, 1996.
+*10.50 Amendment to the Company's 1985 Incentive Stock Option Plan
approved by the Board of Directors on September 30, 1996.
*10.51 Amendment #8, dated March 13, 1997, to the Loan & Security
Agreement among the Company, certain banks and Barclay's Business
Credit, Inc. (Succeeded by Fleet Capital) dated July 14, 1994.
*10.52 Amendment #3, dated April 26, 1996, to exercise the Company's
option to extend through 2001, its lease of office and warehouse
in West Chicago, Illinois.
*10.53 Amendment #2, dated August 12, 1996, to exercise the Company's
option to extend through 2001, its lease of warehousing in West
Columbia, South Carolina.
*10.54 Lease, dated October 30, 1996, between the Company and Wisconsin
Warehousing, LLC, for warehousing for a three-year term in
Oshkosh, Wisconsin.
*10.55 Lease, dated October 30, 1996, between the Company and Wisconsin
Warehousing, LLC, for warehousing for a three-year term in
Oshkosh, Wisconsin.
*13.1 Items incorporated by reference to the 1996 Annual Report to
Stockholders.
*23.1 Consent of Price Waterhouse LLP.
*27.1 Financial Data Schedule
- ----------------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
(b) No reports on Form 8-K were filed with the Commission during the
last quarter of the Company's 1996 fiscal year.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MORGAN PRODUCTS LTD.
By /s/ Douglas H. MacMillan
--------------------------------
Douglas H. MacMillan
Vice President, Chief Financial
Officer and Secretary
March 28, 1997
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
Company and in the capacities and on the dates indicated.
Signatures Title Title
/s/ Frank J. Hawley, Jr. Chairman of the Board March 28, 1997
- --------------------------- and Director
Frank J. Hawley, Jr.
President, Chief Executive
/s/ Larry R. Robinette Officer and Director March 28, 1997
- --------------------------- (Principal Executive Officer)
Larry R. Robinette
Vice President, Chief Financial
/s/ Douglas H. MacMillan Officer and Secretary (Principal March 28, 1997
- --------------------------- Financial Officer)
Douglas H. MacMillan
/s/ John S. Crowley Director March 28, 1997
- ---------------------------
John S. Crowley
/s/ Howard G. Haas Director March 28, 1997
- ---------------------------
Howard G. Haas
/s/ William R. Holland Director March 28, 1997
- ---------------------------
William R. Holland
/s/ Patrick J. McDonough, Jr. Director March 28, 1997
- ----------------------------
Patrick J. McDonough, Jr.
/s/ Edward T. Tokar Director March 28, 1997
- ---------------------------
Edward T. Tokar
-20-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Morgan Products Ltd.
Our audits of the consolidated financial statements referred to in our
report dated February 4, 1997, except as to Note 13, which is as of March 13,
1997, appearing in the 1996 Annual Report to Stockholders of Morgan Products
Ltd., (which report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
February 4, 1997, except as to Note 13, which is as of March 13, 1997
-21-
<PAGE>
MORGAN PRODUCTS LTD.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Accounts Receivable
Allowance for doubtful accounts consisted of the following (in
thousands of dollars):
1996 1995 1994
---- ---- ----
Balance at beginning of period $ 722 $ 953 $1,448
Provision charged to expense 139 214 (54)
Write-offs (254) (468) (422)
Addition related to Tennessee 901 -- --
Building Products acquisition
Recoveries/other 114 23 (19)
------ ----- ------
Balance at end of period $1,622 $ 722 $ 953
====== ===== ======
-22-
<PAGE>
EXHIBIT INDEX
(including exhibits not incorporated by reference--
see item 14 for incorporated exhibits)
Exhibit Page No.
- ------- --------
+*10.47 Employment agreement between the Company and Duane R. Greenly
dated November 23, 1996. 24
+*10.48 Form of Indemnification Agreement, dated December 18, 1996,
between the Company and Duane R. Greenly. 26
+*10.49 Agreement between Morgan Distribution, Scranton, Pennsylvania
and Teamsters Local Union 229, affiliated with the International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers
of America, dated January 27, 1996. 32
+*10.50 Amendment to the Company's 1985 Incentive Stock Option Plan
approved by the Board of Directors on September 30, 1996. 56
*10.51 Amendment #8, dated March 13, 1997, to the Loan & Security
Agreement among the Company, certain banks and Barclay's
Business Credit, Inc. (Succeeded by Fleet Capital) dated July 14,
1994. 66
*10.52 Amendment #3, dated April 26, 1996, to exercise the Company's
option to extend through 2001, its lease of office and warehouse
in West Chicago, Illinois. 72
*10.53 Amendment #2, dated August 12, 1996, to exercise the Company's
option to extend through 2001, its lease of warehousing in West
Columbia, South Carolina. 75
*10.54 Lease, dated October 30, 1996, between the Company and
Wisconsin Warehousing, LLC, for warehousing for a three-year
term in Oshkosh, Wisconsin. 79
*10.55 Lease, dated October 30, 1996, between the Company and
Wisconsin Warehousing, LLC, for warehousing for a three-year
term in Oshkosh, Wisconsin. 92
*13.1 Items incorporated by reference to the 1996 Annual Report to
Stockholders. 105
*23.1 Consent of Price Waterhouse LLP. 135
*27.1 Financial Data Schedule 136
- ----------------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
-23-
<PAGE>
EXHIBIT 10.47
[MORGAN PRODUCTS LTD.
Letterhead]
November 23, 1996
Mr. Duane Greenly
960 Woodside Terrace
Freeport, Illinois 61032
Dear Duane,
This will confirm your discussion today with Larry Robinette concerning your
employment arrangement with Morgan Products Ltd.
- -- Your title will be President, Morgan Manufacturing.
- -- Your base salary will be $7,693 bi-weekly, which on annualized basis is
$200,000
- -- Your normal bonus target will be 50% of your base with a maximum of
70%. However, for 1997 you will have a special one-time bonus
opportunity of up to 120% of your base with a guarantee of no less than
50%. This special program will be tied to operating income improvement.
- -- You will receive payment in February of the equivalent bonus you would
have been eligible to receive had you remained with Newell.
- -- You will be provided with a $20,000 signing bonus which will be paid
December 31, 1996. This will help offset some of your Newell option
value.
- -- The company will provide you with 90,000 stock options all of which
will be vested within a period of three years. In structuring your
option awards, the Company will provide a reasonably equivalent offset
to the remaining $26,000 of unexercisable Newell option value.
- -- You will be provided with a two year employment contact with a minimum
of one year of severance pay should you be terminated at any time
during the term of your employment.
- -- You are eligible for a Company provided American made automobile (Buick
Park Avenue, Lincoln Continental, or equivalent), which will be grossed
up for personal use so as to offset the tax impact.
- -- Expenses associated with moving, home sale and home purchase, and
temporary living will be handled in accordance with Morgan Products
Ltd. Employee Relocation policy, a copy of which
<PAGE>
will be provided with the hard copy of this letter when you receive it.
In your case, you will receive one months pay when you relocate rather
than the lesser amount referred to in that policy. In addition, the
Company will make up any loss you may have on the sale of your home. We
plan to use Prudential in the sale of your home so please contact me
before making any commitments to Realtors on either end.
- -- You will be eligible for the same benefit package as all other senior
executives. That package includes health and dental coverage, life
insurance, travel accident insurance, long-term disability, and a
401(K) savings and profit sharing plan. We also have a deferred
compensation program in which you are eligible to participate.
- -- The Company will cover the reasonable cost of an apartment in Oshkosh
for up to six months.
- -- You will also be provided with a Company-paid country club membership.
Duane, I believe this covers the key items you and Larry discussed. If you have
any questions on any of our programs please give me a call at 757-564-1713
through Monday or at 414-236-4452 on Tuesday and Wednesday.
We all believe there are tremendous opportunities at Morgan, and particularly at
Morgan Manufacturing. With your skills and track record you can make the mark
that is needed and bring that business unit quickly to the level of profitable
performance we all believe can be achieved.
Welcome aboard! We are glad to have you on the team.
Sincerely,
/s/ Dennis C. Hood
________________________
Dennis C. Hood
Senior Vice President Human Resources & Administration
cc: Larry Robinette
-2-
<PAGE>
EXHIBIT 10.48
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated December 18, 1996 (the "Agreement"),
between MORGAN PRODUCTS LTD., a Delaware corporation (the "Corporation"), and
Duane Greenly an officer of the Corporation (the "Indemnitee").
WHEREAS, the ability to attract and retain competent and experienced
persons to serve as directors and officers of the Corporation is in the best
interests of the Corporation and its stockholders, and the Corporation's ability
to attract and retain such persons will be enhanced by providing both its
current and prospective directors and officers with indemnification agreements
as permitted by Delaware law so that such persons will be willing to serve or
continue to serve the Corporation;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. GENERAL INDEMNIFICATION. It is the intention of the parties
hereto that the Corporation shall be required to indemnify the Indemnitee to the
fullest extent permitted by the law (both statutory and common) of the State of
Delaware as now or hereafter in effect. Therefore, in addition to the
indemnification and advancement of expenses specifically provided elsewhere
herein, the Corporation shall indemnify and hold the Indemnitee harmless in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and including any
action brought by or in the right of the Corporation, to which the Indemnitee
is, was or at any time becomes a party, or is threatened to be made a party, by
reason of the fact that he is or was or has agreed to become a director,
officer, employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in any such capacity, against all costs, charges, expenses (including
attorneys' fees and costs), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
action, suit or proceeding and any appeal therefrom, to the fullest extent then
permitted by the law (both statutory and common) of the State of Delaware as now
or hereafter in effect, notwithstanding that such indemnification is not
specifically mandated or authorized by the other provisions of this Agreement,
the Corporation's By-Laws or Certificate of Incorporation or otherwise and
notwithstanding that the legal basis for such indemnification may have arisen
subsequent to the act, occurrence or omission with respect to which
indemnification is being sought.
SECTION 2. THIRD PARTY ACTIONS. The Corporation shall indemnify and
hold the Indemnitee harmless in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation and
covered by Section 3 hereof) to which the Indemnitee is, was or at any time
becomes a party, or is threatened to be made a party, by reason of the fact that
he is or was or has agreed to become a director, officer, employee or agent of
the Corporation, or is or was serving or has agreed to serve at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in any such capacity,
against all costs, charges, expenses (including attorneys' fees and costs),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or on his behalf in connection with such action, suit or proceeding and
any appeal therefrom, if the Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
<PAGE>
Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
SECTION 3. ACTIONS IN RIGHT OF CORPORATION. The Corporation shall
indemnify and hold the Indemnitee harmless in connection with any threatened,
pending or completed action, suit or proceeding, brought by or in the right of
the Corporation to procure a judgment in the Corporation's favor, to which the
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that he is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was serving or
has agreed to serve at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in any such capacity, against all costs, charges and expenses (including
attorneys' fees and costs) actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if the Indemnitee acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which the Indemnitee shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action, suit or proceeding was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such costs, charges and expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 4. PREVAILING PARTY. Notwithstanding anything herein to the
contrary, to the extent that the Indemnitee has been successful, on the merits
or otherwise, including, without limitation, the dismissal of an action without
prejudice, in defense of any action, suit or proceeding referred to in Sections
2 or 3 hereof, he shall be indemnified against all costs, charges and expenses
(including attorneys' fees and costs) actually and reasonably incurred by him or
on his behalf in connection therewith. In addition, to the extent that the
Indemnitee has been partially successful, on the merits or otherwise including,
without limitation. the dismissal without prejudice, as to one or more but less
than all claims, issues or matters in any action, suit or proceeding referred to
in Sections 2 or 3 hereof, he shall be indemnified against all costs, charges
and expenses (including attorneys' fees and costs) actually and reasonably
incurred by him or on his behalf in connection with each successfully resolved
claim, issue or matter.
SECTION 5. NO PRESUMPTIONS. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contender or its equivalent, shall not, of itself, create a presumption that the
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
SECTION 6. ADVANCES; EXPENSES AS WITNESS.
(a) Costs, charges and expenses (including attorneys' fees and
costs) incurred by the Indemnitee in connection with any civil or criminal
action, suit or proceeding (including one brought by or in the right of the
Corporation) which might give rise to a right of indemnification hereunder shall
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding, provided, however, that the payment of such costs, charges
and expenses (including attorneys' fees and costs) incurred by the Indemnitee in
his capacity as a director or officer (and not in any other capacity) in advance
of the final disposition of such action, suit or proceeding shall be made only
upon receipt of an undertaking by or on behalf of the Indemnitee to repay all
amounts so advanced in the event that it shall
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<PAGE>
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Corporation as authorized in this Agreement. Any advancement of expenses
pursuant to this Agreement shall be made promptly and in any event within 15
days after receipt of written request therefor from the Indemnitee, accompanied
by any required undertaking.
(b) Notwithstanding any other provision of this Agreement, to
the extent that the Indemnitee is a witness in any action, suit or proceeding
referred to in Sections 2 or 3 and any appeal therefrom to which the Indemnitee
is not a party, the Corporation shall indemnify the Indemnitee against all
costs, charges and expenses (including attorneys' fees and costs) actually or
reasonably incurred by him or on his behalf in connection therewith.
SECTION 7. PROCEDURE.
(a) Any indemnification pursuant to this Agreement (unless
ordered by a court) shall be made by the Corporation promptly and in any event
within 45 days after receipt of a written request therefor from the Indemnitee,
unless a determination is made within such 45 day period (i) by the Board of
Directors of the Corporation by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
(iii) by the vote of the holders of a majority of the issued and outstanding
shares of Common Stock of the Company, that indemnification of the Indemnitee is
not proper in the circumstances because he has not met the applicable standard
of conduct.
(b) The right to indemnification or advancement of expenses
shall be enforceable by the Indemnitee in any court of competent jurisdiction if
the Corporation denies such request, in whole or in part (including by failure
to act thereon) within 45 days after receipt of such written request (or, in the
case of advancements, within 15 days), it being the parties' intention that if
the Corporation denies the Indemnitee's request for indemnification, the
question of the Indemnitee's right thereto shall be for the court to decide. The
Indemnitee's costs and expenses incurred in connection with successfully
establishing his right to indemnification and advancements, in whole or in part,
in any such action shall also be indemnified by the Corporation. It shall be a
defense to any such action (other than an action brought to enforce a claim for
advancements where the required undertaking, if any, has been received by the
Corporation) that the Indemnitee has not met the applicable standard of conduct.
The burden of proving such defense shall be on the Corporation, and there shall
be a rebuttable presumption that the Indemnitee did not fail to meet such
applicable standard. Neither the failure of the Corporation (including its Board
of Directors, its independent legal counsel and its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the Indemnitee is proper in the circumstances bemuse he has met the applicable
standard of conduct, nor the fact that there has been an actual determination by
the Corporation (including its Board of Directors, its independent legal counsel
and its shareholders) that the Indemnitee has not met such applicable standard
of conduct, shall be a defense or sufficient to rebut such presumption that the
Indemnitee has met the applicable standard of conduct.
SECTION 8. EXCLUSIVITY, ETC. The indemnification and advancement of
expenses provided by this Agreement shall not be deemed exclusive of any other
rights to which the Indemnitee may now or hereafter he entitled under any
present or future law (whether statutory or common), agreement, By-law,
provision of the Certificate of Incorporation, vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office or while employed by
or acting as agent of the Corporation. No amendment or repeal of any present or
future provision in the Corporation's Certificate of Incorporation or By-Laws
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<PAGE>
authorizing or requiring the indemnification of or advancements to the
Indemnitee in any such capacity, and which amendment or repeal would diminish
the Indemnitee's right of indemnification or to advancements in any respect
under such provision, shall be effective against the Indemnitee unless he shall
consent to such amendment or repeal in a signed writing or by the Indemnitee's
vote as a director or shareholder.
SECTION 9. SURVIVAL.
(a) The indemnification and advancement of expenses provisions
hereof shall continue after the Indemnitee has ceased to be a director, officer,
employee or agent of the Corporation and shall inure to the benefit of the
Indemnitee's estate, heirs, executors and administrators.
(b) This Agreement shall be binding on the successors and
assigns of the Corporation including, without limitation, any transferee of all
or substantially all of its assets and any successor by merger, consolidation,
operation of law or otherwise.
SECTION 10. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled
pursuant hereto to Indemnification for some or a portion of the expenses,
judgments, fines, penalties or amounts paid in settlement, actually and
reasonably incurred by the Indemnitee but not for the total amount thereof, the
Corporation shall indemnify the Indemnitee for such portion thereof to which the
Indemnitee is entitled.
SECTION 11. EXCEPTIONS. Any other provisions herein to the contrary
notwithstanding, the Corporation shall not be obligated pursuant to the terms of
this Agreement:
(a) To indemnify or advance expenses to the Indemnitee with
respect to proceedings or claims initiated or brought voluntarily by the
Indemnitee and not by way of defense, except with respect to proceedings brought
to establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145 of the Delaware
General Corporation Law, but such indemnification or advancement of expenses may
be provided by the Corporation in specific cases if the Board of Directors finds
it to be appropriate
(b) To indemnify the Indemnitee for expenses or liabilities of
any type whatsoever (including, but not limited to, judgments, fines or
penalties, and amounts paid in settlement) to the extent that such expenses or
liabilities have been paid directly to the Indemnitee by an insurance carrier
under a policy of officers and directors' liability insurance maintained by the
Corporation.
(c) To indemnify the Indemnitee in connection with a suit or
judgment rendered for an accounting of profits arising from the purchase and
sale by the Indemnitee of securities pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
SECTION 12. SEVERABILITY. If this Agreement or any provision hereof
shall be invalidated or held illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement(including, without limitation, each portion of any
section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid,
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<PAGE>
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
SECTION 13. MISCELLANEOUS.
(a) This Agreement may be executed in one or more
counter-parts, each of which shall be deemed an original and together which
shall constitute one and the same agreement.
(b) Any headings used herein are used solely for convenience
and shall not be deemed to constitute part of this Agreement or to affect the
construction hereof.
(c) All notices, demands, and other communications hereunder
must be in writing and shall be deemed to have been received if delivered by
hand or mailed by certified or registered mail, postage prepaid, or sent by
overnight or express courier, postage prepaid to the following persons and
addresses:
If to the Corporation:
MORGAN PRODUCTS LTD.
469 McLaws Circle
Williamsburg, VA 23185
Attention: President
If to the Indemnitee:
Duane Greenly
960 Woodside Terrace
Freeport, IL 61032
or to such other name and address as to which notice shall duly be given in
accordance with the terms hereof
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(e) The Indemnitee agrees to promptly notify the Corporation
upon being served with any citation, complaint, indictment or other document
that might reasonably result in indemnification or advancement of expenses
hereunder. However, no failure to provide such notice shall result in the
Indemnitee losing any of his rights hereunder or impose any liability whatsoever
on the Indemnitee.
(f) This Agreement may not be modified or amended except in a
writing signed by both parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof nor shall such waiver constitute a continuing waiver.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
MORGAN PRODUCTS LTD.
By: /s/Larry R. Robinette
__________________________
Larry R. Robinette
President & Chief Executive Officer
By: /s/Duane R. Greenly
__________________________
Duane R. Greenly
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<PAGE>
EXHIBIT 10.49
AGREEMENT
Between
MORGAN DISTRIBUTION - SCRANTON
SCRANTON, PENNSYLVANIA
and
TEAMSTERS OF LOCAL 229 OF SCRANTON, PENNSYLVANIA
AFFILIATED WITH THE INTERNATIONAL BROTHERHOOD OF TEAMSTERS,
CHAUFFEURS, WAREHOUSEMEN, AND HELPERS OF AMERICA
December 10, 1995
through
December 11, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
AGREEMENT.................................................................. 1
ARTICLE I - UNION RECOGNITION - SCOPE OF AGREEMENT......................... 2
ARTICLE II - UNION SECURITY................................................ 2
ARTICLE III - CHECK OFF.................................................... 2
ARTICLE IV - MANAGEMENT RIGHTS............................................. 3
ARTICLE V - HOURS OF WORK, OVERTIME AND PREMIUM............................ 3
ARTICLE VI - SENIORITY..................................................... 4
ARTICLE VII - LEAVE OF ABSENCE............................................. 7
ARTICLE VIII - HOLIDAYS.................................................... 7
ARTICLE IX - VACATIONS..................................................... 8
ARTICLE X - HEALTH AND WELFARE AND PENSION................................. 9
ARTICLE XI - JURY DUTY..................................................... 11
ARTICLE XII - EMPLOYEE'S BAIL.............................................. 11
ARTICLE XIII - EXAMINATIONS................................................ 11
ARTICLE XIV - EXTRA HELP................................................... 11
ARTICLE XV - SANITARY CONDITIONS........................................... 11
ARTICLE XVI - JOB STEWARDS................................................. 12
ARTICLE XVII - SUBCONTRACTING.............................................. 13
ARTICLE XVIII - GRIEVANCE AND ARBITRATION PROCEDURES....................... 13
ARTICLE XIX - DISCHARGE OR SUSPENSION...................................... 14
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ARTICLE XX - TRANSFER OF COMPANY TITLE OR INTEREST......................... 14
ARTICLE XXI - INSPECTION PRIVILEGES........................................ 15
ARTICLE XXII - DEFECTIVE EQUIPMENT......................................... 15
ARTICLE XXIII - UNIFORMS................................................... 15
ARTICLE XXIV - EMPLOYEE BONDING............................................ 15
ARTICLE XXV - VARIATION FROM AGREEMENT..................................... 15
ARTICLE XXVI - NO STRIKES OR LOCKOUTS...................................... 16
ARTICLE XXVII - LEGALITY................................................... 16
ARTICLE XXVIII - LEADMAN................................................... 16
ARTICLE XXIX - TERMS OF AGREEMENT.......................................... 16
EXHIBIT A HOURLY WAGE RATES....................................... 17
EXHIBIT A-1 Damage Control Incentive Program........................ 18
EXHIBIT A-2 Safety/Attendance Incentive Program..................... 19
EXHIBIT B HEALTH BENEFITS SUMMARY - MORGAN PLAN................... 20
EXHIBIT B-1 GEISINGER HEALTH PLAN................................... 22
EXHIBIT C DENTAL ASSISTANCE PLAN - SUMMARY........................ 23
EXHIBIT D PLANT RULES AND SAFETY PROCEDURES....................... 25
SAFETY RULES................................................... 26
PLANT RULES.................................................... 30
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<PAGE>
AGREEMENT
This Agreement made as of this twenty-seventh day of January 1996, by and
between Teamsters Local Union No. 229, affiliated with the International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America
(hereinafter referred to as the "Union"), party of the first part, as
representative of the employees covered by this Agreement, and Morgan
Distribution - Scranton (hereinafter referred to as the "Employer" or
"Company"), party of the second part.
It is the intent and purpose of the parties hereto to set forth herein the basic
Agreement covering wages, hours of work, conditions of employment, and the
method of adjusting alleged grievances to be observed between the parties
hereto.
The parties hereto also recognize that it is the general purpose of this
Agreement to promote the mutual interests of the Company and its employees and
to provide for the operation of the Company's business under methods which will
further, to the fullest extent possible, the economy and efficiency of operation
and avoidance of interruption to production, consistent at all times with the
Company's obligations under this collective bargaining Agreement.
The Union and the Company separately and jointly agree that all terms and
conditions of this Agreement will be applied equally to all employees regardless
of age, race, creed, color, sex, national origin, handicap or Vietnam veterans.
Wherein the text of this Agreement, words or masculine gender are used, they
shall be interpreted to denote either masculine or female gender.
<PAGE>
ARTICLE I - UNION RECOGNITION - SCOPE OF AGREEMENT
- --------------------------------------------------
The Employer recognizes and acknowledges that the Local Union is the sole and
exclusive representative of all employees in the classifications of work covered
by this Agreement as described in Exhibit "A," attached hereto and by this
reference made part hereof, for the purposes of collective bargaining as
provided by the National Labor Relations Act.
ARTICLE II - UNION SECURITY
- ---------------------------
Section 1. All present employees who are members of the Local Union on the
effective date of this subsection or on the date of execution of this Agreement,
whichever is the later, shall remain members of the Local Union in good standing
as a condition of employment. All present employees who are not members of the
Local Union and all employees who are hired hereafter shall become and remain
members in good standing of the Local Union as a condition of employment on and
after the forty-fifth (45th) day worked following the beginning of their
employment, or on and after the forty-fifth (45th) day worked following the
effective date of this subsection or the date of this Agreement, whichever is
the later.
This provision shall be made and become effective as of such time as it may be
made and become effective under the provisions of the National Labor Relations
Act, but not retroactively.
The failure of any person to become a member of the Union at the required time
shall obligate the Employer, upon written notice from the Union to such effect
and to the further effect that Union membership was available to such person on
the same terms and conditions generally available to other members, to forthwith
discharge such person. Further, the failure of any person to maintain Union
membership in good standing as required herein shall, upon written notice to the
Employer by the Union to such effect, obligate the Employer to discharge such
person.
In the event of any change in the law during the term of this Agreement, the
Employer agrees that the Union will be entitled to receive the maximum Union
security which may be lawfully permissible.
Section 2. Any employee member of the Union acting in any official capacity
whatsoever shall not be discriminated against for his acts as such officer of
the Union, so long as such acts do not interfere with the conduct of the
Employer's business, nor shall there be any discrimination against any employee
because of Union membership or activities.
Section 3. The Employer agrees to the posting within his business premises of
notices of Union meetings and other official Union matters by an elected or
appointed official of the Local Union. The Employer also agrees to provide the
Local Union suitable space for a Union bulletin board.
ARTICLE III - CHECK OFF
- -----------------------
The employer agrees to deduct from the pay of all employees covered by this
Agreement the dues, initiation fees and/or uniform assessments of the Local
Union having jurisdiction over such employees and agrees to remit to said Local
Union all such deductions prior to the end of the month for which the deduction
is made. Where laws require written authorization by the employee, the same is
to be furnished in the form required. No deduction shall be made which is
prohibited by applicable law.
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ARTICLE IV - MANAGEMENT RIGHTS
- ------------------------------
Section 1. Subject to the provisions of the Agreement, and to the retention by
the Company of the rights ordinarily exercised by management, the Company shall
have the exclusive right to manage and operate the plant and all its facilities.
Such exclusive right shall include, but not be limited to the right: to hire new
employees, to determine their qualifications, and to terminate their employment
at the discretion of the Company while such new employees are still probationary
employees; to determine the products to be manufactured, and the methods,
processes, equipment and technological changes necessary to effect such
manufacture; to discipline or discharge for good and sufficient cause and to lay
off, assign, promote and transfer employees, and to determine and effectuate
personnel policies; to establish work schedules, including daily and weekly
hours of work, starting and quitting times, time for rest periods, shift
schedules and subcontracting, as herein provided for under Article XVII,
subcontracting, of this Agreement. All rights of a management nature, except
those specifically surrendered or modified by this Agreement, are retained by
the Company.
Section 2. Supervisors and other employees not in the bargaining unit shall not
perform work normally and historically performed by bargaining unit employees,
except on jobs where instruction is necessary, experimental work is being
performed, or in cases of emergency where the performance of work by excluded
personnel may be required. The foregoing notwithstanding, it is agreed that the
salaried employee designated as having the responsibility for supervising the
loading crew will be considered a "working foremen" and will perform any and all
functions/tasks associated with the loading of Morgan Distribution trucks.
ARTICLE V - HOURS OF WORK, OVERTIME AND PREMIUM
- -----------------------------------------------
Section 1. Intent. This Article is intended to set forth the regular hours of
work and to provide a basis for computing overtime and premium pay and shall not
be construed as a guarantee or limitation on the hours of work per day or per
week.
Section 2. Regular Workday and Workweek. The regular workday shall consist of
eight (8) consecutive hours, exclusive of lunch periods, and the regular
workweek shall consist of five (5) consecutive eighthour days, Monday through
Friday.
Section 3. Shift Differentials. The right to establish or discontinue shifts is
reserved exclusively to the Company. For the purposes of applying shift
differentials, employees scheduled to work the afternoon shift shall be paid a
shift differential of twenty-five cents (.25) per hour, effective, and those
scheduled to work the night shift shall be paid a shift differential of
thirty-five cents (.35) per hour, effective. An employee scheduled to work the
afternoon shift shall receive the differential of his regular shift.
Section 4. Temporary Assignment. An employee who is temporarily transferred
shall receive the rate of his job or the rate of the job to which he is
transferred, whichever is higher, provided that no change in the rate shall be
made unless the transfer exceeds one (1) hour. If the transfer exceeds four (4)
hours, the employee will receive the higher rate for all hours worked that day.
Section 5. Overtime. When overtime is required, it shall be offered first to the
employees who are in the classification within the department by seniority. If
the overtime requirements are not filled voluntarily, the least senior qualified
person(s) within the department must work.
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If the need for more qualified employees is necessary, the Company will attempt
to fill the need with the most senior qualified employee outside the department.
If unable to fill the need, the least senior qualified person outside the
department must work.
Daily overtime will be posted by 1:00 p.m. on the day the overtime is to be
performed. Saturday overtime will be posted by 12:00 Noon on the preceding
Thursday.
Section 6. No Pyramiding. There shall be no pyramiding or duplication of
overtime or other premium rates or any provision in Article V.
Section 7.(a). Reporting in Pay. Any employee who reports for work the beginning
of his scheduled shift and is not put to work shall be guaranteed a minimum of
four (4) hours of straight-time pay. The provisions of this Section 7 shall not,
however, apply where the failure of the Company to provide work is caused by
labor disputes, floods, power failure, fire, unforeseen circumstances, or
conditions beyond the control of the Company.
Section 7(b). In the application of this provision of the labor agreement, an
employee who reports to work at the beginning of his scheduled shift, and finds
there is no member of management present to provide appropriate work direction,
will be paid reporting pay if otherwise eligible under this provision, provided
the employee waits a period of not less than thirty (30) consecutive minutes to
await the arrival of management.
Section 8. Breaks. All employees are entitled to two (2) ten minute breaks.
These breaks will be allowed whenever practical mid-way between the start of the
shift and lunch and mid-way between lunch and when the employee punches out.
Employees who work more than two (2) hours overtime on any day will be entitled
to an additional ten (10) minute break. The foregoing does not apply to overtime
performed on Saturday or Sunday.
Section 9. Overtime Pay. All hours worked in excess of eight (8) hours worked in
any workday or in excess of forty (40) hours worked in any workweek shall be
paid for at the rate of time and one-half.
Section 10. Exhibit "A". Classifications, wage rates and related working
conditions and other provisions of this Agreement are as set forth in Schedule
"A," attached hereto and by this reference made part hereof.
Section 11. Lunch. The Company shall schedule an unpaid lunch period of not less
than one-half (1/2) hour as close as possible to the middle of the shift.
Section 12. Pay Day. Employees shall be paid weekly on the day designated as pay
day. If pay day falls on a holiday, one (1) day before shall be pay day.
ARTICLE VI - SENIORITY
- ----------------------
Section 1. Seniority shall govern the order of layoffs, recalls and promotions
to the extent provided in the succeeding provisions of this Article.
Section 2. Seniority is defined as the employee's length of continuous service
at the Company's plant commencing with his first date of employment.
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Section 3. A new employee and an employee rehired after a break in service, as
defined in Section 4 of this Article, shall have no seniority and may be laid
off or discharged in the sole discretion of the Company during the first
forty-five (45) days worked of his employment and shall, during that period, be
considered a probationary employee. At the end of forty-five (45) days worked,
his seniority shall be computed as of his first day of employment.
Section 4. An employee's seniority and his employment with the Company shall
terminate upon the occurrence of any of the following:
1. Voluntary quit or resignation.
2. Discharge for cause.
3. Absence exceeding the period for which a leave of absence has
been granted or extended unless the employee's excuse is
satisfactory to the Company.
4. Layoffs in excess of two (2) years or length of service,
whichever is less.
5. Absence for three (3) consecutive scheduled working days
without notice to the Company.
6. Failure to notify the Company within three (3) working days of
an intention to return to work (within three (3) calendar
days) following the delivery of a certified mail letter of
recall from layoff mailed to the employee's last known
address.
7. Acceptance of other employment while on leave of absence
unless agreed to in writing by the Company.
8. Absence from work by reason of the employee's illness or
injury in excess of three (3) years or length of service,
whichever is less.
9. Voluntary retirement.
Section 5. The Company shall prepare a seniority roster annually, the first of
which shall be posted on the plant bulletin board within thirty (30) days after
the execution of this Agreement. During the thirty (30) days following the first
posting, an employee may request a correction to said list by filing a written
request with his supervisor. If the correction is in order, the Company will
make said correction on the posted list. If not, the employee will be notified
of the reason. Similar procedures shall be followed with respect to subsequently
posted lists except that corrections thereto shall be limited to any changes
from the last preceding list, and requests for corrections shall be made within
the first ten (10) days of posting.
Section 6. A temporary vacancy is one of uncertain duration which lasts for a
period of fifteen (15) work days or less. When it becomes necessary to fill a
temporary vacancy in the warehouse or shops, the Company agrees to transfer the
least senior qualified employee whenever possible. When it becomes necessary to
fill a temporary vacancy in the truck driver classification, the Company agrees
to transfer the most senior qualified employee whenever possible.
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<PAGE>
Section 7. Should it be documented and proven by the Company that an employee
does not possess the ability to perform a specific job or work operation to
which he is assigned, the employee shall be relieved from said job or specific
work operation and allowed to exercise his seniority for the purpose of choosing
a job that he is qualified to perform.
If the Union or employee feels the Company has acted arbitrarily, the matter may
be referred to the grievance procedure.
Section 8. When new jobs of permanent nature are created, or where permanent
vacancies occur, any employee having completed his probationary period and
having made previous application for transfer, will be given consideration for
such vacancy on the basis of plant seniority and ability. When an employee
accepts a transfer to another job classification, all other transfer requests
become invalid for not less than three (3) months duration.
If an employee accepts a transfer to another job classification and it later
develops the employee is unable to utilize his abilities to the best advantage
in the department to which he has been transferred, he shall within fifteen (15)
work days be allowed to return, or be returned, to the department and job
classification from which he was transferred. Such employee may not request
another transfer for a period of one (1) year. An employee may refuse a transfer
and his transfer slip(s) will remain in the active file for future
consideration.
Section 9. It shall not be a violation of this Agreement, and shall not be cause
for discharge or disciplinary action, if any employee refuses to cross a primary
picket line authorized by a union.
The above, however, does not apply to picket lines established by parties to or
directed at any other company sharing the present facility located in the
Keystone Industrial Park in Dunmore, Pennsylvania, that is presently the
Company's place of business.
Section 10. Any employee desiring to leave an employment position must give the
Employer one (1) week notice in writing of such intention or lose all rights
under this Agreement. If, because of lack of employment, the Employer wishes to
lay off any employee, the Employer shall notify the employee as soon as
possible.
When it becomes necessary to reduce the working force, the last employee on the
seniority list shall be laid off first; and when the force is again increased,
the employees are to be returned to work in the reverse order in which they were
laid off, providing they still maintain seniority as described herein, and
further providing the employees retained at the time of layoff or the employees
recalled at the time of recall from layoff must be qualified to perform the work
required.
Section 11. An employee promoted or transferred from a job within the bargaining
unit to a position outside such unit shall continue to accumulate plant
seniority from which he came for a period of one hundred eighty (180)
consecutive days, and if he remains beyond that period in his new position, he
will forfeit all seniority rights under this Agreement. The 180 day maximum
shall not be cumulative. It is further understood and agreed that an employee is
obligated to continue to pay union dues during the 180 day period for the sole
purpose of protecting seniority rights. In the event an employee fails to pay
union dues in accordance with the prescribed schedule, all seniority rights will
be forfeited on the date of transfer to the non-bargaining unit position.
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ARTICLE VII - LEAVE OF ABSENCE
- ------------------------------
Section 1. Employees desiring a leave of absence shall make written application
to the Company and if, in the judgment of the Company, good cause exists, a
leave of absence without pay my be granted in writing not to exceed thirty (30)
calendar days without prejudice to the employee's seniority rights. Extension of
a leave of absence for additional thirty (30) day periods not to exceed a total
of ninety (90) days may be granted by the Company in writing, if, in its
judgment, good and sufficient cause exists. Any employee who accepts employment
with another employer during a leave of absence shall be terminated unless
otherwise agreed to in writing by the Company.
Section 2. A leave of absence will be granted an employee with full pay to take
time off on a scheduled work day because of a death in the employee's family
(spouse, child, parent, brother, sister or current parent-in-law) to attend the
funeral. The Company will pay the employee for a maximum of three (3) scheduled
work days occurring between the date of death to and including the date of the
funeral.
For grandparents, current brother or sister-in-law, foster parent or foster
child, or grandchild, the Company will pay the employee one (1) scheduled work
day for the date of the funeral.
The Company reserves the right to require proof of death prior to reimbursement
being paid for lost time.
ARTICLE VIII - HOLIDAYS
- -----------------------
Section 1. Observed Holidays. The following holidays will be observed by
eligible employees each contract year:
1. New Year's Day 6. Day After Thanksgiving
2. Memorial Day 7. Monday After Thanksgiving
3. July 4th 8. Christmas Eve
4. Labor Day 9. Christmas Day
5. Thanksgiving Day 10. New Year's Eve Day
Section 2. Holiday Pay and Schedules.
1. If a holiday falls on a Saturday, the preceding Friday will be
celebrated as the holiday. If the holiday falls on a Sunday, the
following Monday will be celebrated as the holiday.
2. For each designated holiday, an eligible employee shall receive eight
hours of straight-time pay for each full holiday provided the following
requirements are met:
a. Employee must have completed his probationary period, and
b. Employee must have worked in full the Company's regularly
scheduled work day prior to and the Company's regularly
scheduled work day subsequent to the holiday.
3. Any employee who works on a scheduled holiday will be paid time and
one-half the regular hourly rate for all hours worked in addition to
the regular holiday pay.
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<PAGE>
4. If an employee is scheduled to work on a designated holiday and agrees
to do so and subsequently fails to report as scheduled without being
excused in writing by the Company, he shall be denied holiday pay.
ARTICLE IX - VACATIONS
- ----------------------
Section 1. Vacation Benefits. Subject to the following qualifying provisions,
employees covered by this Agreement shall be granted vacations with pay in
accordance with the following schedule.
LENGTH OF CONTINUOUS SERVICE VACATION ALLOWANCE
---------------------------- ------------------
1 year, but less than 3 years 1 week
3 years, but less than 8 years 2 weeks
8 years, but less than 15 years 3 weeks
15 years and over 4 weeks
For purposes of this Article, length of continuous service shall include service
with R. H. Robbins Co., provided there has been no break in service.
Section 2. Vacation Pay. Vacation pay shall be at the regular straight-time
hourly rate of pay based on the last work week ending prior to the vacation
period multiplied by forty (40) hours.
To qualify for the first week of vacation, an employee must:
a. be a regular employee who has completed his probationary
period and is on the seniority list;
b. have completed one (1) year of employment from his established
seniority date;
c. have worked a minimum of eight hundred (800) hours or more
prior to his anniversary date.
Section 3.
A. Employees who have worked 800 hours or more during the preceding
qualification year shall be eligible for vacation benefits. Vacation,
holiday and overtime hours, as well as time not worked because of
occupational injury or illness shall count as time worked for the
purpose of qualifying for vacation, provided employees on occupational
illness or injury would have otherwise earned qualifying hours.
B. An employee who becomes deceased or retires and has worked eight
hundred (800) hours as required in paragraph (a) above during the
contract year shall be paid for the vacation for which he has
qualified.
C. When an employee becomes permanently disabled, he shall qualify for his
vacation period only during the period in which such permanent
disability occurs.
An employee who is unable to work because of occupational or
non-occupational disability shall be paid vacation pay:
-8-
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(1) for vacation which he is qualified for in the vacation period
preceding the vacation period in which the disability
occurred; and
(2) for the vacation for which he qualified for working eight
hundred (800) hours required in 3 (a) above, prior to the date
of the disability during the vacation period in which the
disability occurred.
Section 4. Vacation Periods.
A. Vacations shall be scheduled during the 12 month period January 1st
through December 31st.
B. One week of vacation must be taken in five (5) consecutive days.
C. Must be scheduled and taken during the calendar year (vacation period).
D. Must be scheduled by seniority.
E. The Employer shall determine the number of employees working in each
job classification permitted to be on vacation during a given work
week.
F. Holiday pay shall be paid in addition to vacation pay when a holiday
specified in this Agreement occurs during a selected vacation period;
however, the employee may reschedule one (1) day vacation at a later
date if he so chooses.
G. Any employee with three (3) or more weeks of vacation must take one (1)
week in the month of either December, January, February or March.
H. Employees with more than one (1) week vacation eligibility, to apply
day-at-a-time vacation to days they are absent for sickness, subject to
the following:
1. Company approval of the request is required. Such approval is
necessary to avoid abuse, and will not be unreasonably withheld.
2. An employee must request the application of the vacation day(s)
to the sick day(s), within three (3) working days following his
return to work.
ARTICLE X - HEALTH AND WELFARE AND PENSION
- ------------------------------------------
Section 1. The Employer and Union have agreed to a program of benefits for
employees in the bargaining unit represented by the Union and covered by this
Agreement. The insurance programs for the employees and their dependents, where
applicable, as set forth in Exhibits B and C attached, shall be continued for
the life of this Agreement.
Section 2. The Employer agrees to maintain the current health and welfare plan
with the following improvements with 15% of the monthly premium paid by the
employee.
-9-
<PAGE>
a. Life Insurance and AD & D - Double the Amount
---------------------------------------------
Effective December 10, 1995 - $13,000
Effective December 10, 1996 - $14,000
Effective December 10, 1997 - $15,000
Employees have the option of purchasing a like amount of additional
life insurance with AD & D at a cost of $0.24 per thousand. Purchases
must be in the amount in effect and will be increased to the full
amount whenever an increase is provided by the Agreement.
b. Sickness and Accident (26 week maximum)
---------------------------------------
Effective December 10, 1995 - $165.00 weekly
Effective December 10, 1996 - $175.00 weekly
Effective December 10, 1997 - $185.00 weekly
c. Comprehensive Health Program
Major Medical life-time maximum of $250,000
See Exhibits B & C for outline of Medical and Dental Summary
of Plans.
Section 3. Pension. The pension program is set forth in the document entitled
"Morgan Products Ltd. Pension Plan for Hourly Paid Employees," a copy of which
has been presented to the Union. Said plan and all terms and conditions thereof
shall be deemed to be part of this Agreement as if fully set forth herein.
During the term of this agreement the monthly benefit payable to employees who
retire will be $13.00 multiplied by the employee's years of credited service.
Section 4. Effective January 1, 1999 all active bargaining unit employees are
eligible to participate in the Morgan Products Ltd. Profit Sharing and Savings
Retirement (401(K)) Plan. Such participation shall be in accordance with the
terms of that Plan. Also effective January 1, 1999, all Pension benefit accrual
under Section 3 shall cease.
Section 5. The annual cost of the Health and Dental Plans outlined in Exhibits B
and C shall be paid 85% by the Company and 15% by the employee.
Section 6. Employee contributions to the Morgan Medical Plan will continue at
15% of the established annual cost of the Plan. In 1996, the employee
contribution will be $7.10 per week for single coverage and $17.57 per week for
family coverage.
Employees who choose the Geisinger Health Plan (HMO) for 1996 will pay only for
the dental portion of the Morgan Medical Plan at $0.73 per week for single
coverage and $1.70 per week for family coverage. Dental employee contribution in
1997 and 1998 will continue at 15% of the total cost of the Morgan Dental Plan
in those years.
Geisinger Health Plan (HMO) cost increases in 1996, 1997, and 1998 will be
absorbed by the Company up to a maximum of 10% above the preceding year's cost.
Any cost increases in excess of the 10% will be the responsibility of the
individual employees enrolled in the Plan.
-10-
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ARTICLE XI - JURY DUTY
- ----------------------
In the event that an employee loses all or part of work time on account of jury
service, the Employer shall pay such employee an amount sufficient to guarantee
no loss in wages on account of such absence from work. Employees shall notify
the Employer within forty-eight (48) hours after they receive jury notice.
ARTICLE XII - EMPLOYEE'S BAIL
- -----------------------------
Employees will be bailed out of jail if accused of any offense in connection
with the faithful discharge of their duties, and any employee forced to spend
time in jail or in courts shall be compensated at the employee's regular rate of
pay. In addition, the employee shall be entitled to reimbursement for all meals,
transportation, court costs, etc.; provided, however, that faithful discharge of
duties shall in no case include compliance with any order involving commission
of a felony. In case an employee shall be subpoenaed as a Company witness, such
employee shall be reimbursed for all time lost and expenses incurred.
ARTICLE XIII - EXAMINATIONS
- ---------------------------
Physical, mental or other examinations required by a government body or the
Employer shall be promptly complied with by all employees; provided, however the
Employer shall pay for all such examinations.
Employees shall not be required to take examinations during working hours unless
paid by the Employer.
ARTICLE XIV - EXTRA HELP
- ------------------------
A. Additional Help
---------------
When additional help is needed on a Company assignment, it shall be
furnished by the Employer and all responsibilities will be the
Company's, provided the Company has approved.
B. Temporary Seasonal Employees
----------------------------
Temporary Seasonal Employees will be advised at the time of employment
that the length of service will be limited to a six (6) month period
within a calendar year provided there are no qualified employees on
layoff who want to perform the work involved. Temporary/seasonal
employees will not hold any seniority over regular employees with
respect to job placement or transfer, nor will they be entitled to any
benefits under this agreement. Temporary/seasonal employees are
required to join the Union as prescribed in Article II, Section 1.
ARTICLE XV - SANITARY CONDITIONS
- --------------------------------
Section 1. The Company shall continue to make reasonable provisions for the
safety and health of its employees at the plant during their working hours of
employment.
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<PAGE>
Section 2. Required safety protective devices for the safety and health of the
employees during working hours shall be supplied by the Company and used by the
employees unless otherwise specified in a Memo of Understanding.
Section 3. The Employer agrees to maintain a clean, sanitary washroom having
running water and toilet facilities.
Section 4. The Company shall maintain a first aid kit and all the necessary
supplies for administering first aid.
Section 5. Employees injured while at work who are directed by supervision to
leave the plant will be paid for a full eight (8) hour day or the time necessary
for treatment, whichever is less.
Section 6. The Company will furnish a lunchroom for its employees; however, the
Union agrees that its members will maintain this facility in a clean and
sanitary condition.
ARTICLE XVI - JOB STEWARDS
- --------------------------
The Employer recognizes the right of the Union to designate job stewards and
alternates.
The authority of job stewards and alternates so designated by the Union shall be
limited to and shall not exceed the following duties and activities:
1. The investigation and presentation of grievances in accordance
with the provisions of the collective bargaining agreement.
2. The collection of dues when authorized by appropriate Local
Union action.
3. The transmission of such messages and information which shall
originate with and are authorized by the local Union or its
officers, provided such messages and information have been
reduced to writing, or if not reduced to writing, are of a
routine nature and do not involve work stoppages, slowdowns,
refusal to handle goods, or any other interference with the
Employer's business.
Job stewards and alternates have no authority to take strike action or any other
action which interrupts the Employer's business. The Employer recognizes these
limitations placed upon the authority of the job steward and their alternates
and shall not hold the Union liable for any unauthorized acts if the Union
complies with the steps outlined in Article XXVI, No Strikes or Lockouts.
The Union shall notify the Company in writing the naming of the official Union
stewards and their alternates. The Company shall not be required to recognize or
deal with any employee or employees whose name does not appear on the furnished
list.
Stewards shall be permitted to investigate, present and process grievances
without loss of time or pay. Such time spent in handling grievances shall be
considered working hours in computing daily and/or weekly overtime.
-12-
<PAGE>
It is understood that stewards are not permitted to leave their work area unless
permission has first been obtained from their supervisor unless in an emergency
situation. The supervisor will not arbitrarily hold back permission.
ARTICLE XVII - SUBCONTRACTING
- -----------------------------
It is understood that the nature of the business makes it imperative that the
Company maintain the right to continue to subcontract that work that it has
subcontracted in the past.
ARTICLE XVIII - GRIEVANCE AND ARBITRATION PROCEDURES
- ----------------------------------------------------
Section 1. A grievance is hereby jointly defined to be any controversy,
complaint, misunderstanding, or dispute, and any grievance arising between the
Company and the Union or an employee represented by the Union shall be settled
in the following manner:
Step 1. The aggrieved employee or employees must present the grievance
to the Shop Steward within five (5) working days after the reason for
the grievance has occurred or the employee should have known. If a
satisfactory settlement is not effected with the foreman within five
(5) working days, the Shop Steward and employee shall submit such
grievance in writing to the Union's Business Representative.
Step 2. The Business Representative shall then take the matter up with
a representative of the Company with authority to act upon such
grievance. A decision must be made within five (5) working days.
Step 3. In the event they are unable to so agree, the matter shall be
referred to the American Arbitration Association within seven (7) days.
After the service submits a list of Arbitrators to the Union and the
Company, they shall reply with their preferred selections no later than
seven (7) days after the receipt of such list. The expense of the
arbitrator selected or appointed shall be borne equally by the Company
and the Union.
Section 2. Any Shop Steward, upon approval of the supervisor, shall be permitted
to leave his work without loss of wages to investigate and adjust the grievance
of any employee within his jurisdiction. Employees shall have the Shop Steward
or a representative of the Union present during the discussion of any grievance
with the representative of the Company.
Section 3. If the Union or Company fails to comply with any settlement of the
grievance or fails to comply with the procedures of this Article, the Union or
the Company has the right to take all legal and economic action to enforce its
demands.
Section 4. The Arbitrator shall not have the authority to amend or modify this
Agreement or establish new terms or conditions under this Agreement. The
Arbitrator shall determine any question of arbitrability. In the event the
position of the Union is sustained, the aggrieved party shall be entitled to all
benefits of this Agreement which would have accrued to such employee had there
been no grievance.
Section 5. Both parties agree to accept the decision of the Arbitrator as final
and binding. If the Company or Union fails to comply with the award of the
Arbitrator or with the procedures of this Article, the Company or Union has a
right to take all legal and economic action to enforce compliance.
-13-
<PAGE>
Section 6. The cost of the Arbitrator's fees and expenses shall be divided
equally by the parties. Either party shall have the right to have a transcript
of the proceedings and to furnish a copy thereof to the Arbitrator. If both
parties agree to a transcript, the cost thereof, including the cost of the
Arbitrator's copy, shall be divided equally by the parties.
The Arbitrator shall have no authority to amend, modify or add to the provisions
of this Agreement or rule on any of the Company policies, rules or regulations.
The Arbitrator's award shall be final and binding on both parties and on all
employees in the bargaining unit. The Company shall not be required to pay back
wages prior to the date a written grievance is filed.
Section 7. Any grievance not appealed to the next succeeding step in accordance
with the time limits set forth can be objected to by the Company as untimely.
The parties may, in any individual case, by mutual agreement extend the time
limits in any step. Grievances regarding discharges shall be processed directly
into Step 2.
Section 8. The term "working days" as used in this Article only means calendar
days exclusive of Saturdays, Sundays and holidays.
ARTICLE XIX - DISCHARGE OR SUSPENSION
- -------------------------------------
The Employer shall not discharge or suspend any employee without just cause. In
all cases involving discharge or suspension of an employee, the Company must
immediately notify the employee in writing of such discharge or suspension and
the reason therefore. Such written notice shall also be given to the Shop
Steward and a copy mailed to the Local Union office within three (3) working
days.
Any employee discharged must be paid in full for all wages owed such employee by
the Employer on the following pay period.
The warning notice as herein provided shall not remain in effect for a period of
more than nine (9) months from the date of the occurrence upon which the
complaint and warning notice are based.
A discharged or suspended employee must advise the Local Union in writing,
within five (5) working days after receiving notification of such action against
such employee, of the employee's desire to appeal the discharge or suspension.
Notice of appeal from discharge or suspension must be made to the Employer in
writing within five (5) working days from the date of discharge or suspension
and/or return to the employee's home domicile, whichever is later.
If the Union and the Employer are unable to agree as to the settlement of the
case, then it may be referred to the grievance machinery as set forth in this
Agreement.
ARTICLE XX - TRANSFER OF COMPANY TITLE OR INTEREST
- --------------------------------------------------
Applicable laws will apply.
-14-
<PAGE>
ARTICLE XXI - INSPECTION PRIVILEGES
- -----------------------------------
Authorized agents of the Union shall have access to the Employer's premises and
establishment during working hours for the purpose of adjusting disputes,
investigating working conditions, and ascertaining that the Agreement is being
adhered to; provided, however, that there is no interruption of the firm's
working schedule.
However, it is understood that the authorized agent of the Union will notify the
General Manager of his representative of the authorized agent's presence.
ARTICLE XXII - DEFECTIVE EQUIPMENT
- ----------------------------------
It shall not be a violation of this Agreement for any employee to refuse to
operate any equipment that does not meet the requirements of applicable law
regarding safety, etc.
ARTICLE XXIII - UNIFORMS
- ------------------------
The Employer agrees that if any employee is required to wear any kind of uniform
as a condition of his continued employment, such uniform shall be furnished and
maintained by the Employer, free of charge, at the standard required by the
Employer.
It is understood that the employee is responsible for the washing or dry
cleaning of said uniform.
ARTICLE XXIV - EMPLOYEE BONDING
- -------------------------------
If the Employer requires an employee to be bonded, such bonding fee shall be
paid by the Employer.
ARTICLE XXV - VARIATION FROM AGREEMENT
- --------------------------------------
Section 1. Employer and employee shall not enter into or make any written or
verbal agreement which is in conflict with this Agreement.
Section 2. Practices and Prior Agreements. The Company and Union agree that both
parties during the negotiations of this initial agreement had an opportunity to
raise and negotiate any and all known issues or questions concerning hours,
wages and conditions of employment, and the Union and the Company waive for the
term of this Agreement their rights to negotiate any matter which was discussed
or which was known and not discussed during the negotiations.
However, if an issue develops which was not know by either party, the matter
will be discussed and a mutual agreement reached. If the matter cannot be
resolved, the issue may be subject to the Arbitration procedure.
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<PAGE>
ARTICLE XXVI - NO STRIKES OR LOCKOUTS
- -------------------------------------
The parties hereto mutually agree that during the term of this Agreement there
shall be no authorized strikes, work stoppages, slowdowns, boycotts, etc., by
the Union, nor shall there by any lockouts by the Employer for any reason
whatsoever, and that any difference concerning the application or interpretation
of the terms of this Agreement which cannot be amiably adjusted by and between
the parties shall be submitted to arbitration in accordance with the grievance
and arbitration provisions of this Agreement.
In the event of any violation of this Article, the Union agrees that upon
notification by the Company, the Union will take immediate affirmative steps
with employees concerned to bring about an immediate resumption of the normal
operation of the Company; provided, however, that the inability of the Union to
bring about an immediate resumption of the normal operations of the Company,
after a good faith attempt to do so, shall relieve the Union of any liability
whatsoever arising out of a violation of this Article.
ARTICLE XXVII - LEGALITY
- ------------------------
Nothing in this Agreement is intended to deprive the Union or the employees of
any rights provided to them by any statutes of the United States or the State of
Pennsylvania.
ARTICLE XXVIII - LEADMAN
- ------------------------
Section 1. It is understood and agreed that the Employer may at its discretion
assign leadmen in the various departments within the plant. In addition to their
regular duties, leadmen will be responsible for planning, assigning, instructing
and directing the work of others, including the safety of function performed.
Leadmen will work with and under the general supervision of regular salaried
supervisors.
Section 2. A leadman will receive fifty cents (.50) per hour above his regular
rate of pay. No employee shall be forced to act in the capacity of a leadman
against his will.
Section 3. It is further understood and agreed that vacancies in the leadman
classification are exempt from the provisions of Article XI, Section 8.
ARTICLE XXIX - TERMS OF AGREEMENT
- ---------------------------------
This Agreement shall go into full force and affect on the tenth day of December
1995, and shall remain in full force and effect up to and including the tenth
day of December 1998, and thereafter from year to year for one (1) year periods,
unless either party to this Agreement gives sixty (60) days notice in writing
prior to the expiration date of this Agreement, or any subsequent year thereof,
of their intentions to have same changed.
FOR THE UNION: FOR THE COMPANY:
__________________________________ ____________________________________
__________________________________ ____________________________________
__________________________________ ____________________________________
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EXHIBIT A
---------
HOURLY WAGE RATES
-----------------
================================================================================
EFFECTIVE
- --------------------------------------------------------------------------------
A. CLASSIFICATION 12-10-95 12-09-96 12-08-97
- --------------------------------------------------------------------------------
Tractor Trailer 10.95 11.15 11.35
- -------------------------------------------------------------------------------
Van 10.75 10.95 11.15
- --------------------------------------------------------------------------------
Shop 10.00 10.20 10.40
- --------------------------------------------------------------------------------
Warehouse 10.00 10.20 10.40
- --------------------------------------------------------------------------------
Summer Help 6.70 6.90 7.10
- --------------------------------------------------------------------------------
B. HIRING SCALE 12-10-95 12-09-96 12-08-97
- --------------------------------------------------------------------------------
1. First six (6) month period worked (80%) 8.00 8.16 8.32
- --------------------------------------------------------------------------------
2. 2nd six (6) month period worked (85%) 8.50 8.67 8.84
- --------------------------------------------------------------------------------
3. 3rd six (6) month period worked (90%) 8.90 9.18 9.36
- --------------------------------------------------------------------------------
4. 4th six (6) month period worked (95%) 9.50 9.69 9.88
- --------------------------------------------------------------------------------
5. Beginning 24th month 10.00 10.20 10.40
- --------------------------------------------------------------------------------
C. In the event a Tractor Trailer or Van Driver is employed from outside
the bargaining unit, the hiring scale percentages set forth in
Paragraph B above apply to the employee's wage progression.
================================================================================
Annual Cash Payment:
- --------------------
At the conclusion of each of the three contract years, employees will receive a
cash payout of $100.00 less appropriate taxes. These payouts stand alone and are
not considered a part of the incentive plans set forth in Exhibits A-1 and A-2.
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EXHIBIT A-1
-----------
Damage Control Incentive Program
--------------------------------
Effective January 1, 1996
-------------------------
Program: Actual controllable damage for 1995 = $24,000
Morgan Distribution will share dollars saved with all hourly employees based
upon the following scale:
1996 = 50% savings below 1995 actual.
1997 = 60% savings from prior year provided an improvement
over 1995.
50% if no improvement.
1998 = 70% savings from prior year provided an improvement
over 1995.
50% if no improvement
Example
- -------
1996 cut damage expense by 50% = $12,000 savings to Morgan Distribution.
Share of 50% = $6,000.
Average of 24 hourly employees = $250.00/employee
Value equivalent per hour = $0.12
Payouts will be a lump sum less applicable taxes, at the end of each calendar
year of this contract.
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EXHIBIT A-2
-----------
Safety/Attendance Incentive Program
-----------------------------------
Effective February 10, 1996
---------------------------
Program:
- --------
Earn $1.00 per day for every day worked throughout the year. There are
approximately 252 working days in a year. An individual with perfect attendance
and no Safety Incidents would earn $252.00 or 0.12/hour over their normal rate
based on a forty hour work week. The scale will work as follows:
Perfect attendance no recordable safety incidents. Full Payment
Unscheduled absence from work. Less $50.00/for each
absence
Recordable safety incident (medical treatment,
(restricted work) Less $100.00/incident
Lost time incident. No payment
Failure to report an incident. No payment
Example:
- --------
Value equivalent per hour (2080 annual hours)
Full payment = 0.12/hour
Unscheduled absence, lose 0.024/hour
Recordable Safety Incident, lose 0.048/hour
Payouts will be on a lump sum, less applicable taxes, at the end of each
calendar year of this contract.
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EXHIBIT B
---------
HEALTH BENEFITS SUMMARY - MORGAN PLAN
-------------------------------------
For you and your dependents
COMPREHENSIVE MEDICAL BENEFIT
Maximum Benefit per lifetime - $250,000
Individual Cash Deductible per Calendar Year - $100
Family Cash Deductible per Calendar Year - $200 (See Benefit)
Percentage of Covered Expenses Payable by the Plan
o All expenses except Non-confining Mental or Nervous Disorders
o 100% of the following Covered Expenses (The Cash Deductible does not
apply to these expenses):
-- Hospice Services
-- Home Health Services
-- Birthing Center Services
-- Pre--admission Testing
-- Post--admission Testing
-- Generic Prescription Drugs
-- One Routine Pap Test in a Calendar Year
-- Skilled Nursing Facility Care After Hospital Confinement
-- Ambulatory Surgical Center Services
-- Second Surgical Opinions
-- Covered Expenses Due to an Accident Which Happens While Covered.
The expenses must be incurred within 90 days after and be due to
the accident.
The Cash Deductible does not apply to these expenses. (Up to $300 for each
accident.)
-- Out-patient Surgery and Related Expenses
-- Consultation with a Specialist Surgeon. This surgeon can not be
the one originally scheduled to perform the surgery.
-- X-rays, laboratory test and other diagnostic procedures needed for
the consultation.
If the second surgical opinion does not confirm the need for surgery, payment
will be made for another surgical opinion in the same manner as the second
opinion.
-- 80% for all other Covered Expenses until the Out-of-Pocket Feature
applies. (The Cash Deductible applies to these expenses.)
-- 100% for all Covered Expenses when the Out-of-Pocket Feature
applies.
-- Expenses for Non-confining Mental or Nervous Disorders 50% (The
Out-of-Pocket Feature does not apply.)
-20-
<PAGE>
OUT-OF-POCKET FEATURE
When benefits are paid by the Plan at 80%, you have to pay the remaining 20% of
Covered Expenses.
When this 20% plus the Cash Deductible that you pay reaches $1,000 for any
person in a Calendar Year, benefits will be paid by the Plan at 100% of
allowable charges for that person for the rest of that year.
If the 20% plus the Cash Deductible that you pay reaches $2,000 for all Covered
Family Members in a Calendar Year, benefits will be paid by the Plan at 100% of
allowable charges for your family for the rest of that year.
-21-
<PAGE>
EXHIBIT B-1
-----------
GEISINGER HEALTH PLAN
---------------------
NOTE: The following plan explanation of the Geisinger Health Plan is
intended to be a summary only. Benefits, limitations, and
exclusions are provided in accordance with the Subscription
Certificate and applicable riders under which a member is
enrolled.
[Chart outlining specific benefits under the plan.]
-22-
<PAGE>
EXHIBIT C
---------
DENTAL ASSISTANCE PLAN - SUMMARY
--------------------------------
HOW THE PLAN WORKS
The Dental Assistance Plan covers four types of dental care:
CLASS A
Preventative and Diagnostic Services
Routine Cleaning
Oral Exams (Up to twice in a
Topical Application of Fluoride 12 month period.)
Dental X-rays
The Plan is designed to encourage you and your family to see
your dentist regularly for check-ups. Therefore, no deductible
need be met for Preventative and Diagnostic Services. In
addition, the amount of your reimbursement will be 100%.
CLASS B
Basic Restorative Services
Fillings Periodontic (gum) Treatment
Extractions Repair of Crowns, Bridges,
and Dentures
Root Canal Therapy Anesthesia
Oral Surgery
After you meet the deductible (described below), you will be
reimbursed at the rate of 80% of reasonable and customary
charges for Basic Restorative Services.
CLASS C
Major Restorative Services
Crowns
Bridges
Dentures
After you meet the deductible, you will be reimbursed at the
rate of 50% of reasonable and customary charges for Major
Restorative Services.
CLASS D
Orthodontic Services
Treatment to Straighten Teeth
After you meet the deductible, you will be reimbursed at the
rate of 50% of reasonable and customary charges for
Orthodontic Services - up to a lifetime maximum of $500 for
each covered person.
-23-
<PAGE>
THE DEDUCTIBLE
Payments for all dental services except CLASS A - Preventative and Diagnostic
Services will start after you meet the annual deductible.
Annual Deductible $35.00 per person ($70.00
----------------- family maximum)
MAXIMUM BENEFITS
The Plan will pay up to $1000 per year for each covered person for Class A,
Class B, and Class C Services combined. For Class D Services, there is a
lifetime maximum of $500 for each covered person.
-24-
<PAGE>
EXHIBIT D
---------
PLANT RULES AND SAFETY PROCEDURES
---------------------------------
Let it clearly be understood that the list of rules and safety
procedures below ARE NOT all inclusive and do not cover every rule or cause for
disciplinary action.
Each offense listed normally calls for the penalty noted, with each
repetition of an offense carrying a more severe penalty as indicated. In
addition, a flagrant violation of a rule may warrant a more severe penalty than
the one shown. Also, violations of several rules, although none are repeated but
are within a respective classification, may result in the imposition of a more
severe penalty, as listed, than normally called for on a first offense.
Other rules, classifications and steps of progression are as follow.
-25-
<PAGE>
SAFETY RULES
------------
GENERAL
-------
1. Report all accidents to your supervisor, whether or not they result in
personal injury, such as damage to materials and equipment.
2. Report all injuries to your supervisor no matter how slight they are. Cuts
or scratches can become infected unless properly cared for.
3. Forklift operators must follow the procedures and safety rules that are
included in the Industrial Power Truck Operators Manual.
4. At no time are there to be riders on forklifts, other than the driver.
When forklifts are being used to elevate personnel, an approved safety
platform must be used. Riding on forklifts or being elevated without a
safety platform is extremely dangerous, as they do not afford a stable
footing.
5. Never enter the premises of this plant when using, possessing or under the
influence of alcohol or other drugs.
6. Horseplay is absolutely forbidden.
7. Most importantly - be alert, keep your mind on the job and develop safe
work habits.
8. Personal protective equipment such as safety glasses, hard hats, gloves,
etc., shall be worn as required.
9. Employees are not to ride on hand trucks or carts. Employees shall push
hand trucks or carts whenever possible. When it is necessary to pull these
trucks, do so slowly and only until the truck is in a position so that it
may be pushed. Failure to comply with this rule can result in accidents
such as the trucks or carts running over feet or pinning the operator
between it and other objects.
10. Loose or baggy clothing and flowing ties shall not be worn.
11. Face shields shall be used to protect the eyes and face where sawdust and
chips are flying. They enable the operator to keep his eyes open while
standing close to the job at hand and protect his eyes and face from
flying fragments.
12. Open toe and soft top and bottom shoes shall not be worn by employees
assigned to work in the shop and warehouse areas. Shoes, with substantial
soles and tops in good repair, minimize the danger of nails and splinters
puncturing the feet.
13. Never stand under suspended loads nor swing a load over other persons.
14. Lifting can be accomplished more easily and safely when the back is kept
as nearly vertical as possible and the lifting is done by straightening
the bent legs, thereby using the strong leg muscles instead of the weaker
back muscles for the lifting.
-26-
<PAGE>
15. Do not overestimate your ability to lift a heavy or bulky object. Get
help.
When two or more persons are lifting an object, one of them shall give the
signal to lift and lower so that their efforts may be made in unison.
16. Safely stacked and sorted lumber provides for the safe and efficient use
of it.
17. Two or more persons carrying long boards or timbers shall walk on the same
side of the load and keep in step with one another.
18. Ladders are important pieces of equipment but are often neglected. They
shall be maintained in good repair, free from splinters, varnished (not
painted) and stored out of the weather. Before using a ladder, see that it
is in good condition. If there is a chance of the ladder slipping, have
another person hold the bottom of the ladder. Do not use metal ladders
around electrically energized equipment.
19. Work areas, benches, etc., should be kept clean and orderly. An efficient
workman can usually be identified by the orderly manner and condition in
which he keeps his tools, work areas and equipment.
20. From a fire and dust explosion standpoint alone, it is extremely important
that the woodworking shop, the machines, roof trusses and rafters, exhaust
ducts and collectors be kept clean. Exhaust systems on machines help keep
the shop clean. See that the suction system is up to standards and inform
your supervisor if the system is not functioning properly.
21. Each employee shall know where the fire extinguishing equipment can be
found and he shall ask his supervisor to acquaint him with proper use and
limitations.
22. Smoking is absolutely forbidden in the shop and warehouse.
23. In case of fire, you are to go to the nearest telephone and dial
____________, which will connect you to ____________ and say, "I want to
report a fire," and giving your name and exact location of the fire.
24. Never break the seal or otherwise tamper with a fire extinguisher except
in case of an emergency. Report usage to your immediate supervisor and do
not return used extinguishers to the rack until they have been recharged.
25. Guards must not be removed from machinery, equipment, belts, gears,
shafts, etc., unless authorization to do repairs has been given by the
department supervisor. Guards must be replaced after repairs are
completed. A machine guard is for the operator's protection. The wise
operator uses all guarding that is provided.
Machine Guards
- --------------
Tampering with machine guards is prohibited and any removal requires the
prior approval of your supervisor. All machine guards must be properly replaced
after the repair work has been completed.
-27-
<PAGE>
Air Hoses
- ---------
Air hoses are to be used as instructed. AT NO TIME may they be used for
cleaning of a person's clothing or skin.
Hand Tools
- ----------
1. Split handles on tools must be replaced, not taped. The wedges in handles
should be checked frequently.
2. The tip of a screwdriver should be squared and of proper thickness and
width to fit the screw slot being used.
3. Tools must not be thrown from one worker to another.
Woodworking Machines
- --------------------
1. It is of extreme importance that the machine be shut off after it has been
used. Never leave an unattended machine running.
2. Machines must be shut down at all times during maintenance operations.
Starting mechanisms shall be locked or sealed to prevent inadvertent
application of power during repairs.
3. If any unusual noise develops in the machine, shut it down and report the
condition.
4. Never operate any machinery or equipment unless you have been authorized
to do so and only if you have been properly instructed on how to do so.
Check machinery and equipment before using to make sure they are in safe
working condition.
5. Report immediately to your supervisor any malfunction of machinery or
equipment.
6. Cutting tools, such as circular saw blades and cutting heads, must be
carefully examined for cracks and nicks before they are placed on the
arbors.
7. The floor in front of machines shall not be allowed to become slippery.
8. Gloves should not be worn by operators of machines.
9. Remove scrap and dust from machines with a brush, not with your hands.
Circular Saws
- -------------
Circular saws are responsible for the major portion of all injuries arising out
of woodworking. The injuries involve serious cuts and amputation of fingers and
hands, deep cuts of arms resulting from feeding and removing stock, making
machine adjustments and cleaning scrap from the table. Kickbacks of wood by the
blade have caused serious injury and death. The listed safe practices shall be
followed when using the circular saw.
-28-
<PAGE>
Jointers
- --------
The jointer is second only to the circular saw as a source of woodworking
accidents in its reputation for maiming its operators. Severe finger and hand
injuries have resulted from contact with the rotating blades. Most jointers are
now equipped with cylindrical heads, which experience has shown are safer than
square heads. The following safe practices shall be followed when operating the
jointer:
1. Heavy cuts shall not be made since, as the depth of the cut increases, the
danger of kickback increases. Knots also increase the hazard of kickback.
2. The guard which covers the unused portion of the head and adjusts itself
automatically to the work shall always be in place.
3. Conditions which contribute to the dangers of operation are loose, nicked
or dull knives, or knives which are improperly adjusted. Only an
experienced mechanic shall set the knives since considerable skill is
required.
4. A push stick or push block shall be used to assist in safely guiding small
pieces (18 inches or less) over the cutting head.
-29-
<PAGE>
PLANT RULES
-----------
GENERAL
-------
[Chart describing types of plant rules violations for employees classified A, B,
C, or D, along with penalties for each instance of infraction.]
-30-
<PAGE>
EXHIBIT 10.50
AMENDMENTS TO
MORGAN PRODUCTS LTD.
INCENTIVE STOCK OPTION PLAN
1. Section 5 "Eligibility" is amended to read as follows:
"Options may be granted to any Employee who is selected in
accordance with the provision of this Plan by the Committee;
provided, however, that no Option (other than one intended to
induce an individual to become the Chief Executive Officer of
the Company) may be granted to an Employee if the sum of the
number of shares of Common Stock subject to the Option plus
the number of shares owned, directly or indirectly, within the
meaning of Section 318(a) of the code, by the Employee as of
the date the Option is granted (excluding shares covered by an
option intended to induce an individual to become the Chief
Executive Officer of the Company) exceeds three percent (3%)
of the issued and outstanding Common Stock as of said date."
<PAGE>
EXHIBIT 10.51
EIGHTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THE EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Eighth
Amendment") is made as of the 13th day of March, 1997 by and among Morgan
Products Ltd., a Delaware corporation having its chief executive office at 469
McLaws Circle, Williamsburg, Virginia 23185 ("Borrower"), the lenders who are or
who may from time to time become signatories hereto ("Lenders") and Fleet
Capital Corporation, a Connecticut corporation having an office at 20800 Swenson
Drive, Waukesha, Wisconsin 53186 ("FCC") which is the successor-in-interest to
Barclays Business Credit, Inc., as agent for the Lenders ("FCC," in such
capacity being "Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, FCC, as Agent and Lender, and Borrower entered into a certain
Loan and Security Agreement dated as of July 14, 1994 as amended by (i) a
certain First Amendment to Loan and Security Agreement ("First Amendment") dated
as of September 30, 1994 by and among Agent, Borrower and the lender signatories
thereto, (ii) a certain Second Amendment to Loan and Security Agreement ("Second
Amendment") dated as of October 20, 1994 by and among Agent, Borrower and the
lender signatories thereto. (iii) a certain First (sic) Amendment to Loan and
Security Agreement dated as of March 29, 1995 by and among Agent, Borrower and
the lender signatories thereto, (iv) a certain Fourth Amendment to Loan and
Security Agreement dated as of October 30, 1995 by and among Agent, Borrower and
the lender signatories thereto (v) a certain Fifth Amendment to Loan and
Security Agreement dated as of June 30, 1996 by and among Agent, Borrower and
the lender signatories thereto, (vi) a certain Sixth Amendment to Loan and
Security Agreement dated as of August 30, 1996 by and among Agent, Borrower and
the Lender signatories thereto and (iii) a certain Seventh Amendment to Loan and
Security Agreement dated as of October 22, 1996 by and among Agent, Borrower and
the Lender signatories thereto. Said Loan and Security Agreement, as amended
from time to time, is hereinafter referred to as the "Loan Agreement"; and
WHEREAS, Borrower, Lenders and Agent desire to amend and modify certain
provisions of the Loan Agreement.
NOW THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained, and any extension of credit heretofore, now or
hereafter made by Lenders and Agent to Borrower, the parties hereto hereby agree
as follows:
1. Definitions. Except as otherwise specifically provided for herein,
all capitalized terms used herein without definition shall have the meanings
given to them in the Loan Agreement.
2. Amended Definitions. The definitions of "Borrowing Base", "Interest
Coverage Ratio", "Interest Rate Coverage Ratio and 'Letter of Credit" contained
in Section 1.1 of the Loan Agreement are hereby deleted and the following are
inserted in their stead:
<PAGE>
"1.1 Defined Terms. When used herein, the following terms
shall have the following meanings (terms defined in the singular to
have the same meaning when used in the plural and vice versa):
* * *
"Borrowing Base" - as at any date of determination thereof, an amount
equal to the lesser of:
(a) the Maximum Revolving Credit Loan: and
(b) an amount equal to:
(i) eighty-five percent (85%) or such lesser percentage as
Agent in its reasonable discretion deems appropriate, of the net amount of
Eligible Accounts outstanding at such date:
PLUS
(ii) the lesser of (A) Thirty-Five Million Dollars
($35,000,000) for the period from October 30, 1995 to and including February 27,
1997 and Forty Million Dollars ($40,000,000) for the period from February 28,
1997 to and including the Commitment Termination Date and (B) the Inventory
Percentage of the value of Eligible Inventory at such date consisting of raw
materials and finished goods, calculated on the basis of the lower of cost or
market, as determined by Agent, in its reasonable discretion, on a first-in,
first-out ("FIFO") basis:
MINUS (subtract from the lesser of clauses (a) and (b) above)
(c) an amount equal to the sum of (A) the face amount of all LC
Guaranties and Letters of Credit issued by Agent or Bank and outstanding at such
date, plus (B) any amounts which Agent and/or Lenders may then be obligated to
pay for the account of Borrower under this Agreement.
For purposes hereof, the net amount of Eligible Accounts at any time
shall be the face amount of such Eligible Accounts less any and all returns,
rebates, discounts (which if granted outside the ordinary course of business as
in effect on the Closing Date, may, at Agent's option, be calculated on shortest
terms), credits, allowances or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding or payable in connection
with such Accounts at such time, all as determined by Agent in the reasonable
exercise of its discretion.
* * *
Interest Coverage Ratio - with respect to any fiscal period, the ratio
of Borrower's (a) net income before interest, income tax expense, depreciation
expense, amortization expense, any gain or loss (in excess of $40,000 within the
immediately previous twelve month period) from the sale of assets outside the
ordinary course of business and any charge or expense to net income (in an
amount not to exceed $5,500,000 in total for fiscal year 1996 and beyond) in
respect to the restructuring of Borrower for or taken within such period to (b)
Borrower's interest expense for such period.
-2-
<PAGE>
* * *
Interest Rate Coverage Ratio - with respect to any fiscal period, the
ratio of Borrower's (a) net income before interest, income tax expense, any gain
or loss (in excess of $40,000 within the immediately previous twelve month
period) from the sale of assets outside the ordinary course of business and any
charge or expense to net income (in an amount not to exceed $5,500,000 in total
for fiscal year 1996 and beyond) in respect to the restructuring of Borrower for
or taken within such period to (b) Borrower's interest expense for such period.
* * *
Letter of Credit - a standby or commercial letter of credit at any time
issued by Agent or Bank for the account of Borrower."
* * *
3. Total Indebtedness and Capital Expenditures. Sections 9.2(C) and
9.2(L) of the Loan Agreement are hereby deleted and the following are inserted
in their stead:
"9.2. Negative Covenants. During the Term of this Agreement,
and thereafter for so long as there are any Obligations to Agent or any
Lender, Borrower covenants that, unless Required Lenders have first
consented thereto in writing, it will not:
* * *
(C) Total Indebtedness. Create, incur, assume, or suffer to exist, or
permit any Subsidiary to create, incur or suffer to exist, any Indebtedness,
except: (i) Obligations owing to Agent and Lenders: (ii) Indebtedness of any
Subsidiary to Borrower: (iii) accounts payable to trade creditors which are not
more than thirty (30) days past due and current operating expenses (other than
for Money Borrowed) which are not more than thirty (30) days past due, in each
case incurred in the ordinary course of business and paid within such time
period, unless the same are actively being contested in good faith and, if
appropriate, by lawful proceedings and the Borrower shall have set aside such
reserves, if any, with respect thereto as are required by GAAP and deemed
adequate by Borrower and, in respect to reserves contained on year-end
statements, its independent accountants: (iv) obligations to pay Rentals
permitted by Section 9.2(X): (v) Permitted Purchase Money Indebtedness: (vi)
contingent liabilities arising out of endorsements of checks and other
negotiable instruments for deposit or collection in the ordinary course of
business; (vii) Indebtedness to Agent, any Lender or any Affiliate of either
under any interest rate hedging, swap, cap or similar agreement between Borrower
and such Person: (viii) obligations under Capitalized Leases to the extent not
prohibited by any other section of this Section 9.2: (ix) Indebtedness for
deferred compensation owed by Borrower to its highly compensated
employees;(x)Indebtedness arising in connection with employee benefit plans
entered into or incurred in the ordinary course of business: (xi) Indebtedness
for Money Borrowed arising out of or in connection with the existing Industrial
Revenue Bonds secured by a Lien on Borrower's facility in Oshkosh, Wisconsin and
by certain Equipment of
-3-
<PAGE>
Borrower located in Oshkosh, Wisconsin and Borrower's Distribution Centers;
(xii) Indebtedness for deferred taxes; and (xiii) Indebtedness not included in
paragraphs (i) through (xii) above which does not exceed at any time, in the
aggregate, the sum of One Million Five Hundred Thousand Dollars ($1,500,000).
* * *
(L) Capital Expenditures. Make Capital Expenditures which, in the
aggregate, as to Borrower and its Subsidiaries, exceed, (i) during any fiscal
year of Borrower (other than fiscal year 1997) Five Million Dollars ($5,000,000)
or (ii) during fiscal year 1997 of' Borrower Six Million Dollars ($6,000,000)."
* * *
4. Specific Financial Covenants. Section 9.3(C) of the Loan Agreement
is hereby deleted and the following is inserted in its stead:
"9.3. Specific Financial Covenants. During the Term of this
Agreement, and thereafter for so long as there are any Obligations to
Agent or any Lender, Borrower covenants that, unless otherwise
consented to by Required Lenders in writing, it shall:
* * *
(C) Interest Coverage Ratio. Have at the end of each fiscal quarter of
Borrower within the Term hereof commencing with the fiscal quarter ending
September 30, 1994, an Interest Coverage Ratio for the twelve consecutive months
then ended equal to or greater than the Interest Coverage Ratio set forth
opposite such fiscal quarter in the following schedule:
Interest Coverage
Fiscal Quarter Ending Ratio
- --------------------- -----
Fiscal Quarters Ending on or
Prior to March 30, 1995 1.30 to 1
June 30, 1995 1.30 to 1
September 30, 1995 .90 to 1
December 31, 1995 1.00 to 1
March 31, 1996 .80 to 1
June 30, 1996 .95 to 1
September 30, 1996 1.60 to 1
December 31, 1996 2.20 to 1
March 31 1997 2.75 to 1
June 30,1997 and each
Fiscal Quarter thereafter 2.75 to l
-4-
<PAGE>
* * *
5. Notices. Section 13.10 (A) and (B) are hereby deleted and the
following are inserted in its stead:
(A) If to Agent: Fleet Capital Corporation
20800 Swenson Drive
Suite 350
Waukesha, Wisconsin 53186
Attention: Sandra Evans
Telecopier No.: (414) 798-4882
With a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601
Attention: John T. McEnroe
Telecopier No.: (312) 609-5005
(B) If to Borrower: Morgan Products Ltd.
469 McLaws Circle
Williamsburg, Virginia 23185
Attention: Vice President and
Chief Financial Officer
Telecopier No.: (757) 564-1714
With a copy to:
Winthrop, Stimson, Putnam & Roberts
Financial Centre
695 East Main Street
Post Office Box 6760
Stamford, CT 06904-8274
Attention: Frode Jensen
Telecopier No.: (203) 965-8226
6. Continuing Effect. Except as otherwise specifically set out herein,
the provisions of the Loan Agreement shall remain in full force and effect.
-5-
<PAGE>
IN WITNESS WHEREOF, this Eighth Amendment has been duly executed as of
the day and year specified at the beginning hereof.
MORGAN PRODUCTS LTD.
("Borrower")
By: /s/ Dawn E. Neuman
_________________________________________
Name: Dawn E. Neuman
Title: Treasurer, Assistant Secretary
FLEET CAPITAL CORPORATION
("Agent" and "Lender")
By: /s/ Sandra Evans
_________________________________________
Name: Sandra Evans
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
("Lender")
By: /s/ Lee A. Vandermyde
_________________________________________
Name:
Title:
BANK OF AMERICA ILLINOIS
("Lender")
By: /s/ Randolph T. Kohler
_________________________________________
Name: Randolph T. Kohler
Title: Senior Vice President
-6-
<PAGE>
EXHIBIT 10.52
THIRD AMENDMENT TO LEASE
This Third Amendment to Lease (hereinafter referred to as the "Third
Amendment") is made as of the 26th day of April, 1996 by and between Teachers
Retirement System of the State of Illinois (hereinafter referred to as the
"Lessor") and Morgan Distribution, a Division of Morgan Products, Ltd., a
Delaware corporation (hereinafter referred to as "Lessee").
RECITALS
A. Vantage Properties, Inc., a Texas corporation (hereinafter referred
to as the "Original Lessor") and Lessee entered into that certain Commercial
Lease Agreement (hereinafter referred to as the "Commercial Lease") dated as of
July 1,1987 as amended by First Amendment to Lease (hereinafter referred to as
the "First Amendment") dated as of December 29,1987 and further amended by
Second Amendment to Lease (hereinafter referred to as the "Second Amendment")
dated as of June 25, 1991 (the Commercial Lease, the First Amendment and Second
Amendment are hereinafter collectively referred to as the "Lease") for certain
space known as 1700 Downs Drive, Suite 200, West Chicago, Illinois (hereinafter
referred to as the "Leased Premises").
B. The Original Lessor has heretofore assigned its right, title and
interest in the Lease to Lessor. Lessor has received and is holding for the
benefit of Lessee a security deposit in the amount of $5,000.00 in accordance
with Section 3 (b) of the Lease. Lessee has paid all amounts heretofore coming
due under the Lease, and to the best of Lessor's knowledge, Lessee is in full
compliance with all terms of the Lease as of the date hereof.
C. Lessor and Lessee now desire to further amend the Lease and its
Amendments as more fully described herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. Recitals. The recitals set forth above are incorporated as
though fully contained herein.
2. Amendments. Effective April 1,1996 (hereinafter referred to as
the "Effective Date") the Lease shall be amended as follows:
A. Section 2 A and Revised Exhibit "A" of the Second Amendment is
amended by deleting "approximately "86,172" and substituting the original square
footage, "approximately 100,925" square feet in lieu thereof.
B. Section 2 B of the Second Amendment is deleted and the following is
inserted in lieu thereof:
The term of this Lease (hereinafter referred to as the "Term") shall
commence on April 1,1996 (hereinafter referred to as the "Commencement
Date") and shall terminate on December 31, 2001 (hereinafter referred
to as the "Termination Date").
<PAGE>
C. Section 2 C of the Second Amendment is deleted and the following is
inserted in lieu thereof:
Period Rate Monthly Rental Annual Rental
------ ---- -------------- -------------
04/01/96 - 12/31/96 $3.00 Triple Net $25,231.25 $302,775.00
01/01/97 - 12/31/97 $3.25 Triple Net $27,333.85 $328,006.25
01/01/98 - 12/31/99 $3.35 Triple Net $28,174.89 $338,098.68
01/01/00 - 12/31/00 $3.40 Triple Net $28,595.42 $343,145.00
01/01/01 - 12/31/01 $3.45 Triple Net $29,015.94 $348,191.25
D. Section 2 D of the Second Amendment is amended by deleting
"fifty-one and twenty-four one-hundredth percent (51.24%)" and inserting "sixty
percent (60%)" in lieu thereof.
E. Section 2 E of the Second Amendment is amended by deleting the
Lessor's address and inserting the following in lieu thereof: "Property &
Facility Management Group, L.L.C., 20 North Michigan Avenue - Suite 400,
Chicago, Illinois 60601".
F. Section(s) 2 F, 3, and 7 of the Second Amendment are deleted in
their entirety.
3. Lessor's Work. Lessor agrees to pay directly or reimburse Lessee for
a "tenant improvement allowance" of $25,000.00, less those items paid directly
by Lessor, within ten (10) days after receipt of an invoice and appropriate Lien
Waivers for such expenses from Lessee to cover the following work to be
performed in the Leased Premises:
a. $9,300.00 to repair the warehouse floor.
b. $11,000.00 to repair/replace unit heaters.
c. $1,500.00 to repair man doors.
d. $3,200.00 as a contingency for the above stated work.
Should the actual tenant improvements cost less than the $25,000.00 allocated,
Lessee may elect to allocate the unused portion of the allowance toward other
building improvements subject to Lessor's approval which shall not be
unreasonably withheld.
4. Agency. Capital Associates Realty Advisors ("Capital") is acting
solely as agent for Lessor in connection with the Lease. All of the terms,
provisions, stipulations, covenants and conditions to be performed by Lessor are
undertaken solely as said agent and not personally or individually by Capital.
No personal liability shall be asserted or enforced against Capital or any of
its employees, officers, directors, shareholders or agents by reason of any of
the terms, provisions, stipulations, covenants and conditions contained in the
Lease.
5. Exculpation. Without limitation of any other provision of this
Lease, this Lease is being executed by and on behalf of the Teachers' Retirement
System of the State of Illinois ("TRS"). Neither TRS nor any present or future
officer, director, employee, trustee, member or agent of TRS shall have any
personal liability, directly or indirectly, and recourse shall not be had
against TRS or any such officer, director, employee, trustee, member or agent,
under or in connection with this Lease or any other document or instrument
heretofore or hereafter executed in connection with same. Lessee hereby waives
-2-
<PAGE>
and releases any and all such personal liability and recourse. Lessee and its
successors and assigns and all other persons claiming by, through or under
Lessee shall look solely to Lessor's interest in the building of which the
premises is a part with respect to any claim against Lessor arising under or in
connection with this Lease or any other document or instrument heretofore or
hereafter executed in connection with this Lease. The limitation of liability
provided in this section are in addition to, and not in limitation of, any
limitations or liability otherwise set forth herein or applicable to TRS by law
or in any other contract, agreement or instrument.
6. Lessor Liability. Section 40 of the Lease is deleted in its
entirety.
7. Inconsistencies. Any inconsistencies between the Lease and this
Third Amendment shall be resolved in favor of this Third Amendment. Except as
modified herein, the Lease shall remain in full force and effect.
8. Governing Law. This Third Amendment shall be governed by and
construed under the laws of the State of Illinois.
IN WITNESS WHEREOF, this instrument has been duly executed by the
parties hereto, as of the day and year first written above.
LESSOR: LESSEE:
Teachers' Retirement System Morgan Distribution, a
of the State of Illinois by division of Morgan Products,
Capital Associates Realty Ltd., a Delaware corporation
Advisors, its Investment
Manager and Duly Authorized
Agent
By: By:
------------------------------ ------------------------------
Its: Its:
------------------------------ ------------------------------
-3-
<PAGE>
EXHIBIT 10.53
STATE OF SOUTH CAROLINA ) SECOND AMENDMENT TO AMENDED
) LEASE AGREEMENT
COUNTY OF LEXINGTON )
THIS AGREEMENT, made this 12th day of August, 1996, by and between
Columbia Three Associates, a Virginia limited partnership, 3871 Plaza Drive,
Fairfax, Virginia 22030 (hereinafter called "Landlord"), and MORGAN PRODUCTS
LTD., a Corporation existing under the laws of the State of Delaware, with a
principal place of business at 303 Mulberry Street, Mechanicsburg, PA 17055
(hereinafter called "Tenant").
W I T N E S S E T H:
WHEREAS, John R. Minchew and C-E Morgan, Inc. did on November 11, 1980
execute that certain Lease Agreement; and
WHEREAS, John R. Minchew and Tenant did on October 24, 1985 execute
that certain Amended Lease Agreement, which said agreement is attached hereto as
Exhibit"A"' and
WHEREAS, John R. Minchew and Tenant did on May 1, 1986 execute that
certain First Amendment To Amend Lease Agreement, which said agreement is
attached hereto as Exhibit "B"; and
WHEREAS, John R Minchew has heretofore conveyed his ownership interest
in the demised premises to Landlord; and
WHEREAS, Landlord and Tenant have mutually agreed to renegotiate
certain provisions of the Amended Lease Agreement (as previously amended by the
First Amendment to Amended Lease Agreement dated May 1, 1986) so as to provide,
inter alia, an extension of the terms of the aforesaid lease and an option to
reduce the square footage covered by the lease; and
WHEREAS, all parties are mutually desirous of accomplishing the
foregoing.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged each to the other, it is hereby
agreed that the said November 11, 1980 Lease Agreement, as amended by and
October 24, 1985 Amended Lease Agreement and the May 1, 1986 First Amendment To
Amended Lease Agreement, is further amended as follows to wit:
1. Any and all references to John R. Minchew as Landlord are
hereby deleted and the name of "Columbia Three Associates, a
Virginia limited partnership" shall be substituted therefore,
and, henceforth all references to Landlord shall be deemed to
mean Columbia Three Associates, a Virginia limited
partnership.
2. Paragraph 2 TERM is hereby revoked in its entirety and a new
paragraph with the same title is substituted in lieu thereof
which shall read as follows:
The term of this lease is five (5) years. This lease
shall commence as of April 1, 1996 and shall
terminate at 5:00 p.m., March 31, 2001, unless sooner
terminated as herein provided or extended pursuant to
the within renewal option.
<PAGE>
3. Paragraph 4 (a) Annual Base Rent is hereby revoked in its
entirety and a new subparagraph 4(a) with the same title is
substituted in lieu thereof which shall read as follows:
4(a) Annual Base Rent. Tenant agrees to pay as base
rent the sum of TWO HUNDRED THIRTY-TWO THOUSAND SIX
HUNDRED FORTY EIGHT AND NO/100 ($232,648.00) DOLLARS
payable in equal monthly installments of NINETEEN
THOUSAND THREE HUNDRED EIGHTY-SEVEN AND 33/100
($19,387.33) DOLLARS. Said rental shall be payable
monthly in advance commencing April 1, 1996 and shall
be due on the first day of each month.
4. Paragraph 4(b) Future Escalations is hereby revoked in its
entirety and a new subparagraph 4(b) with the same title is
substituted in lieu thereof which shall read as follows:
4(b) Future Escalations
(1) Commencing April 1, 1998 the base lease rate
shall escalate to $2.65 per square foot thereby
making the annual base rent the sum of TWO HUNDRED
THIRTY-SEVEN THOUSAND ONE HUNDRED TWENTY-TWO AND
NO/100 ($237,122.00) DOLLARS payable in equal monthly
installments of NINETEEN THOUSAND SEVEN HUNDRED SIXTY
AND 17/100 ($19,760.17) DOLLARS.
(2) Commencing April 1, 2001, provided the renewal
option contained herein is timely exercised, the base
lease rate shall escalate to $2.95 per square foot
thereby making the annual base rate the sum of TWO
HUNDRED SIXTY- THREE THOUSAND NINE HUNDRED SIXTY-SIX
AND NO/100 ($263,966.00) DOLLARS payable in equal
monthly installments of TWENTY ONE THOUSAND NINE
HUNDRED NINETY-SEVEN AND 17/100 ($21,997.17) DOLLARS.
(3) Commencing April 1, 2003, provided the renewal
option contained herein is timely exercised, the base
lease rate shall escalate to $3.00 per square foot
thereby making the annual base rent the sum of TWO
HUNDRED SIXTY- EIGHT THOUSAND FOUR HUNDRED FORTY AND
NO/100 ($268,440.00) DOLLARS payable in equal monthly
installments of TWENTY-TWO THOUSAND THREE HUNDRED
SEVENTY AND 00/100 ($22,370.00) DOLLARS.
5. Paragraph 26 currently entitled FIRST RIGHT OF REFUSAL is
hereby revoked in its entirety and a new paragraph 26 entitled
RENEWAL OPTIONS shall be inserted in lieu thereof as follows:
26 Provided the Tenant is not in default of any
material provision of this lease, or that the time to
cure such default has not expired, Landlord grants to
Tenant the following two (2) options to renew this
lease, on not less than one hundred eighty (180) days
written notice to Landlord prior to the expiration of
the then current term.
(a) The first renewal option shall be the right to
renew this lease for a period of two (2) years
commencing at the expiration of the first lease term,
upon the same
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<PAGE>
terms and conditions, except with respect to the
annual base rental rate as set forth in Paragraph
4(b).
(b) The second renewal option shall be the right to
renew this lease for a period of Three (3) years,
commencing at the expiration of the first renewal
option, at the annual base rental rate set forth in
Paragraph 4(b), but otherwise on the same terms and
conditions of this lease.
6. The November 1, 1982 Lease Agreement, as amended by the
October 23, 1985 Amended Lease Agreement and the May 1, 1986
First Amendment To Amended Lease Agreement is further amended
by adding thereto a new paragraph number 48 entitled
"Downsizing Option" which shall read as follows:
During the period April 1, 1996 through March 31,
1997, Landlord hereby grants to Tenant the right to
downsize the Demised Premises in the building in
which the Demised Premises form a part, by providing
sixty (60) days prior written notice from Tenant to
Landlord of its intent to vacate up to but in no
event exceeding 26,799 square feet of the Demised
Premises, provided that any and all space vacated
must be contiguous and in a configuration deemed
reasonably commercially acceptable by Landlord. In
the event Tenant exercises the downsizing option,
Tenant and Landlord shall execute a Lease amendment
providing, inter alia, the revised annual and monthly
base rent as calculated on the revised square
footage, that Landlord at its expense will build a
new demising wall in accordance with the then
existing building code and a determination based upon
a professional opinion obtained by Landlord whether
compressed air lines located in vacated space may be
safely capped and abandoned without interfering with
the future useability of the space (if the
determination is that removal is required such
removal shall be at the expense of Tenant and the
premises restored to its preexisting condition.)
7. Paragraph 34 Rail Service is hereby revoked in its entirety
and in lieu thereof a new paragraph 34 entitled Compliance
with Americans with Disabilities Act shall be inserted in lieu
thereof as follows:
If, as a result of the effectiveness of the Americans
With Disabilities Act, modifications or alterations
are required to be made to the Premises, the Landlord
agrees to make, at a Landlord's expense, such
modifications or alterations that are structural in
nature or affect the exterior of the Premises. The
Tenant agrees to make, at the Tenant's expense such
modifications or alterations that are non-structural
in nature and affect the interior of the Premises.
8. Paragraph 37 Notice is amended by deleting the words "John R.
Minchew, 3934 University Drive" and substituting in lieu
thereof the following "Attention: William H. Minchew, 3871
Plaza Drive."
9. That except as herein specifically amended by mutual consent
of the parties hereto; all of the terms and conditions of the
November 11, 1980 Lease Agreement, as previously amended by
the Amended Lease Agreement dated October 24, 1985 and the May
1, 1986 First Amendment to Amended Lease shall be and remain
unchanged and in full force and effect.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Second
Amendment to Amended Lease this 12th day of August, 1996.
WITNESSETH: LANDLORD:
Columbia Three Associates, a Virginia
limited partnership
By: (SEAL)
-------------------------------
Its managing general partner
TENANT:
Morgan Products LTD
By: (SEAL)
-------------------------------
Its:
Attest:
------------------------
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<PAGE>
EXHIBIT 10.54
LEASE
THIS LEASE is made and entered into this 30th day of October, 1996, by
and between WISCONSIN WAREHOUSING, LLC, a Wisconsin limited liability company,
hereinafter referred to as "LESSOR") and MORGAN PRODUCTS, LTD., a Delaware
corporation (hereinafter referred to as "LESSEE").
1. Description of Leased Premises. LESSOR hereby leases to LESSEE
approximately the east forty thousand (40,000) square feet of a commercial
building at 3600 Moser Street, Oshkosh, Wisconsin, as depicted on the floor plan
attached hereto and incorporated as Exhibit "A" of this Lease (the "Leased
Premises"). LESSOR expressly reserves the right to construct additional
buildings and improvements on the vacant land owned by LESSOR north of the
Leased Premises; provided that such construction does not have a material
adverse effect en LESSEE'S use and enjoyment of the Leased Premises. LESSEE
shall have the right to use jointly with LESSOR and any other tenants of LESSOR
any driveways, sidewalks, parking lots, common areas, rail facilities and other
common facilities serving the building in which the Leased Premises are located.
The legal description of the real estate on which the Leased Premises are
located is set forth in Exhibit "B" of this Lease.
2. Term. This Lease shall be for a term of three (3) years commencing
November 1, 1996 and ending October 31, 1999, unless sooner terminated as
hereinafter provided.
3. Rent. The annual rent for each year of this Lease shall be
Eighty-six Thousand Four Hundred Dollars ($86,400.00). The rent shall be payable
in equal monthly installments of Seven Thousand Two Hundred Dollars ($7,200.00),
payable on the first day of each month commencing November 1, 1996. The rent
shall be paid to LESSOR at the address set forth in this Lease, or at such other
address as LESSOR shall hereinafter designate in writing to LESSEE.
4. Shared Expenses. LESSEE'S share of any real estate taxes, special
assessments, insurance premiums or other expense of which LESSEE is required to
pay a proportionate share under any provision of this Lease shall be determined
by dividing the total number of square feet available for lease in the building
in which the Leased Premises are located by the number of square feet in the
Leased Premises. The parties agree that LESSEE'S proportionate share of such
expenses is currently fifty percent (50%). LESSEE shall pay LESSEE'S share of
such expenses within thirty (30) days of LESSEE'S receipt of a billing
therefore. In the event LESSOR elects to construct an additional building on the
vacant land owned by LESSOR and LESSOR or the tenants in such building also have
use of any driveways, parking lots, rail facilities or other common areas or
facilities, LESSEE'S share of the expenses related to such common areas or
facilities shall be equitably adjusted on the basis of relative usage. If the
parties are unable to agree on the amount of such adjustment, the adjustment
shall be determined by binding arbitration as provided in Paragraph 34 of this
Lease.
5. Late Charge. In the event LESSEE fails to pay the rent due hereunder
within ten (10) days of LESSEE'S receipt of written notice that such rent is
delinquent, or fails to pay any other amount due to LESSOR under this Lease when
it is due, LESSEE shall pay to LESSOR as additional rent, interest on such
delinquent amount at the rate of twelve percent (12%) per annum from the date on
which such amount was due to the date of payment.
<PAGE>
6. Assignment or Subletting. LESSEE shall not assign this Lease, or
sublet any portion of the Leased Premises, without the prior written consent of
LESSOR, which consent shall not be unreasonably withheld.
7. Alterations and Improvements by LESSEE. In the event LESSEE desires
to make any alterations or improvements to the Leased Premises, LESSEE shall
first submit the plans for such alterations or improvements to LESSOR for
written approval, which approval shall not be unreasonably withheld. Ml such
alterations and improvements shall be made at LESSEE'S expense in a good, safe
and workmanlike manner after LESSEE has obtained all necessary approvals and
permits from the applicable government authorities. All such alterations and
improvements shall, as of the expiration of the term, belong to LESSOR;
provided, however, LESSEE agrees that in the event there are any such
alterations, changes or improvements, LESSEE shall, upon notification of LESSOR
given at the time of approval, restore such alterations or such part thereof as
may be referred to in the notice, to the same condition as they were at the
beginning of the Lease at LESSEE'S cost and expense.
8. LESSEE'S Right to Remove Fixtures. LESSEE shall have the right to
remove from the Leased Premises all of LESSEE'S apparatus and equipment
installed therein, whether or not such apparatus and equipment be attached to
the real estate, provided that all such apparatus and equipment shall be removed
at the date of the termination of this Lease or any renewal thereof, and
provided further that LESSEE shall restore and repair any damage to the Leased
Premises caused by the removal of such apparatus and equipment, such restoration
and repairs to be accomplished in such a manner so that the restoration and
repair is not noticeable as such after completion thereof.
9. Real Estate Taxes and Special Assessments. LESSEE shall pay its
proportionate share of all general real estate taxes and special assessments
levied or assessed against the Leased Premises during tn to pay special
assessments shall be limited to the annual installments due thereon based upon
the longest payment period available to LESSOR. LESSEE'S proportionate share of
such real estate taxes and special assessments shall be computed as provided in
paragraph 4 of this Lease.
10. Personal Property Taxes. LESSEE shall pay any and all personal
property taxes levied or assessed against the equipment, improvements, inventory
and other personal property owned by or leased to LESSEE.
11. Signs. LESSEE shall have the right to erect appropriate signage
advertising the nature of LESSEE'S business. The plans for such signage shall be
submitted to LESSOR for approval, which approval shall not be unreasonably
withheld. Any signage shall be erected in compliance with all rules and
regulations concerning the same and such erection shall be conducted in a manner
so as not to unnecessarily damage the Leased Premises when such signage is
removed. Any damage caused by the removal of such signage shall be repaired by
LESSEE at LESSEE's expense.
12. Utilities. LESSEE shall pay all utility charges for the utilities
serving the Leased Premises, including without limitation, heat, gas, light,
electricity, sewer, and water. The cost for any utilities which are not
separately metered and serve both the Leased Premises and other portions of the
building in which the Leased Premises are located shall be prorated between
LESSEE and LESSOR based upon the agreement of the parties or the best estimate
of the utility company as to the actual usage of such utility by each of the
parties served.
13. Maintenance by LESSOR. LESSOR shall be responsible for the full
cost of any necessary maintenance, repair or replacement of the roof,
foundation, exterior walls and structural components of the building in which
the Leased Premises are located. Notwithstanding any other provision of this
Lease,
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<PAGE>
LESSOR shall not be responsible for any maintenance, repair or replacements
caused by the negligence or willful acts of LESSEE, or LESSEE's employees,
agents, contractors, permittees, customers, guests and invitees.
14. Maintenance by LESSEE. LESSEE shall keep the Leased Premises
reasonably clean, and upon the termination of this Lease, LESSEE shall return
the Leased Premises to LESSOR, in the same condition as at the commencement of
the term of this Lease, except for authorized alterations and improvements;
reasonable wear and tear and other loss, damage or injury caused by fire or
other casualty beyond the reasonable control or prevention of LESSEE. Except as
otherwise expressly provided in this Lease, LESSEE shall be responsible for the
full cost of the maintenance, repair and replacement of the interior and
exterior of the Leased Premises, including without limitation: the interior
walls and wall coverings; floor coverings; plumbing and fixtures; electrical
wiring and fixtures; heating, ventilating and air conditioning systems; windows
and doors (including glass breakage); loading dock and all mechanical equipment
serving the Leased Premises. LESSEE shall also be responsible for its
proportionate share of any necessary maintenance, repair or replacement of the
sidewalks, driveways, parking lots, common rail facilities, lawn, landscaping
and common area maintenance, including lawn maintenance and snow removal. LESSEE
shall also be responsible for any maintenance, repairs or replacements
necessitated as a result of the negligence or willful acts of LESSEE or LESSEE'S
employees, agents, contractors, permittees, customers, guests and invitees.
Notwithstanding anything contained herein to the contrary, LESSEE shall not be
responsible for any maintenance, repairs or replacements caused by the
negligence or willful acts of LESSOR or any other tenant, or their respective
employees, agents, contractors, permittees, customers, guests and invitees.
15. Use of Leased Premises. The Leased Premises shall be used solely
for the finishing and storage of LESSEE'S products, offices and related uses.
LESSEE shall comply with all state, local and federal laws and regulations
governing the conduct of LESSEE'S business and the possession, occupancy and use
of the Leased Premises. LESSEE shall also comply with reasonable regulations or
restrictions imposed by LESSOR or LESSOR'S insurance carrier. LESSEE shall keep
the Leased Premises free and clear of refuse, garbage and debris. All refuse
shall be sorted in accordance with applicable recycling and refuse collection
regulations, stored in appropriate containers out of public view and promptly
removed from the Leased Premises. LESSEE shall not conduct any illegal,
dangerous or hazardous activities on the Leased Premises. LESSEE shall not use,
store or dispose of any toxic, dangerous or hazardous materials of any kind on
the Leased Premises, without the prior written consent of LESSOR. LESSEE agrees
to comply wit all environmental rules and regulations, including regulations
related to the use, storage and disposal of any toxic, dangerous or hazardous
materials permitted by LESSOR.
16. Quiet Enjoyment. LESSOR warrants and represent to LESSEE that so
long as LESSEE pays the rent due hereunder and performs all its covenants and
agreements under this Lease, LESSEE shall have peaceable and quiet enjoyment of
the Leased Premises, and all rights, easements and privileges appurtenant
thereto, without interruption by LESSOR, the mortgagee of LESSOR, or any other
person, firm or corporation claiming under either LESSOR or the mortgagee of
LESSOR.
17. Right of Entry. LESSOR, or any agent of LESSOR, shall have the
right at any reasonable time to enter the Leased Premises for the purpose of
examination or for any purpose which LESSOR (or any agent of LESSOR) may deem
necessary for the protection of the rights of LESSOR, and to exhibit the Leased
Premises for the purpose of sale at reasonable times. In the event LESSEE elects
not to renew this Lease, LESSOR shall have the right to place signs on
conspicuous portions of the Leased Premises advertising the same for rental or
for sale during tended term of this Lease. LESSOR or LESSOR'S agent shall give
LESSEE reasonable notice of LESSOR'S intention to enter the Leased Premises,
except in emergency situations.
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<PAGE>
18. Insurance. LESSEE shall secure and maintain, during the term of
this Lease, and any renewal thereof, public liability insurance covering the
Leased Premises with an aggregate policy limit of not less than one million
dollars ($1,000,000.00). This policy shall name LESSOR as an additional insured
party
LESSOR shall secure and maintain, during the term of this Lease and any
renewal thereof, public liability insurance covering the building in which the
Leased Premises are located and the adjacent real estate owned by LESSOR with an
aggregate policy limit of not less than one million dollars ($1,000,000.00).
This policy shall name LESSEE as an additional insured party. LESSEE shall pay
its proportionate share of such insurance coverage, as provided in paragraph 4
of this Lease.
LESSOR shall secure and maintain during the term of this Lease, or any
renewal thereof, fire and extended peril insurance coverage insuring the
building and improvements owned by LESSOR for the full replacement cost thereof
LESSEE shall pay its proportionate share of the cost. of such insurance
coverage, as provided in paragraph 4 of this Lease.
LESSEE shall secure and maintain during the term of this Lease, and any
renewal thereof, fire and extended peril insurance coverage in a separate policy
for LESSEE'S inventory, equipment, trade fixtures, leasehold improvements and
other property.
All policies of insurance shall be issued by good and responsible
companies satisfactory to both parties. Each party shall, upon demand, provide
to the other party a certificate of insurance with respect to any insurance
coverage required to be maintained by such party. All certificates of insurance
shall be in a form acceptable to the party entitled to receive such certificate.
19. Indemnification and Hold Harmless. LESSEE agrees to indemnify and
hold LESSOR harmless from any and all liability for injuries to, or death of,
any persons and for loss or damage to any property, including all costs and
expenses incident thereto, arising from or in connection with LESSEE'S
installations, maintenance, repair or use of the Leased Premises or the
operation of LESSEE'S business. LESSEE shall also indemnify and hold LESSOR
harmless from any and all liability related to LESSEE'S use, storage or disposal
of any toxic, dangerous or hazardous materials of any kind on the leased
Premises. LESSEE'S obligations under this paragraph shall include, without
limitation, all fines, forfeitures, penalties, site investigation costs,
remediation plan development costs, remediation or clean-up expenses, attorney's
fees, consultant fees and other expenses incurred by LESSOR in responding to,
defending or complying with any requirement imposed upon LESSOR in any action or
proceeding brought against LESSOR. LESSEE accepts the condition of the Leased
Premises and building in which the Leased Premises are located as of the date of
the commencement of this Lease. LESSOR shall not be liable to LESSEE for any
damage done or occasioned by problems with the plumbing, electrical wiring,
heating, air conditioning, sprinkling, sewer, gas, water, steam or other
mechanical components of the Leased Premises. LESSOR shall not be liable to
LESSEE for any damage done or occasioned by bursting of pipes or the build-up of
water, snow, ice or acts of God.
20. Mutual Waiver of Subrogation. The parties agree to cause any and
all fire, extended coverage or other hazard insurance policies which may be
carried by either party to include a waiver of subrogation endorsement, unless
the party securing such insurance notifies the other party in writing that such
endorsement is unavailable. Each party hereby expressly waives all claims for
recovery from the other party for any loss or damage to its property insured
under valid and collectable insurance policies to the extent of any recovery
collectable under such insurance. This waiver of subrogation shall not be
enforced if it will invalidate or impair the coverage under any policy.
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<PAGE>
21. Condemnation. If at any time during the original term of this
Lease, or any renewal term, there shall arise or occur any condition or
restriction of any kind or nature (including the taking of part or all of the
Leased Premises or part or all of the streets, alleys or ways now available for
ingress and egress thereto by condemnation proceedings or by right of eminent
domain), which would substantially prevent or interfere with LESSEE's use of the
Leased Premises for the purpose of carrying on its business thereon, then in
such event LESSEE shall have the right, at its option, to immediately cancel and
terminate this Lease by written notice to LESSOR and LESSEE shall thereupon be
relieved of all obligations and liabilities hereunder.
If only a part of the Leased Premises are taken by condemnation
proceedings or by right of eminent domain and LESSEE shall be able to conduct
its business operations on the remaining portion thereof and shall so notify
LESSOR in writing within ten (10) days after the taking, then the rent to be
paid hereunder shall be adjusted so that LESSEE shall pay only that portion of
the whole amount thereof that is represented by the worth or value of the
remaining property as compared with the worth or value of the property rent
shall be agreed upon in writing between the parties within thirty (30) days
after the taking.
If the parties cannot agree upon such proportionate rental for the
remaining portion of the Leased Premises within said time, then the parties
agree that such proportionate rental shall be determined as provided in
paragraph 34 of this Lease.
LESSOR shall be exclusively entitled to any award made as a result of
the condemnation proceedings or the exercise of the right of eminent domain,
except payments for the fixtures, leasehold improvements or other property of
LESSEE and relocation benefits payable to LESSEE under applicable law.
22. Destruction of the Leased Premises. In the event the Leased
Premises are totally destroyed by fire or other casualty, the LESSOR may, at
LESSOR'S option, terminate this Lease, or LESSOR may rebuild the building
situated on the Leased Premises and the rent shall abate between the time of the
destruction and the time the building is rebuilt and the Leased Premises are
ready for Occupancy, or in the event of a partial destruction of the Leased
Premises by fire or other casualty, LESSOR, at LESSOR'S option, may terminate
this Lease or rebuild and repair the Leased Premises, and in such case the rent
shall proportionately abate during the time between such partial destruction and
repair or rebuilding thereof, provided, that in the events aforesaid, the
options allowed to LESSOR shall be exercised within thirty (30) days after the
event giving rise thereto.
23. Defaults. In the event that any one or more of the following events
shall occur and be continuing, to-wit:
(a) LESSEE shall be in arrears in the payment of the rent for a period
of ten (10) days after written notice thereof; or
(b) LESSEE shall fail or neglect to do or perform or observe any of the
other covenants contained herein on its part to be kept and performed
and such failure or neglect shall continue for a period of not less
than thirty (30) days after LESSOR has notified LESSEE in writing of
such failure or neglect and LESSEE has failed to cure same within said
thirty (30) days or made satisfactory provisions to cure same in
respect to any covenant which cannot be cured within said thirty (30)
days; or
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<PAGE>
(c) If the interest of LESSEE in this Lease shall be levied on under
execution or other legal process, and unless such execution or legal
process shall within thirty (30) days from the date of levy be
nullified or otherwise rendered ineffective, or if any assignment of
LESSEE'S property shall be made for the benefit of creditors, or if
LESSEE shall abandon or vacate said premises; or
(d) If any proceedings shall be commenced by or against LESSEE for any
relief which includes, or might result in, any modification of the
obligations of LESSEE hereunder under any bankruptcy or insolvency law,
or law relating to the relief of debts, readjustments of indebtedness,
reorganizations, arrangements, compositions or extensions, under
bankruptcy or insolvency law, (unless such proceedings shall within
thirty (30) days from the filing or effective date thereof be
dismissed, nullified, stayed or otherwise rendered ineffective, but
then only so long as such stay shall continue in force or such
ineffectiveness shall continue), and all the obligations of the LESSEE
under this Lease shall not have been duly assumed in writing, pursuant
to a court order or decree, by a trustee or trustees or receiver or
receivers appointed for the LESSEE (or for its property in connection
with any such proceeding) in such a manner that such obligations shall
have the same status as obligations incurred by such trustee or
trustees or receiver or receivers, within thirty (30) days after such
appointment, if any, or sixty (60) days after such proceedings shall
have been commenced, whichever shall be earlier; or
(e) If LESSEE shall fail to secure or maintain any insurance coverage
required by this Lease and such failure or neglect shall continue for a
period of not less than forty-eight (48) hours after LESSOR has
notified LESSEE in writing of such failure or neglect.
LESSOR may treat the occurrence of any one or more of the foregoing
events as a breach of this Lease and thereupon, at its option, may, without
notice of demand of any kind to LESSEE or any other person, have any one or more
of the remedies hereinafter set forth.
24. Remedies of LESSOR. Upon a breach of this Lease by LESSEE as
hereinbefore provided:
(a) LESSOR may terminate this Lease and the term created hereby, in
which event LESSOR may forthwith repossess the Leased Premises and be
entitled forthwith to recover as damages a sum of money equal to the
value of the remaining rent under this Lease, to be determined on the
basis of the rent theretofore paid or payable, less the fair rental
value of the Leased Premises for said period, and any other sum of
money and damages owed by LESSEE to LESSOR; or
(b) LESSOR may terminate LESSEE'S right of possession and may repossess
the Leased Premises, without demand or notice of any kind to LESSEE and
without terminating this Lease, in which event LESSOR shall make
reasonable efforts to re-let the same for the account of LESSEE for
such rent and upon such terms as shall be reasonably satisfactory to
LESSOR; and, if LESSOR shall fail to re-let the Leased Premises, or if
the Leased Premises are re-let and a sufficient sum shall not be
realized from such re-letting, after paying all of the costs and
expenses of such re-letting and of the collection of the rent accruing
therefrom to satisfy the rent above provided to be paid, then LESSEE
shall pay to LESSOR as damages a sum equal to the amount of the rental
reserved in this Lease for such period or periods, or, if the Leased
Premises have been re-let, LESSEE shall satisfy and pay any such
deficiency upon demand therefor, from time to time, and LESSEE agrees
that LESSOR may file suit to recover any sums falling due under the
terms of this paragraph from time to time and that no suit or recovery
of any portion due LESSOR hereunder shall be in defense to any
subsequent action brought for any amount not theretofore reduced to
judgment in favor of LESSOR.
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<PAGE>
LESSEE will pay, in addition to the rent and other charges to be paid
by LESSEE, LESSOR'S reasonable attorney's fees in a suit or action instituted by
LESSOR to enforce the provisions of the Lease or the collection of sums due
LESSOR hereunder.
25. Defaults by LESSOR. In the event LESSOR breaches any of the terms
or provisions of this Lease and LESSOR has not cured such breach within thirty
(30) days after LESSOR'S receipt of written notice thereof, or made arrangements
to cure any breach which could not reasonably be cured within said period,
LESSEE shall have the right to cure such default on behalf of LESSOR and to
recover the reasonable cost thereof from LESSOR or offset such cost against
future rents payable hereunder.
26. Peaceable Vacation. Upon the termination of this Lease and the term
created hereby, or upon the termination of LESSEE'S right of possession, whether
by lapse of time or at the election of LESSOR or LESSEE as aforesaid, LESSEE
will at once peaceably vacate the Leased Premises and surrender possession of
same to LESSOR. If the termination is by lapse of time, LESSEE shall remove
LESSEE'S trade fixtures and personal property prior to the date of termination.
In the event termination is for a reason other than lapse of time, LESSEE shall
have a reasonable time to remove such fixtures and personal property and restore
the Leased Premises to the condition in which they were originally delivered to
LESSEE, ordinary wear and tear as well as other loss, damage or injury caused by
fire or other casualty beyond the reasonable control or prevention of LESSEE
excepted. LESSEE shall pay prorated rent based upon the amount payable prior to
such termination until the removal and restoration is completed by LESSEE. If
LESSEE shall fail hereinbefore provided, LESSEE'S right to do so shall, at the
option of the LESSOR, cease and LESSEE'S title thereto shall revert and the same
shall belong to LESSOR; or LESSOR shall have the right to remove such property
at the expense of LESSEE without any liability or damage thereto and LESSEE
shall thereupon promptly reimburse LESSOR for all reasonable expenses incurred
by LESSOR in doing so.
27. Holding Over. In the event LESSEE shall continue to occupy the
Leased Premises after the original term of this Lease, or any extension thereof,
such occupancy shall be deemed to create a tenancy at will and shall in no event
be presumed to be a renewal of this Lease. LESSEE shall, in such event, be
obligated to continue to pay rent in an amount ten percent (10%) greater than
the rent in effect immediately prior to the expiration of this Lease. During
such tenancy at will, if LESSEE desires to vacate, LESSEE shall be required to
give notice in accordance with the laws of the State of Wisconsin.
28. Subordination. This Lease is, and shall be, without further act by
LESSOR or LESSEE, subordinate to any mortgage or mortgages now or hereafter
placed upon the Leased Premises by LESSOR and to all advances made or to be made
thereunder, and to any renewals, modifications and extensions thereof, provided
that LESSOR'S mortgagee agrees in a form reasonably satisfactory to LESSEE that
LESSEE'S occupancy of the Leased Premises shall not be disturbed by the exercise
of such mortgagee's rights under the mortgage or mortgages. It is expressly
understood and agreed that no further instruments shall be required to effect
the subordination provided herein. LESSEE shall, however, upon request, execute
such documents as may be required by LESSOR'S mortgagee.
29. Waivers of Breach. No waiver of any breach of this Lease shall be
implied from any omission by LESSEE or LESSOR to take any action on account of
such breach, and no express waiver shall affect any breach or default other than
the breach or default specified in the express waiver and then only for the time
and to the extent stated. No receipt of money by LESSOR from LESSEE after any
breach or default by LESSEE, or after the termination of this Lease, whether by
lapse of time or after the commencement of any suit, or after final judgment for
possession of the Leased Premises, shall waive such breach or default or
reinstate, continue or extend the term of this Lease or affect it any way and
such notice or suit, as the case may be.
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<PAGE>
30. LESSOR'S and LESSEE'S Rights are Cumulative. No remedy herein, or
otherwise conferred upon or reserved by either party, shall be exclusive of any
other remedy, but the same shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing; every power and
remedy given to either party hereunder may be exercised from time to time and as
often as occasion may arise. No delay or omission on the part of either party in
the exercise of any right hereunder shall impair any such right or power or
shall be construed as a waiver thereof.
31. Mechanic's Liens. Except as hereinafter provided, LESSEE shall not
permit any mechanic's liens or other liens to be placed upon the Leased Premises
or any building or improvement thereon during the term of this Lease or any
renewal thereof and in case of the filing of any such lien, LESSEE will promptly
pay the same. If default in payment thereof shall continue for thirty (30) days
after written notice thereof from LESSOR to LESSEE, LESSOR shall have the right,
at LESSOR'S option, of paying the same or any portion thereof without inquiry as
to the validity thereof, and any amounts so paid, including expenses and
interest, shall be so much additional indebtedness hereunder due from LESSEE to
LESSOR and shall be repaid to LESSOR immediately on rendition of bill therefor.
Notwithstanding the foregoing, in the event of any mechanic's lien or
liens being filed or placed against said Leased Premises and LESSEE desires to
contest the validity of the amount thereof or otherwise question the same,
LESSEE may do so, and in lieu of paying the same shall cause to be executed and
delivered to LESSOR a good and sufficient bond guaranteeing the payment thereof
in the event such contest or questioning of such lien or liens by LESSEE is
unsuccessful.
32. Notices. All notices, demands, statements, elections, options and
other instruments required or permitted to be given or made by either party upon
the other by the terms of this Lease or any statute shall be in writing and
shall be deemed to have been sufficiently served three (3) days after the date
of mailing if sent by certified or registered mail with proper postage prepaid
to the LESSOR and to the LESSEE at the following addresses or at such other
address as either party may hereafter designate in writing to the other party:
LESSOR: Wisconsin Warehousing, LLC
3040 W. Wisconsin Avenue
Appleton, WI 54914
LESSEE: Morgan Products, Ltd.
601 Oregon Street
P.O. Box 2446
Oshkosh, WI 54903-2446
33. LESSOR'S Right to Perform. If LESSEE refuses and neglects to make
repairs or maintain the Leased Premises properly as required hereunder, and to
the reasonable satisfaction of LESSOR, and as soon as reasonably possible after
written demand, LESSOR may undertake such repairs without liability for any loss
or damage to LESSEE'S merchandise, fixtures, business or other property by
reason thereof, and upon completion thereof, LESSEE shall be obligated to pay
LESSOR the cost of making such repairs, upon presentation of a bill therefor, as
additional rent.
34. Dispute Resolution. The following provision shall apply to any
dispute between the parties regarding the interpretation, operation or
enforcement of this Lease.
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<PAGE>
(a) Confidentiality. The terms of this Lease and any information
relating to this Lease are confidential and private. Each party agrees
to maintain the confidentiality and privacy of, and not to disclose,
any information set forth in this Lease.
(b) Disputes. Any dispute arising with respect to this Lease, or the
making or validity thereof, or its interpretation, or any breach
thereof, shall be determined and settled by arbitration in the city of
Appleton, Wisconsin, pursuant to the rules then existing of the
American Arbitration Association, which shall be the sole and exclusive
remedy for such disputes, except as otherwise provided herein. The
attorney's fees and costs incurred by the prevailing party in the
arbitration and enforcement thereof, at the trial and appellate level,
shall be paid by the losing party. Any award rendered shall be final
and conclusive upon the parties and a judgement thereon may be entered
in any court having jurisdiction. Nothing contained herein shall limit
the right of a party to request or obtain judicial assistance in the
enforcement of any remedy hereunder, including eviction, specific
performance or injunctive relief.
35. Miscellaneous. The parties shall also be subject to the following
miscellaneous terms and conditions:
(a) Authority. Each person executing this Lease on behalf of a party
warrants and represents that he/she has been duly authorized to execute
this Lease by the party on whose behalf he/she is executing this Lease
and that this Lease will be enforceable against such party in
accordance with its terms.
(b) Saving. The invalidity or unenforceability of any provision of this
Lease shall not affect or impair the validity of any other provision.
(c) General Provisions. Nothing contained in this Lease shall be deemed
or construed by the parties hereto or by any third party to create the
relationship of principal and agent, or of partnership, or of joint
venture, or of any association whatsoever between LESSOR and LESSEE, it
being expressly understood and agreed that neither the method of
computation of rent, nor any other provision contained in this Lease,
nor any act of the parties hereto, shall be deemed to create any
relationship between the parties other than the relationship of LESSOR
and LESSEE.
(d) Paragraph Headings. The paragraph titles contained in this Lease
are for convenience only and do not define, limit or construe the
contents of such paragraph.
(e) Successors and Assigns. The term of this Lease shall extend to and
be binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
(f) Short Form Lease. At the request of either patty, a short form
lease will be prepared and executed by both parties for recording
purposes, which will not vary any of the terms or provisions of this
Lease.
(g) Time of the Essence. Time is of the essence with respect to all
time periods specified in this Lease.
(h) Law Governing. This Lease shall be governed by, and construed in
accordance with, the laws of the State of Wisconsin.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be executed
the day and year first written above.
LESSOR:
WISCONSIN WAREHOUSING, LLC.:
By: /s/ Harold Schiferl(SEAL)
__________________
Harold Schiferl, Managing Member
LESSEE:
MORGAN PRODUCTS, LTD:
By: /s/ Peter Smith(SEAL)
_______________
Peter Smith, Executive Vice President/
General Manager
STATE OF WISCONSIN )
)
WINNEBAGO COUNTY )
Personally came before me this 30th day October, 1996, above named
Harold Schiferl, Managing Member, of Wisconsin Warehousing, LLC, a Wisconsin
limited liability company, LESSOR, to me known to be the person who executed the
foregoing indenture of Lease.
/s/ Ginny Bosley
________________
Notary Public, State of Wisconsin
My commission expires: 7-11-99
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<PAGE>
STATE OF WISCONSIN )
)
WINNEBAGO COUNTY )
Personally came before me this 28th day of October, 1996, above named
Peter Smith, Executive Vice President/General Manager of Morgan Products, Ltd.,
a Delaware Corporation, LESSEE, to me known to be the person who executed the
foregoing indenture of Lease.
/s/ Barbara T. Knaus
____________________
Notary Public, State of Wisconsin
My commission expires: 12/19/99
This document was drafted by RUSSELL J. REFF, Attorney at Law.
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<PAGE>
[Drawing of Site Plan]
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<PAGE>
EXHIBIT "B"
LEGAL DESCRIPTION
That part of the North West 1/4 of the North East 1/4 of Section 1 - T18N -
R16E, in the Fifteenth Ward, City of Oshkosh, Winnebago County, Wisconsin,
described as follows, viz:-
Commencing at the North Quarter comer of said Section; thence south 0 degrees 2
minutes 44 seconds east, along the West line of said North West 1/4 of the North
East 1/4, 947.25 feet; thence north 89 degrees 27 minutes 7 seconds east 300.00
feet; thence northeasterly 491.01 feet, along the arc of a curve to the left,
having a radius of 477.67 feet and a chord of which bears north 59 degrees 59
minutes 28 seconds east, 469.66 feet; thence south 89 degrees 47 minutes 23
seconds east 54.66 feet, to the Westerly right of way line of the Soo Line
Railroad Company; thence northeasterly, 457.21 feet along the arc of a curve to
the right, being the Westerly right of way line of the Railroad Company, having
a radius of 2897.79 feet and a chord of which bears north 8 degrees 37 minutes
43 seconds east, 456.73 feet, to the Southeasterly corner of tract of land
heretofore conveyed by Deed recorded as Document No.516490; thence north 89
degrees 59 minutes 30 seconds west, along the South line of said tract of land
heretofore conveyed, as aforementioned, 467.02 feet, thence north 0 degrees 2
minutes 44 seconds west, along the West line of tract of land heretofore
conveyed, as aforementioned, 258.00 feet, to the North line of said Section;
thence north 89 degrees 59 minutes 30 seconds west, along the North line of said
Section, 363.40 feet to the place of beginning, excepting therefrom the North
500.00 feet thereof.
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<PAGE>
EXHIBIT 10.55
LEASE
THIS LEASE is made and entered into this 30th day of October, 1996, by
and between WISCONSIN WAREHOUSING, LLC, a Wisconsin limited liability company,
hereinafter referred to as "LESSOR") and MORGAN PRODUCTS, LTD., a Delaware
corporation (hereinafter referred to as "LESSEE").
1. Description of Leased Premises. LESSOR hereby leases to LESSEE
approximately the west forty thousand (40,000) square feet of a commercial
building at 3600 Moser Street, Oshkosh, Wisconsin, as depicted on the floor plan
attached hereto and incorporated as Exhibit "A" of this Lease (the "Leased
Premises"). LESSOR expressly reserves the right to construct additional
buildings and improvements on the vacant land owned by LESSOR north of the
Leased Premises; provided that such construction does not have a material
adverse effect on LESSEE'S use and enjoyment of the Leased Premises. LESSEE
shall have the right to use jointly with LESSOR and any other tenants of LESSOR
any driveways, sidewalks, parking lots, common areas, rail facilities and other
common facilities serving the building in which the Leased Premises are located.
The legal description of the real estate on which the Leased Premises are
located is set forth in Exhibit "B" of this Lease.
2. Term. This Lease shall be for a term of three (3) years commencing
November 1, 1996 and ending October 31, 1999, unless sooner terminated as
hereinafter provided. LESSEE shall, however, have the right to terminate this
Lease at any time after October 31, 1997 upon ninety (90) days' written notice
to LESSOR.
3. Rent. The annual rent for each year of this Lease shall be
Eighty-six Thousand Four Hundred Dollars ($86,400.00). The rent shall be payable
in equal monthly installments of Seven Thousand Two Hundred Dollars ($7,200.00),
payable on the first day of each month commencing November 1, 1996. The rent
shall be paid to LESSOR at the address set forth in this Lease, or at such other
address as LESSOR shall hereinafter designate in writing to LESSEE.
4. Shared Expenses. LESSEE'S share of any real estate taxes, special
assessments, insurance premiums or other expense of which LESSEE is required to
pay a proportionate share under any provision of this Lease shall be determined
by dividing the total number of square feet available for lease in the building
in which the teased Premises are located by the number of square feet in the
Leased Premises. The parties agree that LESSEE'S proportionate share of such
expenses is currently fifty percent (50%). LESSEE shall pay LESSEE'S share of
such expenses within thirty (30) days of LESSEE'S receipt of a billing
therefore. In the event LESSOR elects to construct an additional building on the
vacant land owned by LESSOR and LESSOR or the tenants in such building also have
use of any driveways, parking lots, rail facilities or other common areas or
facilities, LESSEE'S share of the expenses related to such common areas or
facilities shall be equitably adjusted on the basis of relative usage. If the
parties are unable to agree on the amount of such adjustment, the adjustment
shall be determined by binding arbitration as provided in Paragraph 34 of this
Lease.
5. Late Charge. In the event LESSEE fails to pay the rent due
hereunder within ten (10) days of LESSEE'S receipt of written notice that such
rent is delinquent, or fails to pay any other amount due to LESSOR under this
Lease when it is due, LESSEE shall pay to LESSOR as additional rent, interest
<PAGE>
on such delinquent amount at the rate of twelve percent (12%) per annum from the
date on which such amount was due to the date of payment.
6. Assignment or Subletting. LESSEE shall not assign this Lease, or
sublet any portion of the Leased Premises, without the prior written consent of
LESSOR, which consent shall not be unreasonably withheld.
7. Alterations and Improvements by LESSEE. In the event LESSEE desires
to make any alterations or improvements to the Leased Premises, LESSEE shall
first submit the plans for such alterations or improvements to LESSOR for
written approval, which approval shall not be unreasonably withheld. All such
alterations and improvements shall be made at LESSEE'S expense in a good, safe
and workmanlike manner after LESSEE has obtained all necessary approvals and
permits from the applicable government authorities. All such alterations and
improvements shall, as of the expiration of the term, belong to LESSOR;
provided, however, LESSEE agrees that in the event there are any such
alterations, changes or improvements, LESSEE shall, upon notification of LESSOR
given at the time of approval, restore such alterations or such part thereof as
may be referred to in the notice, to the same condition as they were at the
beginning of the Lease at LESSEE'S cost and expense.
8. LESSEE'S Right to Remove Fixtures. LESSEE shall have the right to
remove from the Leased Premises all of LESSEE'S apparatus and equipment
installed therein, whether or not such apparatus and equipment be attached to
the real estate, provided that all such apparatus and equipment shall be removed
at the date of the termination of this Lease or any renewal thereof, and
provided further that LESSEE shall restore and repair any damage to the Leased
Premises caused by the removal of such apparatus and equipment, such restoration
and repairs to be accomplished in such a manner so that the restoration and
repair is not noticeable as such after completion thereof.
9. Real Estate Taxes and Special Assessments. LESSEE shall pay its
proportionate share of all general real estate taxes and special assessments
levied or assessed against the Leased Premises during on to pay special
assessments shall be limited to the annual installments due thereon based upon
the longest payment period available to LESSOR. LESSEE'S proportionate share of
such real estate taxes and special assessments shall be computed as provided in
paragraph 4 of this Lease.
10. Personal Property Taxes. LESSEE shall pay any and all personal
property taxes levied or assessed against the equipment, improvements, inventory
and other personal property owned by or leased to LESSEE.
11. Signs. LESSEE shall have the right to erect appropriate signage
advertising the nature of LESSEE'S business. The plans for such signage shall be
submitted to LESSOR for approval, which approval shall not be unreasonably
withheld. Any signage shall be erected in compliance with all rules and
regulations concerning the same and such erection shall be conducted in a manner
so as not to unnecessarily damage the Leased Premises when such signage is
removed. Any damage caused by the removal of such signage shall be repaired by
LESSEE at LESSEE's expense.
12. Utilities. LESSEE shall pay all utility charges for the utilities
serving the Leased Premises, including without limitation, heat, gas, light,
electricity, sewer, and water. The cost for any utilities which are not
separately metered and serve both the Leased Premises and other portions of the
building in which the Leased Premises are located shall be prorated between
LESSEE and LESSOR based upon the agreement of the parties or the best estimate
of the utility company as to the actual usage of such utility by each of the
parties served.
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<PAGE>
13. Maintenance by LESSOR. LESSOR shall be responsible for the full
cost of any necessary maintenance, repair or replacement of the roof,
foundation, exterior walls and structural components of the building in which
the Leased Premises are located. Notwithstanding any other provision of this
Lease, LESSOR shall not be responsible for any maintenance, repair or
replacements caused by the negligence or willful acts of LESSEE, or LESSEE'S
employees, agents, contractors, permittees, customers, guests and invitees.
14. Maintenance by LESSEE. LESSEE shall keep the Leased Premises
reasonably clean, and upon the termination of this Lease, LESSEE shall return
the Leased Premises to LESSOR, in the same condition as at the commencement of
the term of this Lease, except for authorized alterations and improvements;
reasonable wear and tear and other loss, damage or injury caused by fire or
other casualty beyond the reasonable control or prevention of LESSEE. Except as
otherwise expressly provided in this Lease, LESSEE shall be responsible for the
full cost of the maintenance, repair and replacement of the interior and
exterior of the Leased Premises, including without limitation: the interior
walls and wall coverings; floor coverings; plumbing and fixtures; electrical
wiring and fixtures; heating, ventilating and air conditioning systems; windows
and doors (including glass breakage); loading dock and all mechanical equipment
serving the Leased Premises. LESSEE shall also be responsible for its
proportionate share of any necessary maintenance, repair or replacement of the
sidewalks, driveways, parking lots, common rail facilities, lawn, landscaping
and common area maintenance, including lawn maintenance and snow removal. LESSEE
shall also be responsible for any maintenance, repairs or replacements
necessitated as a result of the negligence or willful acts of LESSEE or LESSEE'S
employees, agents, contractors, permittees, customers, guests and invitees.
Notwithstanding anything contained herein to the contrary, LESSEE shall not be
responsible for any maintenance, repairs or replacements caused by the
negligence or willful acts of LESSOR or any other tenant, or their respective
employees, agents, contractors, permittees, customers, guests and invitees.
15. Use of Leased Premises. The Leased Premises shall be used solely
for the finishing and storage of LESSEE'S products, offices and related uses.
LESSEE shall comply with all state, local and federal laws and regulations
governing the conduct of LESSEE'S business and the possession, occupancy and use
of the Leased Premises. LESSEE shall also comply with reasonable regulations or
restrictions imposed by LESSOR or LESSOR'S insurance carrier. LESSEE shall keep
the Leased Premises free and clear of refuse, garbage and debris. All refuse
shall be sorted in accordance with applicable recycling and refuse collection
regulations, stored in appropriate containers out of public view and promptly
removed from the Leased Premises. LESSEE shall not conduct any illegal,
dangerous or hazardous activities on the Leased Premises. LESSEE shall not use,
store or dispose of any toxic, dangerous or hazardous materials of any kind on
the Leased Premises, without the prior written consent of LESSOR. LESSEE agrees
to comply with all environmental rules and regulations, including regulations
related to the use, storage and disposal of any toxic, dangerous or hazardous
materials permitted by LESSOR.
16. Quiet Environment. LESSOR warrants and represent to LESSEE that so
long as LESSEE pays the rent due hereunder and performs all its covenants and
agreements under this Lease, LESSEE shall have peaceable and quiet enjoyment of
the Leased Premises, and all rights, easements and privileges appurtenant
thereto, without interruption by LESSOR, the mortgagee of LESSOR, or any other
person, firm or corporation claiming under either LESSOR or the mortgagee of
LESSOR.
17. Right of Entry. LESSOR, or any agent of LESSOR, shall have the
right at any reasonable time to enter the Leased Premises for the purpose of
examination or for any purpose which LESSOR (or any agent of LESSOR) may deem
necessary for the protection of the rights of LESSOR, and to exhibit the Leased
Premises for the purpose of sale at reasonable times. In the event LESSEE elects
not to renew this Lease, LESSOR shall have the right to place signs on
conspicuous portions of the Leased Premises
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<PAGE>
advertising the same for rental or for sale during the last ninety (90) days of
the original or extended term of this Lease. LESSOR or LESSOR'S agent shall give
LESSEE reasonable notice of LESSOR'S intention to enter the Leased Premises,
except in emergency situations.
18. Insurance. LESSEE shall secure and maintain liability insurance
covering the Leased Premises with an aggregate policy limit of not less than one
million dollars ($1,000,000.00). This policy shall name LESSOR as an additional
insured party.
LESSOR shall secure and maintain, during the term of this Lease and any
renewal thereof, public liability insurance covering the building in which the
Leased Premises are located and the adjacent real estate owned by LESSOR with an
aggregate policy limit of not less than one million dollars ($1,000,000.00).
This policy shall name LESSEE as an additional insured party. LESSEE shall pay
its proportionate share of such insurance coverage, as provided in paragraph 4
of this Lease.
LESSOR shall secure and maintain during the term of this Lease, or any
renewal thereof, fire and extended peril insurance coverage insuring the
building and improvements owned by LESSOR for the full replacement cost thereof.
LESSEE shall pay its proportionate share of the cost of such insurance coverage,
as provided in paragraph 4 of this Lease.
LESSEE shall secure and maintain during the term of this Lease, and any
renewal thereof, fire and extended peril insurance coverage in a separate policy
for LESSEE'S inventory, equipment, trade fixtures, leasehold improvements and
other property.
All policies of insurance shall be issued by good and responsible
companies satisfactory to both parties. Each party shall, upon demand, provide
to the other party a certificate of insurance with respect to any insurance
coverage required to be maintained by such party. All certificates of insurance
shall be in a form acceptable to the party entitled to receive such certificate.
19. Indemnification and Hold Harmless. LESSEE agrees to indemnify and
hold LESSOR harmless from any and all liability for injuries to, or death of,
any persons and for loss or damage to any property, including all costs and
expenses incident thereto, arising from or in connection with LESSEE'S
installations, maintenance, repair or use of the Leased Premises or the
operation of Lessee's business. LESSEE shall also indemnify and hold LESSOR
harmless from any and all liability related to LESSEE'S use, storage or disposal
of any toxic, dangerous or hazardous materials of any kind on the Leased
Premises. LESSEE'S obligations under this paragraph shall include, without
limitation, all fines, forfeitures, penalties, site investigation costs,
remediation plan development costs, remediation or clean-up expenses, attorney's
fees, consultant fees and other expenses incurred by LESSOR in responding to,
defending or complying with any requirement imposed upon LESSOR in any action or
proceeding brought against LESSOR. LESSEE accepts the condition of the Leased
Premises and building in which the Leased Premises are located as of the date of
the commencement of this Lease. LESSOR shall not be liable to LESSEE for any
damage done or occasioned by problems with the plumbing, electrical wiring,
heating, air conditioning, sprinkling, sewer, gas, water, steam or other
mechanical components of the Leased Premises. LESSOR shall not be liable to
LESSEE for any damage done or occasioned by bursting of pipes or the build-up of
water, snow, ice or acts of God.
20. Mutual Waiver of Subrogation. The parties agree to cause any and
all fire, extended coverage or other hazard insurance policies which may be
carried by either party to include a waiver of subrogation endorsement, unless
the parry securing such insurance notifies the other party in writing that such
endorsement is unavailable. Each party hereby expressly waives all claims for
recovery from the other party for any loss or damage to its property insured
under valid and collectable insurance policies
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<PAGE>
to the extent of any recovery collectible under such insurance. This waiver of
subrogation shall not be enforced if it will invalidate or impair the coverage
under any policy.
21. Condemnation. If at any time during the original term of this
Lease, or any renewal term, there shall arise or occur any condition or
restriction of any kind or nature (including the taking of part or all of the
Leased Premises or part or all of the streets, alleys or ways now available for
ingress and egress thereto by condemnation proceedings or by right of eminent
domain), which would substantially prevent or interfere with LESSEE's use of the
Leased Premises for the purpose of carrying on its business thereon, then in
such event LESSEE shall have the right, at its option, to immediately cancel and
terminate this Lease by written notice to LESSOR and LESSEE shall thereupon be
relieved of all obligations and liabilities hereunder.
If only a part of the Leased Premises are taken by condemnation
proceedings or by right of eminent domain and LESSEE shall be able to conduct
its business operations on the remaining portion thereof and shall so notify
LESSOR in writing within ten (10) days after the taking, then the rent to be
paid hereunder shall be adjusted so that LESSEE shall pay only that portion of
the whole amount thereof that is represented by the worth or value of the
remaining property as compared with the worth or value of the property rent
shall be agreed upon in writing between the parties within thirty (30) days
after the taking.
If the parties cannot agree upon such proportionate rental for the
remaining portion of the Leased Premises within said time, then the parties
agree that such proportionate rental shall be determined as provided in
paragraph 34 of this Lease.
LESSOR shall be exclusively entitled to any award made as a result of
the condemnation proceedings or the exercise of the right of eminent domain,
except payments for the fixtures, leasehold improvements or other property of
LESSEE and relocation benefits payable to LESSEE under applicable law.
22. Destruction of the Leased Premises. In the event the Leased
Premises are totally destroyed by fire or other casualty, the LESSOR may, at
LESSOR'S option, terminate this Lease, or LESSOR may rebuild the building
situated on the Leased Premises and the rent shall abate between the time of the
destruction and the time the building is rebuilt and the Leased Premises are
ready for occupancy, or in the event of a partial destruction of the Leased
Premises by fire or other casualty, LESSOR, at LESSOR'S option, may terminate
this Lease or rebuild and repair the Leased Premises, and in such case the rent
shall proportionately abate during the time between such partial destruction and
repair or rebuilding thereof; provided, that in the events aforesaid, the
options allowed to LESSOR shall be exercised within thirty (30) days after the
event giving rise thereto.
23. Defaults. In the event that any one or more of the following events
shall occur and be continuing, to-wit:
(a) LESSEE shall be in arrears in the payment of the rent for a period
of ten (10) days after written notice thereof, or
(b) LESSEE shall fall or neglect to do or perform or observe any of the
other covenants contained herein on its part to be kept and performed
and such failure or neglect shall continue for a period of not less
than thirty (30) days after LESSOR has notified LESSEE in writing of
such failure or neglect and LESSEE has failed to cure same within said
thirty (30) days or made
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<PAGE>
satisfactory provisions to cure same in respect to any covenant which
cannot be cured within said thirty (30) days; or
(c) If the interest of LESSEE in this Lease shall be levied on under
execution or other legal process, and unless such execution or legal
process shall within thirty (30) days from the date of levy be
nullified or otherwise rendered ineffective, or if any assignment of
LESSEE'S property shall be made for the benefit of creditors, or if
LESSEE shall abandon or vacate said premises; on
(d) If any proceedings shall be commenced by or against LESSEE for any
relief which includes, or might result in, any modification of the
obligations of LESSEE hereunder under any bankruptcy or insolvency law,
or law relating to the relief of debts, readjustments of indebtedness,
reorganizations, arrangements, compositions or extensions, under
bankruptcy or insolvency law, (unless such proceedings shall within
thirty (30) days from the filing or effective date thereof be
dismissed, nullified, stayed or otherwise rendered ineffective, but
then only so long as such stay shall continue in force or such
ineffectiveness shall continue), and all the obligations of the LESSEE
under this Lease shall not have been duly assumed in writing, pursuant
to a court order or decree, by a trustee or trustees or receiver or
receivers appointed for the LESSEE (or for its property in connection
with any such proceeding) in such a manner that such obligations shall
have the same status as obligations incurred by such trustee or
trustees or receiver or receivers, within thirty (30) days after such
appointment, if any, or sixty (60) days after such proceedings shall
have been commenced, whichever shall be earlier; or
(e) If LESSEE shall fail to secure or maintain any insurance coverage
required by this Lease and such failure or neglect shall continue for a
period of not less than forty-eight (48) hours after LESSOR has
notified LESSEE in writing of such failure or neglect.
LESSOR may treat the occurrence of any one or more of the foregoing
events as a breach of this Lease and thereupon, at its option, may, without
notice of demand of any kind to LESSEE or any other person, have any one or more
of the remedies hereinafter set forth.
24. Remedies of LESSOR. Upon a breach of this Lease by LESSEE as
hereinbefore provided:
(a) LESSOR may terminate this Lease and the term created hereby, in
which event LESSOR may forthwith repossess the Leased Premises and be
entitled forthwith to recover as damages a sum of money equal to the
value of the remaining rent under this Lease, to be determined on the
basis of the rent theretofore paid or payable, less the fair rental
value of the Leased Premises for said period, and any other sum of
money and damages owed by LESSEE to LESSOR; or
(b) LESSOR may terminate LESSEE'S right of possession and may repossess
the Leased Premises, without demand or notice of any kind to LESSEE and
without terminating this Lease, in which event LESSOR shall make
reasonable efforts to re-let the same for the account of LESSEE for
such rent and upon such terms as shall be reasonably satisfactory to
LESSOR; and, if LESSOR shall fail to re-let the Leased Premises, or if
the Leased Premises are re-let and a sufficient sum shall not be
realized from such re-letting, after paying all of the costs and
expenses of such re-letting and of the collection of the rent accruing
therefrom to satisfy the rent above provided to be paid, then LESSEE
shall pay to LESSOR as damages a sum equal to the amount of the rental
reserved in this Lease for such period or periods, or, if the Leased
Premises have been re-let, LESSEE shall satisfy and pay any such
deficiency upon demand therefor, from time to time, and LESSEE agrees
that LESSOR may file suit to recover any sums falling due under
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the terms of this paragraph from time to time and that no suit or
recovery of any portion due LESSOR hereunder shall be in defense to any
subsequent action brought for any amount not theretofore reduced to
judgment in favor of LESSOR.
LESSEE will pay, in addition to the rent and other charges to be paid
by LESSEE, LESSOR'S reasonable attorney's fees in a suit or action instituted by
LESSOR to enforce the provisions of the Lease or the collection of sums due
LESSOR hereunder.
25. Defaults by LESSOR. In the event LESSOR breaches any of the terms
or provisions of this Lease and LESSOR has not cured such breach within thirty
(30) days after LESSOR'S receipt of written notice thereof, or made arrangements
to cure any breach which could not reasonably be cured within said period,
LESSEE shall have the right to cure such default on behalf of LESSOR and to
recover the reasonable cost thereof from LESSOR or offset such cost against
future rents payable hereunder.
26. Peaceable Vacation. Upon the termination of this Lease and the term
created hereby, or upon the termination of LESSEE'S right of possession, whether
by lapse of time or at the election of LESSOR or LESSEE as aforesaid, LESSEE
will at once peaceably vacate the Leased Premises and surrender possession of
same to LESSOR. If the termination is by lapse of time, LESSEE shall remove
LESSEE'S trade fixtures and personal property prior to the date of termination.
In the event termination is for a reason other than lapse of time, LESSEE shall
have a reasonable time to remove such fixtures and personal property and restore
the Leased Premises to the condition in which they were originally delivered to
LESSEE, ordinary wear and tear as well as other loss, damage or injury caused by
fire or other casualty beyond the reasonable control or prevention of LESSEE
excepted. LESSEE shall pay prorated rent based upon the amount payable prior to
such termination until the removal and restoration is completed by LESSEE. If
LESSEE shall fail hereinbefore provided, LESSEE'S right to do so shall, at the
option of the LESSOR, cease and LESSEE'S title thereto shall revert and the same
shall belong to LESSOR; or LESSOR shall have the right to remove such property
at the expense of LESSEE without any liability or damage thereto and LESSEE
shall thereupon promptly reimburse LESSOR for all reasonable expenses incurred
by LESSOR in doing so.
27. Holding Over. In the event LESSEE shall continue to occupy the
Leased Premises after the original term of this Lease, or any extension thereof,
such occupancy shall be deemed to create a tenancy at will and shall in no event
be presumed to be a renewal of this Lease. LESSEE shall, in such event, be
obligated to continue to pay rent in an amount ten percent (10%) greater than
the rent in effect immediately prior to the expiration of this Lease. During
such tenancy at will, if LESSEE desires to vacate, LESSEE shall be required to
give notice in accordance with the laws of the State of Wisconsin.
28. Subordination. This Lease is, and shall be, without further act by
LESSOR or LESSEE, subordinate to any mortgage or mortgages now or hereafter
placed upon the Leased Premises by LESSOR and to all advances made or to be made
thereunder, and to any renewals, modifications and extensions thereof, provided
that LESSOR'S mortgagee agrees in a form reasonably satisfactory to LESSEE that
LESSEE'S occupancy of the Leased Premises shall not be disturbed by the exercise
of such mortgagee's rights under the mortgage or mortgages. It is expressly
understood and agreed that no further instruments shall be required to effect
the subordination provided herein. LESSEE shall, however, upon request, execute
such documents as may be required by LESSOR'S mortgagee.
29. Waivers of Breach. No waiver of any breach of this Lease shall be
implied from any omission by LESSEE or LESSOR to take any action on account of
such breach, and no express waiver shall affect any breach or default other than
the breach or default specified in the express waiver and then only for the time
and to the extent stated. No receipt of money by LESSOR from LESSEE after any
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breach or default by LESSEE, or after the termination of this Lease, whether by
lapse of time or after the commencement of any suit, or after final judgment for
possession of the Leased Premises, shall waive such breach or default or
reinstate, continue or extend the term of this Lease or affect it any way and
such notice or suit, as the case may be.
30. LESSOR'S and LESSEE'S Rights are Cumulative. No remedy herein, or
otherwise conferred upon or reserved by either party, shall be exclusive of any
other remedy, but the same shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing; every power and
remedy given to either party hereunder may be exercised from time to time and as
often as occasion may arise. No delay or omission on the part of either parry in
the exercise of any right hereunder shall impair any such right or power or
shall be construed as a waiver thereof.
31. Mechanic's Liens. Except as hereinafter provided, LESSEE shall not
permit any mechanic's liens or other liens to be placed upon the Leased Premises
or any building or improvement thereon during the term of this Lease or any
renewal thereof and in case of the filing of any such lien, LESSEE will promptly
pay the same. If default in payment thereof shall continue for thirty (30) days
after written notice thereof from LESSOR to LESSEE, LESSOR shall have the right,
at LESSOR'S option, of paying the same or any portion thereof without inquiry as
to the validity thereof, and any amounts so paid, including expenses and
interest, shall be so much additional indebtedness hereunder due from LESSEE to
LESSOR and shall be repaid to LESSOR immediately on rendition of bill therefor.
Notwithstanding the foregoing, in the event of any mechanic's lien or
liens being filed or placed against said Leased Premises and LESSEE desires to
contest the validity of the amount thereof or otherwise question the same,
LESSEE may do so, and in lieu of paying the same shall cause to be executed and
delivered to LESSOR a good and sufficient bond guaranteeing the payment thereof
in the event such contest or questioning of such lien or liens by LESSEE is
unsuccessful.
32. Notices. All notices, demands, statements, elections, options and
other instruments required or permitted to be given or made by either party upon
the other by the terms of this Lease or any statute shall be in writing and
shall be deemed to have been sufficiently served three (3) days after the date
of mailing if sent by certified or registered mail with proper postage prepaid
to the LESSOR and to the LESSEE at the following addresses or at such other
address as either party may hereafter designate in writing to the other party:
LESSOR: Wisconsin Warehousing, LLC
3040 W. Wisconsin Avenue
Appleton, WI 54914
LESSEE: Morgan Products, Ltd.
601 Oregon Street
P.O. Box 2446
Oshkosh, WI 54903-2446
33. LESSOR'S Right to Perform. If LESSEE refuses and neglects to make
repairs or maintain the Leased Premises properly as required hereunder, and to
the reasonable satisfaction of LESSOR, and as soon as reasonably possible after
written demand, LESSOR may undertake such repairs without liability for any loss
or damage to LESSEE'S merchandise, fixtures, business or other property by
reason thereof, and upon completion thereof, LESSEE shall be obligated to pay
LESSOR the cost of making such repairs, upon presentation of a bill therefor, as
additional rent.
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34. Dispute Resolution. The following provision shall apply to any
dispute between the parties regarding the interpretation, operation or
enforcement of this Lease.
(a) Confidentiality. The terms of this Lease and any information
relating to this Lease are confidential and private. Each party agrees
to maintain the confidentiality and privacy of, and not to disclose,
any information set forth in this Lease.
(b) Disputes. Any dispute arising with respect to this Lease, or the
making or validity thereof, or its interpretation, or any breach
thereof; shall be determined and settled by arbitration in the city of
Appleton, Wisconsin, pursuant to the rules then existing of the
American Arbitration Association, which shall be the sole and exclusive
remedy for such disputes, except as otherwise provided herein. The
attorney's fees and costs incurred by the prevailing party in the
arbitration and enforcement thereof, at the trial and appellate level,
shall be paid by the losing party. Any award rendered shall be final
and conclusive upon the parties and a judgment thereon may be entered
in any court having jurisdiction. Nothing contained herein shall limit
the right of a party to request or obtain judicial assistance in the
enforcement of any remedy hereunder, including eviction, specific
performance or injunctive relief.
35. Miscellaneous. The parties shall also be subject to the following
miscellaneous terms and conditions:
(a) Authority. Each person executing this Lease on behalf of a party
warrants and represents that he/she has been duly authorized to execute
this Lease by the party on whose behalf he/she is executing this Lease
and that this Lease will be enforceable against such party in
accordance with its terms.
(b) Saving. The invalidity or unenforceability of any provision of this
Lease shall not affect or impair the validity of any other provision.
(c) General Provisions. Nothing contained in this Lease shall be deemed
or construed by the parties hereto or by any third party to create the
relationship of principal and agent, or of partnership, or of joint
venture, or of any association whatsoever between LESSOR and LESSEE, it
being expressly understood and agreed that neither the method of
computation of rent, nor any other provision contained in this Lease,
nor any act of the parties hereto, shall be deemed to create any
relationship between the parties other than the relationship of LESSOR
and LESSEE.
(d) Paragraph Headings. The paragraph titles contained in this Lease
are for convenience only and do not define, limit or construe the
contents of such paragraph.
(e) Successors and Assigns. The term of this Lease shall extend to and
be binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
(f) Short Form Lease. At the request of either party, a short form
lease will be prepared and executed by both parties for recording
purposes, which will not vary any of the terms or provisions of this
Lease.
(g) Time of the Essence. Time is of the essence with respect to all
time periods specified in this Lease.
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<PAGE>
(h) Law Governing. This Lease shall be governed by, and construed in
accordance with, the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the parties have caused this Lease to be executed
the day and year first written above.
LESSOR:
WISCONSIN WAREHOUSING, LLC.:
By: /s/ Harold Schiferl(SEAL)
__________________
Harold Schiferl, Managing Member
LESSEE:
MORGAN PRODUCTS, LTD:
By: /s/ Peter Smith(SEAL)
_______________
Peter Smith, Executive Vice
President/General Manager
STATE OF WISCONSIN )
)
WINNEBAGO COUNTY )
Personally came before me this 30th day of October, 1996, above named
Harold Schiferl, Managing Member, of Wisconsin Warehousing, LLC, a Wisconsin
limited liability company, LESSOR, to me known to be the person who executed the
foregoing indenture of Lease.
/s/ Ginny Bosley
________________
Notary Public, State of Wisconsin
My commission expires: 7-11-99
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STATE OF WISCONSIN )
)
WINNEBAGO COUNTY )
Personally came before me this 28th day of October, 1996, above named
Peter Smith, Executive Vice President/General Manager of Morgan Products, Ltd, a
Delaware Corporation, LESSEE, to me known to be the person who executed the
foregoing indenture of Lease.
/s/ Barbara T. Knaus
____________________
Notary Public, State of Wisconsin
My commission expires: 12/19/99
This document was drafted by
RUSSELL J. REFF, Attorney at Law
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[Drawing of Site Plan]
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EXHIBIT "B"
LEGAL DESCRIPTION
That part of the North West 1/4 of the North East 1/4 of Section 1 - T18N -
R16E, in the Fifteenth Ward, City of Oshkosh, Winnebago County, Wisconsin,
described as follows, viz:-
Commencing at the North Quarter corner of said Section; thence south 0 degrees 2
minutes 44 seconds east, along the West line of said North West 1/4 of the North
East 1/4, 947.25 feet; thence north 89 degrees 27 minutes 7 seconds east, 300.00
feet; thence northeasterly 491.01 feet, along the arc of a curve to the left,
having a radius of 477.67 feet and a chord of which bears north 59 degrees 59
minutes 28 seconds east, 469.66 feet; thence south 89 degrees 47 minutes 23
seconds east, 54.66 feet, to the Westerly right of way line of the Soo Line
Railroad Company; thence northeasterly, 457.21 feet, along the arc of a curve to
the right, being the Westerly right of way line of the Railroad Company, having
a radius of 2897.79 feet and a chord of which bears north 8 degrees 37 minutes
43 seconds east, 456.73 feet, to the Southeasterly comer of tract of land
heretofore conveyed by Deed recorded as Document No.516490; thence north 89
degrees 59 minutes 30 seconds west, along the South line of said tract of land
heretofore conveyed, as aforementioned, 467.02 feet, thence north 0 degrees 2
minutes 44 seconds west, along the West line of tract of land heretofore
conveyed, as aforementioned, 258.00 feet, to the North line of said Section;
thence north 89 degrees 59 minutes 30 seconds west, along the North line of said
Section, 363.40 feet, to the place of beginning, excepting therefrom the North
500.00 feet thereof.
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EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Forward Looking Statements
Various statements made within this Management's Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this
Annual Report to Stockholders constitute "forward looking statements" for
purposes of the Securities and Exchange Commission's "safe harbor" provisions
under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under
the Exchange Act. Investors are cautioned that all forward looking statements
involve risks and uncertainties, including those detailed in the Company's
filings with the Securities and Exchange Commission. There can be no assurance
that actual results will not differ from the Company's expectations. Factors
which could cause materially different results include, among others, the
success of consolidation of manufacturing operations; changes in relationships
with important suppliers and key customers; the pace of acquisitions;
fluctuations in the price of raw materials; and competitive and general economic
conditions, such as housing starts.
Results of Operations
Year Ended December 31, 1996 vs. Year Ended December 31, 1995
The Company's net sales for 1996 were $373.3 million, representing an
increase of 10.4% from 1995 sales of $338.0 million. The increase in net sales
was primarily the result of the 6.5% increase in the sales of distributed
products and the acquisition of Tennessee Building Products ("TBP"). Sales of
manufactured products in 1996 decreased by .5% as a consequence of the
disruption caused by the consolidation of the Lexington, North Carolina
operations into the Oshkosh, Wisconsin facility and the late delivery of the new
high-speed door assembly line. Reflecting the temporary lack of capacity, the
backlog of orders for manufactured products at December 31, 1996 was 47.7%
greater than at December 31, 1995. Management believes that the sales increase
for distributed products is a reflection of market share gains, as well as the
high level of single family housing starts. Single family starts were 10.1%
higher in 1996 than the average for the 1991-1995 five-year period.
The Company reported net income of $.3 million or $.03 per share for
1996 compared to a net loss of $2.6 million or $.30 per share for 1995, on
average shares outstanding of 8,829,622 and 8,643,941 respectively. Included in
the 1996 results was a restructuring charge of $4.7 million to cover the cost of
closing the Lexington, North Carolina facility and consolidating operations into
Oshkosh, Wisconsin ($.53 per share). See Restructuring of Operations below.
Excluding the $4.7 million restructuring charge for 1996, the Company
had income of $5.0 million. The $7.6 million improvement in income from 1995,
before the restructuring charge, reflects the higher sales volume, improved
gross profit margin, and the acquisition of Tennessee Building Products.
The gross profit increase of $8.0 million from 1995 to 1996 was
primarily the result of the aforementioned increase in sales at the distribution
division and the acquisition of Tennessee Building Products. 1996 manufacturing
division gross margins were reduced by a $.9 million inventory shortage created
by factors associated with the plant consolidation and the pressures to
adequately service customer needs. These negative factors were more than offset
by lower material and overhead costs. The Company's gross profit as a percentage
of net sales rose from 14.0% in 1995 to 14.8% in 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
Operating expenses for 1996 were $52.2 million, or 14.0% of net sales,
compared to 1995 operating expenses of $46.7 million, or 13.8% of net sales.
Excluding the restructuring charge, 1996 expenses were $47.5 million or 12.7% of
net sales. The increase in operating expenses, which was due to the acquisition
of Tennessee Building Products and higher bonus and profit sharing costs, was
partially offset by the closing of the Lexington facility and lower costs for
salaries, fringe benefits, employee relocation, travel, entertainment, sales
promotion, and advertising costs.
Interest and other non-operating expenses were unchanged from 1995 at
$3.3 million, representing .9% of net sales in 1996 and 1.0% of net sales in
1995. The 1996 interest expense was favorably impacted by the capitalization of
$.4 million of interest costs associated with the new high-speed door
manufacturing line. Higher debt levels in 1996 were mostly offset by lower
interest rates.
The provision for income taxes in both 1996 and 1995 relates
principally to the recording of state taxes. In 1996 and 1995, the state tax
provision was offset fully and partially, respectively, by the recognition of a
tax benefit related to the amendment of prior year federal tax returns. See Note
10 to Consolidated Financial Statements.
Year Ended December 31, 1995 vs. Year Ended December 31, 1994
The Company's net sales for 1995 were $338.0 million, representing a
decrease of 5.7% from 1994 net sales of $358.4 million. The reduction in net
sales resulted from a 9.4% drop in the sales of manufactured products and a 4.0%
decline in the sales of distributed products. Management believes that the sales
declines were a reflection of the overall weakness in the residential
construction and repair and remodeling markets, including the attendant
competitive pressures on pricing and margins. Lower wood costs also contributed
to a rollback in unit selling prices.
The Company reported a net loss of $2.6 million or $.30 per share for
1995 compared to a net loss of $9.4 million or $1.10 per share for 1994, on
average shares outstanding of 8,643,941 and 8,549,159 respectively. Included in
the 1994 results was a net restructuring charge of $11.3 million ($1.32 per
share) to cover the cost of closing the Springfield, Oregon plant, the Weed,
California veneer operation and to provide for other cost reductions and
consolidation within Morgan Products.
Excluding the $11.3 million restructuring charge for 1994, the Company
had net income of $1.9 million. The $4.5 million decrease in net income from
1994, before the restructuring charge, reflected lower gross profit partially
offset by lower operating expenses.
The gross profit decrease of $4.9 million from 1994 to 1995 was
primarily the result of the aforementioned decrease in sales at both the
manufacturing and distribution divisions. A $.5 million inventory shortage
reflecting management problems, which have been corrected, at the Virginia
distribution center, under absorption of fixed overhead, material substitutions
at the manufacturing facilities, and declining sales prices depressed the gross
margins at both divisions from 1994 levels. The Company's gross profit as a
percentage of net sales receded from 14.6% in 1994 to 14.0% in 1995.
Operating expenses for 1995 were $46.7 million, or 13.8% of net sales,
compared to 1994 operating expenses of $58.3 million, or 16.3% of net sales.
Excluding the restructuring charge, 1994 operating expenses were $47.0 million,
or 13.1% of net sales. The $.3 million decrease in 1995 from
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
1994 (excluding the restructuring charge) was achieved despite $1.1 million
greater spending for advertising and sales promotion and $.7 million to recruit
and relocate a new management team.
Interest expense and other non-operating income were unchanged from
1994 at $3.3 million, representing 1.0% of sales in 1995 and .9% of net sales in
1994. Higher debt levels in 1995 were offset by lower borrowing rates.
The provision for income taxes in both 1995 and 1994 relates
principally to the recording of state taxes. There was no provision for federal
taxes in either period given the Company's net operating loss position. However,
in 1995, the state tax provision was partially offset by the recognition of a
tax benefit related to the amendment of prior year federal tax returns. See Note
10 to Consolidated Financial Statements.
Significant Business Trends/Uncertainties
Management believes that housing starts have a significant influence on
the Company's level of business activity. Currently available industry data
suggests that housing starts for single family dwellings improved in 1996 over
1995, particularly in the Midwest region. F.W. Dodge has reported that single
family housing starts were 8% higher than in 1995 for the U.S. as a whole and
total residential construction activity in the Midwest, where the Company has a
significant percentage of its sales, was 16% higher. No assurances can be given,
however, that this improvement will continue, or that single family housing
starts will not decline.
Management also believes that the Company's ability to continue to
penetrate the residential repair and remodeling markets through sales to home
center chains may have a significant influence on the Company's level of
business activity. Management believes this market will continue to grow in
importance to the Company. Sales to these customers as a percentage of total
sales decreased from 27.8% in 1995 to 25.5% in 1996 on a $1.1 million, or 1.2%,
increase in dollar volume. Management further believes that in certain areas of
the United States, sales by distributors directly to the end-user may over time
replace, as the primary channel of distribution, the distribution method of
selling to the retail dealer, who then sells to the end-user. The company
intends to respond aggressively to such changes in distribution methods,
including, where opportunities permit, through the acquisition of distribution
businesses that sell directly to the end-user.
In the past, raw material prices have fluctuated substantially for pine
and fir lumber. Fir prices at 1996 year-end remained at record high levels,
while pine lumber prices, after having declined by 18.5% during 1995, increased
26.2% from the 1995 year-end price. As a result, the Company continues its
efforts to expand the utilization, where appropriate, of engineered materials in
wood door components and to switch to alternate wood species. In addition, the
Company has established new offshore sources of raw material. Management
believes that these actions, together with aggressive pricing increases where
competitive factors allow, will partially offset the impact of the high cost of
raw material.
In order to expand its capacity to meet anticipated demand and to
reduce its costs of production, the Company is installing a new high-speed door
assembly line at its Oshkosh facility. Delivery and installation of the new line
was completed during the first quarter of 1997. The high-speed door assembly
line is operational and in the process of fine-tuning and increasing
optimization. A performance shortfall
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
could have a detrimental impact, both on the short-term profitability of the
Company and on its long-term ability to service and retain key customers.
Lead-times for standard items rose from three weeks to eight weeks after the
cessation of operations in Lexington, North Carolina. Lead-times on certain
special items were significantly longer. Management believes that the efficient
operation of the high-speed door assembly line is critical to reducing
lead-times to acceptable levels and satisfying customers.
An important part of the Company's strategic plan is to expand its
distribution capabilities, particularly in the Southeast and Southwest, or in
other areas, if attractive opportunities are presented. In August 1996, the
Company acquired substantially all of the business and assets of Tennessee
Building Products, a regional millwork and specialty building products
distributor and light manufacturer headquartered in Nashville, Tennessee. With
the TBP acquisition, the Company expanded its operations to include Nashville
and Chattanooga, Tennessee; Charlotte, North Carolina; Greenville, South
Carolina; and Huntsville, Alabama.
Recently, Andersen Corporation ("Andersen") decided to sell its
FibrexTM window systems through Renewal by AndersenSM retail stores which are
aimed at the replacement window buyer. These retail stores, will be devoted
exclusively to the promotion and sale of FibrexTM window systems, with the
stores being established in various areas throughout the country and principally
owned and operated by independent distributors. Andersen has designated the
Company to open one of the first such stores in Overland Park, Kansas. FibrexTM
is a proprietary material developed by Andersen that is made of a composite of
wood fibers and vinyl and is considered to be superior in certain
characteristics to pure vinyl core window systems. In the event the Kansas
location is successful, the Company and Andersen may consider establishing
additional stores.
As the final major element of its strategic initiatives, the Company is
committed to improving its management information systems. A new Company-wide
integrated management information system has been selected and is in the process
of implementation. The Company has approved a total capital expenditure of $3.4
million for the new management information system project, which will be
financed through a combination of capital leases and borrowings under the
Company's revolving line of credit. Upon completion of this project, the Company
will have achieved significant progress in meeting its goal of being the
industry leader in customer-friendly order processing and fulfillment systems,
as well as having contributed to substantial internal cost savings.
Liquidity and Capital Resources
The Company's working capital requirements are related to its sales
level, which, because of its dependency upon housing starts and the repair and
remodeling market, is seasonal and, to a degree, weather dependent. This
seasonality affects the need for working capital inasmuch as it is necessary to
carry larger inventories and receivables during certain months of the year.
Working capital at December 31, 1996 was $77.1 million, with a ratio of
current assets to current liabilities of 3.5 to 1.0, while at December 31, 1995
working capital was $58.7 million, with a current ratio of 3.8 to 1.0. The
increase in working capital was primarily a result of the acquisition of
Tennessee Building Products and higher accounts receivable and inventories due
to the elevated sales level and a temporary increase in manufacturing inventory
during the consolidation of manufacturing operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
Long-term debt, net of cash, increased to $47.4 million at December 31,
1996 from $30.4 million at December 31, 1995. The Company's ratio of long-term
debt, net of cash, to total capitalization increased from 36.6% at December 31,
1995 to 43.3% at December 31, 1996. This increase was primarily due to
additional borrowing required for the aforementioned increase in working capital
and to partially finance the acquisition of Tennessee Building Products. The
increase in this ratio was partially offset by the proceeds received from the
Company's public Common Stock offering in November 1996.
Cash used by operating activities totaled $7.9 million in 1996.
However, prior to cash used for restructuring of $5.4 million, cash used by
operating activities totaled only $2.5 million. By comparison, the period ended
December 31, 1995 reflected cash generated by operations prior to cash used for
restructuring of $5.2 million. The 1996 decrease primarily resulted from
increases in accounts receivable and inventories related to the increase in net
sales and the temporary inventory increase by Morgan Manufacturing. Investing
activities in 1996 used $15.6 million, principally for capital spending for door
manufacturing and $15.7 million for the acquisition of Tennessee Building
Products, with reductions coming from the $4.7 million proceeds from the sale of
property, plant and equipment, which consisted primarily of the Lexington
facility, and $.9 million proceeds from the surrender of life insurance
policies. Investing activities in 1995 used $5.8 million, primarily for capital
spending for door manufacturing machinery and equipment. Financing activities
generated $19.8 million of cash in 1996, with a $13.0 million increase in the
revolving line of credit debt, the repayment of $1.8 million of debt, and $8.6
million net proceeds from the Company's public Common Stock offering. Financing
activities in 1995 generated $2.1 million of cash from additional borrowings,
net of debt repayments.
The Company maintains a credit agreement with a group of banks which
provides for a revolving credit facility of up to $65 million through July 13,
1998, and includes a letter of credit facility of up to $9 million through July
13, 1998. At December 31, 1996, $41.2 million of borrowings were outstanding on
the revolver. During the second quarter of 1996, the Company and the lenders
signed an amendment extending the then existing agreement to 1998, with terms
similar to, or more favorable to, the Company than those previously in effect.
Two subsequent amendments were required in the second half of 1996 to alter
restrictive covenants and security agreements as a consequence of the
acquisition of Tennessee Building Products. In 1997, an additional amendment was
entered into to modify certain definitions and restrictive covenants. The credit
agreement requires the Company, among other things, to maintain minimum tangible
net worth and interest coverage ratios and a maximum leverage ratio. The Company
was in compliance with all covenants of the amended credit agreement at December
31, 1996.
The Company believes that it has adequate financial flexibility to
pursue attractive acquisition candidates, although additional financing may be
required, depending upon the size of the acquisitions.
Restructuring of Operations
Since 1994, the Company has adopted a comprehensive strategic plan to
restore profitability and regain industry leadership by providing customers with
quality products and optimum service at the best price/value relationship. The
Company has taken a series of major initiatives to implement this plan and
respond to continuing challenges in the industry. At Morgan Manufacturing, the
Company has consolidated all of its door manufacturing operations into its
Oshkosh facility and has committed approximately $6 million in capital
expenditures for a new high-speed door assembly line. In addition, management is
committed to controlling manufacturing costs, achieving substantial savings
through
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
innovative raw material purchasing and manufacturing practices, and developing a
more customer-focused business approach. The Company believes that its
relationship with Andersen has improved in recent years. At Morgan Distribution,
the Company has strengthened its business through a broad series of operating
initiatives and plans to achieve additional growth both through its existing
operations and by acquisition, as opportunities permit. Primarily as a result of
the implementation of its strategic plan, the Company has incurred substantial
restructuring charges. See Note 2 to Consolidated Financial Statements. In 1994
and 1995, the Company incurred $11.3 million and $51,000 in restructuring
charges, respectively, to cover the costs of closing the Company's Springfield,
Oregon door and Weed, California veneer plants, the downsizing of Morgan
Manufacturing, Company-wide management structure changes (including terminations
and the elimination of certain positions), the restructuring of the Morgan
Distribution operations, the relocation of the Company's corporate headquarters,
and other cost reduction and consolidation actions.
In the second quarter of 1996, the Company sold its Lexington, North
Carolina door manufacturing facility. The entire line of doors previously
manufactured in Lexington was shifted to the Company's Oshkosh door
manufacturing facility. The Company recorded an additional restructuring charge
in the second quarter of 1996 of $881,000, of which $356,000 related to the sale
of the Lexington facility and the consolidation of door manufacturing operations
into the Oshkosh facility, and the balance of which was used to cover
incremental costs related to the Springfield and Weed plant closings and the
reorganization of the management structure at Morgan Manufacturing. In the third
and fourth quarters of 1996, the Company recorded additional restructuring
charges of $3.8 million related to the closing of the Lexington plant and the
consolidation of manufacturing operations in Oshkosh. These charges were $.8
million higher than the higher end of the range previously estimated by the
Company due to additional labor, materials handling, and shipping and logistical
costs incurred as a result of increasing production levels at the Oshkosh
facility to nearly double fourth quarter 1995 requirements. Such increased
output at Oshkosh was necessary to meet current demand as well as to replace
door output previously generated at Lexington. The increased production
requirement and related inefficiencies encountered by the Company due to the
consolidation process have also resulted in increased lead times to fill orders.
Management believes that with the installation and start-up of the new
high-speed door assembly line at the Oshkosh facility, which occurred in the
first quarter of 1997, such lead time increases will be reversed and, in fact,
that normal lead times may be reduced by up to two weeks. When the new
high-speed door assembly line is fully operational, management believes that the
Oshkosh facility will be operating at approximately 70% of capacity, based upon
current production levels. The consolidation of all door manufacturing at a
single facility is believed to offer the Company significant cost savings as
well as providing customers with the advantage of purchasing a full range of
solid wood door products and wood species from a single manufacturing facility.
The Company expects to incur additional restructuring costs in the first quarter
of 1997 of as much as $500,000 to bring lead times back to within acceptable
ranges.
Seasonal Nature of Business
The building products industry is seasonal, particularly in the
Northeast and Midwest regions of the United States, where inclement weather
during the winter months usually reduces the level of building activity in both
the improvement, maintenance and repair market and the new construction market.
The
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
Company's lowest sales levels generally occur during the first and fourth
quarters. Since a high percentage of the Company's overhead and expenses are
relatively fixed throughout the year, profits tend to be lower in quarters with
lower sales. However, the Company's acquisition of Tennessee Building Products,
which serves more moderate climates, should partially offset the effect of
seasonal influences on the Company's operations.
The table below sets forth the Company's quarterly net sales (excluding
the Tennessee Building Products partial year) for the years ended December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------------------
Net % of Net % of
Sales Total Sales Total
-----------------------------------------------------------------------------------
(millions) (millions)
<S> <C> <C> <C> <C>
First Quarter............................... $ 74.5 20.9% $ 80.7 23.9%
Second Quarter ............................. 95.2 26.8 84.2 24.9
Third Quarter............................... 93.2 26.2 90.7 26.8
Fourth Quarter.............................. 92.8 26.1 82.4 24.4
-----------------------------------------------------------------------------------
Total Year.................................. $355.7 100.0% $338.0 100.0%
===================================================================================
See Note 14 to Consolidated Financial Statements for further quarterly information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data) MORGAN PRODUCTS LTD.
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales............................................. $373,345 $338,026 $358,357
Cost of goods sold.................................... 317,917 290,563 305,959
--------------------------------------------------------------
Gross profit....................................... 55,428 47,463 52,398
--------------------------------------------------------------
Operating expenses:
Sales and marketing................................ 35,687 35,652 36,251
General and administrative......................... 11,793 11,033 10,750
Restructuring (Note 2)............................. 4,712 51 11,291
--------------------------------------------------------------
52,192 46,736 58,292
--------------------------------------------------------------
Operating income (loss)............................... 3,236 727 (5,894)
--------------------------------------------------------------
Other income (expense):
Interest........................................... (3,485) (3,763) (3,776)
Other.............................................. 220 450 469
---------------------------------------------------------------
(3,265) (3,313) (3,307)
---------------------------------------------------------------
Income (loss) before income taxes..................... (29) (2,586) (9,201)
Provision (benefit) for income taxes.................. (327) 42 200
---------------------------------------------------------------
Net income (loss)..................................... $ 298 $ (2,628) $ (9,401)
===============================================================
Income (loss) per share............................... $ .03 $ (.30) $ (1.10)
===============================================================
Weighted average common and common
equivalent shares outstanding...................... 8,830 8,644 8,549
===============================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(in thousands, except shares outstanding) MORGAN PRODUCTS LTD.
- ---------------------------------------------------------------------------------------------------------------------
At December 31,
---------------------------------------
1996 1995
---------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents....................................... $ 1,467 $ 5,135
Accounts receivable (less allowances of $1,622 in 1996 and
$722 in 1995)................................................ 32,559 20,801
Inventories (Note 4)............................................ 73,683 53,422
Other current assets............................................ 632 422
---------------------------------------
Total current assets......................................... 108,341 79,780
---------------------------------------
Property, Plant and Equipment, Net (Note 5)....................... 23,137 23,500
Other Assets (Notes 1 and 9)...................................... 10,638 6,235
Total Assets.................................................... $142,116 $109,515
---------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt (Note 6) .................. $ 1,136 $ 954
Accounts payable................................................ 19,449 11,121
Accrued compensation and employee benefits...................... 6,219 5,625
Income tax payable.............................................. -- 111
Other current liabilities....................................... 4,449 3,295
---------------------------------------
Total current liabilities.................................... 31,253 21,106
---------------------------------------
Long-Term Debt (Note 6)........................................... 48,880 35,574
---------------------------------------
Commitments and Contingencies (Note 12)
Stockholders' Equity (Note 8):
Common stock, $.10 par value, 10,149,816 and 8,647,483
shares outstanding, respectively............................. 1,015 865
Paid-in capital................................................. 42,237 33,771
Retained earnings............................................... 18,927 18,629
---------------------------------------
62,179 53,265
Treasury stock, 2,386 shares, at cost........................... (48) (48)
Unearned compensation - restricted stock........................ (148) (382)
---------------------------------------
Total stockholders' equity................................... 61,983 52,835
---------------------------------------
Total Liabilities and Stockholders' Equity...................... $142,116 $109,515
=======================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) MORGAN PRODUCTS LTD.
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Cash Generated (Used) by
Operating Activities:
Net income (loss)................................................. $ 298 $(2,628) $(9,401)
Add (deduct) noncash items included in income:
Depreciation and amortization.................................. 3,571 3,694 4,794
Provision for doubtful accounts................................ 139 214 (54)
Provision for restructuring.................................... 881 8 11,291
Loss (gain) on sale of property, plant and equipment........... 58 (44) (142)
Other.......................................................... 234 232 85
Cash generated (used) by changes in components of
working capital, net of effects of acquisition of business:
Accounts receivable............................................ (5,081) 3,346 7,957
Inventories.................................................... (12,747) 1,606 5,334
Accounts payable............................................... 6,450 (389) (1,982)
Other working capital.......................................... (1,706) (3,401) (3,406)
------------------------------------------------
Net Cash Generated (Used) by
Operating Activities.............................................. (7,903) 2,638 14,476
------------------------------------------------
Cash Generated (Used) by
Investing Activities:
Acquisition of property, plant and equipment................... (3,912) (5,212) (1,173)
Acquisition of Tennessee Building Products..................... (15,680) -- --
Proceeds from disposal of property, plant and equipment........ 4,654 117 4,193
Proceeds from surrender of life insurance policies............. 925 -- --
Acquisition of other assets, net............................... (1,598) (720) (1,581)
------------------------------------------------
Net Cash Generated (Used) by Investing Activities................... (15,611) (5,815) 1,439
------------------------------------------------
Cash Generated (Used) by Financing Activities:
Net change in short-term debt.................................. -- -- 999
Proceeds from long-term debt................................... 13,018 3,223 25,000
Repayments of long-term debt................................... (1,788) (1,145) (39,200)
Common stock issued for cash................................... 8,616 39 27
------------------------------------------------
Net Cash Generated (Used) by Financing Activities................... 19,846 2,117 (13,174)
------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents................ (3,668) (1,060) 2,741
Cash and Cash Equivalents:
Beginning of year.............................................. 5,135 6,195 3,454
------------------------------------------------
End of year.................................................... $ 1,467 $ 5,135 $ 6,195
================================================
Cash Paid (Received) During the Year for:
Interest....................................................... $ 3,789 $ 3,885 $ 3,733
Income taxes................................................... (192) 134 (9)
Non-Cash Investing Activities:
Purchase of assets under capital lease......................... $ 1,505 $ -- $ --
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) MORGAN PRODUCTS LTD.
- ---------------------------------------------------------------------------------------------------------------------
Unearned
Compensation-
Common Paid-in Retained Treasury Restricted
Stock Capital Earnings Stock Stock
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993........... $ 850 $33,021 $30,658 $ (48) $ --
Net loss............................... -- -- (9,401) -- --
Issuance of restricted stock........... 14 686 -- -- (700)
Amortization of unearned
compensation......................... -- -- -- -- 86
Other.................................. -- 26 -- -- --
-----------------------------------------------------------------------------------------
Balance at December 31, 1994........... 864 33,733 21,257 (48) (614)
Net loss............................... -- -- (2,628) -- --
Amortization of unearned
compensation -- -- -- -- 232
Other.................................. 1 38 -- -- --
-----------------------------------------------------------------------------------------
Balance at December 31, 1995........... 865 33,771 18,629 (48) (382)
Net income............................. -- -- 298 -- --
Public offering of stock............... 150 8,452 -- -- --
Amortization of unearned
compensation......................... -- -- -- -- 234
Other.................................. -- 14 -- -- --
-----------------------------------------------------------------------------------------
Balance at December 31, 1996........... $1,015 $42,237 $18,927 $ (48) $ (148)
=========================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
Note 1: Significant Accounting Policies
DESCRIPTION OF BUSINESS-Morgan Products Ltd. ("Morgan" or the
"Company") manufactures and purchases products (virtually all considered to be
millwork) which are sold to the residential and light commercial building
materials industry and are used for both new construction and improvements,
maintenance and repairs. In view of the nature of its products and the method of
distribution, management believes that the Company's business constitutes a
single industry segment.
CONSOLIDATION-The consolidated financial statements include the
accounts of all business units of Morgan Products Ltd. All intercompany
transactions, profits and balances are eliminated.
USE OF ESTIMATES-The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those estimates.
EARNINGS PER SHARE AND SHARE DATA-Earnings per share are computed using
the weighted average number of common and, when applicable, common equivalent
shares outstanding during the period.
INVENTORIES-Inventories are valued at the lower of cost or market. Cost
is determined on the first-in, first-out (FIFO) method.
PROPERTIES AND OTHER ASSETS-Property, plant and equipment are stated at
cost and depreciated on a straight line basis over the estimated useful lives of
the assets, which generally range from 35 years for buildings, 10 to 20 years
for building equipment and improvements, and 5 to 10 years for machinery and
equipment. Expenditures which substantially increase value or extend useful life
are capitalized. Expenditures for maintenance and repairs are charged against
income as incurred.
Included in other assets are goodwill, software costs, and deferred
debt issue costs. Goodwill, which represents the excess of cost over the fair
value of assets acquired, is amortized on a straight line basis over 25 years.
Software costs are amortized over their estimated useful lives. Debt issue costs
are amortized over the life of the related debt agreement.
LONG-LIVED ASSETS-Long-lived assets to be held and used are reviewed
for impairment whenever events or changes in circumstances indicate that the
related carrying amount may not be recoverable. When required, impairment losses
on assets to be held and used are recognized based on the excess of the asset's
carrying amount over the fair value of the asset and long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less cost
to sell.
FAIR VALUE OF FINANCIAL INSTRUMENTS-Cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses are reflected in the
financial statements at fair value because of the short-term maturity of those
instruments. The fair value of the Company's long-term debt is discussed in Note
6 of Notes to Consolidated Financial Statements.
STATEMENT OF CASH FLOWS-The Company considers all investments with a
maturity of 91 days or less at the time of purchase to be cash equivalents.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
REVENUE RECOGNITION-The Company recognizes revenue at the time products
are shipped to customers or as services are performed.
ADVERTISING AND PROMOTIONS-All costs associated with advertising and
promoting products are expensed in the year incurred. Advertising and promotions
expense, including expense of customer rebates, was $2.5 million in 1996, $3.7
million in 1995, and $2.7 million in 1994.
Note 2: Restructuring of Operations
An $11.3 million restructuring charge was recorded in the second
quarter of 1994 to cover the cost of closing the Springfield, Oregon plant, the
Weed, California veneer operation, and to provide other cost reductions and
consolidations within the Company. During the third quarter of 1994, the Company
reviewed the restructuring reserve and determined that certain estimated costs
would not be as high as originally anticipated. At that time, certain other cost
reduction and restructuring actions were approved and provided for, which offset
the lower expenses. The additional expenses related to the restructuring of the
Morgan Distribution operations and costs associated with the relocation of the
corporate headquarters.
During the first quarter of 1995, management again evaluated its
restructuring reserves and determined that certain estimated costs would not be
as high as had been expected and adjusted the reserve appropriately. In
addition, incremental restructuring activities for Morgan Distribution (as
described below) were approved during the first quarter of 1995.
Since September 1994, the Company has been evaluating what actions are
necessary to improve Morgan Distribution's profitability. A multi-year plan
involving necessary management structure changes, a new management information
system and future facility requirements was developed. The first phase of this
restructuring plan was implemented during the first quarter of 1995. A new
organizational structure was announced that eliminated several management
positions. The costs of severance and certain other cost reductions were
provided for during the first quarter of 1995 which more than offset the
lower-than-originally-anticipated expenses of the 1994 restructuring. No charges
were made for change in physical facilities since no actions were implemented in
1995 with respect to these facilities.
The Company completed the relocation of the corporate headquarters from
Lincolnshire, Illinois to Williamsburg, Virginia during the third quarter of
1995. Most, but not all, of the expenses relating to the relocation were charged
against the restructuring reserve in that period.
In the second quarter of 1996, the Company sold its Lexington, North
Carolina door manufacturing facility. The entire line of doors previously
manufactured in Lexington shifted to the Company's Oshkosh, Wisconsin door
manufacturing facility. The Company recorded an additional restructuring charge
in the second quarter of 1996 of $881,000, of which $356,000 related to the sale
of the Lexington facility and the consolidation of door manufacturing operations
into the Oshkosh facility, and the balance of which was used to cover
incremental costs related to the Springfield and Weed plant closings and the
reorganization of the management structure at Morgan Manufacturing. Additional
aggregate restructuring expenses of $3.8 million were recorded in the third and
fourth quarters of 1996.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
These restructuring expenses, which included Lexington operating costs after
cessation of production and incremental hiring, training and relocation costs
associated with the transfer of Lexington production to Oshkosh, were expensed
as incurred.
The following summarizes the activity related to the 1994 restructuring
reserve (in millions of dollars):
<TABLE>
<CAPTION>
Reserve Reserve at
at May 28, Utilized Provision/ Dec. 31,
------------------------------------
1994 Cash Noncash Reallocation 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Employee benefits(1)................ $ 4.8 $(1.7) $ -- $(.4) $2.7
Inventory(2)........................ 3.7 (.6) (1.2) (.1) 1.8
Fixed assets........................ 1.1 -- -- .2 1.3
Holding and other costs(3).......... 1.7 (1.4) -- .3 .6
-------------------------------------------------------------------------------------------
Total restructuring reserve......... $11.3 $(3.7) $(1.2) $ -- $6.4
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Reserve Reserve at
at Dec. 31, Utilized Provision/ Dec. 31,
------------------------------------
1994 Cash Noncash Reallocation 1995
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Employee benefits(4)................ $ 2.7 $(2.5) $ -- $1.2 $1.4
Inventory(2)........................ 1.8 -- -- -- 1.8
Fixed assets........................ 1.3 -- -- (.9) .4
Holding and othercosts(3)........... .6 (.1) -- (.3) .2
-------------------------------------------------------------------------------------------
Total restructuring reserve......... $ 6.4 $(2.6) $ -- $ -- $3.8
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Reserve Reserve at
at Dec. 31, Utilized Provision/ Dec. 31,
------------------------------------
1995 Cash Noncash Reallocation 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Employee benefits(5)................ $ 1.4 $(1.3) $ -- $ .5 $ .6
Inventory(2)........................ 1.8 (.3) (1.5) .1 .1
Fixed assets........................ .4 -- (.4) .3 .3
Holding and other costs............. .2 -- (.1) -- .1
-------------------------------------------------------------------------------------------
Total restructuring reserve......... $ 3.8 $(1.6) $(2.0) $ .9 $1.1
===========================================================================================
</TABLE>
(1) Costs associated with severance, outplacement, and future workers'
compensation claims due to the closing of the Springfield, Weed veneer, and
other facilities.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
(2) Primarily costs associated with inventory that could not be
utilized or costs of reworking inventory for use in other facilities due to the
closing of the Springfield, Weed veneer, and Lexington facilities.
(3) Costs associated with continuing utility and property tax due to
the closing of the Springfield, Weed veneer, and other facilities.
(4) Costs associated with severance, outplacement, and future workers'
compensation claims due to the closing of the Springfield facility, downsizing
at manufacturing division office, and the restructuring of the corporate
headquarters.
(5) Costs associated with severance, outplacement, and future workers'
compensation claims due to the closing of the Springfield and Lexington
facilities, downsizing at manufacturing and distribution division offices, and
restructuring of the corporate headquarters.
Note 3: Acquisition of Tennessee Building Products
On August 30, 1996, the Company acquired certain assets and assumed
certain liabilities of Tennessee Building Products, Inc. and its subsidiary for
$15.7 million, including $.4 million in acquisition costs. The purchase
agreement contains a purchase price adjustment based upon the change in net book
value of the assets acquired and the liabilities assumed between December 31,
1995 and August 30, 1996. Any additional payment made will be accounted for as
additional costs of the acquired assets. TBP, headquartered in Nashville, TN, is
a distributor of windows, doors, kitchen cabinets, and other millwork and glass
products to residential builders and other customers. TBP reported sales for
1995 of approximately $46.8 million. This acquisition has been accounted for as
a purchase and the results of the operations of TBP have been included in the
Company's consolidated financial statements since the date of acquisition. The
excess of the aggregate purchase price over the fair value of net assets
acquired was recognized as goodwill and is being amortized over 25 years. The
following unaudited pro forma consolidated results of operations for the years
ended December 31, 1996 and 1995 are presented as if the acquisition occurred as
of January 1, 1995 (in thousands, except per share data):
Year Ended December 31,
1996 1995
----------------------------------------
Net sales....................... $407,322 $384,848
Net income (loss)............... 1,127 (2,111)
Income (loss) per share......... .13 (.24)
The unaudited pro forma financial information is not necessarily
indicative of either the results of operations that would have occurred had the
acquisition been made during the period presented or the future results of the
combined operations.
In conjunction with this acquisition, the Company recorded a
restructuring charge of $1.0 million to cover severance costs and other
employment related costs, consolidation costs and rationalization of TBP's
product lines.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
Note 4: Inventories
Inventories consisted of the following at (in thousands of dollars):
December 31,
----------------------------------
1996 1995
----------------------------------
Raw materials......................... $14,139 $ 9,120
Work-in-process....................... 9,899 6,536
Finished goods........................ 49,645 37,766
----------------------------------
Total inventories................... $73,683 $53,422
==================================
Note 5: Property, Plant and Equipment
Property, plant and equipment consisted of the following at (in
thousands of dollars):
December 31,
-----------------------------
1996 1995
-----------------------------
Land and improvements....................... $ 2,095 $ 2,765
Buildings and improvements.................. 14,043 16,806
Machinery and equipment..................... 26,500 22,313
Capitalized building and equipment leases... 5,977 5,328
Less accumulated depreciation and
amortization.............................. (26,640) (27,705)
Construction in progress.................... 1,162 3,993
----------------------------------
Total property, plant and equipment...... $23,137 $23,500
==================================
At December 31, 1996 and 1995, accumulated amortization relating to
capitalized building and equipment leases was approximately $3.8 million and
$4.2 million respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
Note 6: Long-Term Debt
Long-term debt consisted of the following at (in thousands of dollars):
December 31,
-----------------------------
1996 1995
-----------------------------
Revolving credit facilities................. $41,178 $28,223
Industrial revenue bonds.................... 1,700 2,000
Obligations under capital leases (Note 7)... 4,389 3,330
Obligations under financing leases.......... 2,077 2,229
Other....................................... 672 746
-----------------------------
50,016 36,528
Less current maturities..................... (1,136) (954)
-----------------------------
Total long-term debt...................... $48,880 $35,574
=============================
On July 14, 1994, the Company signed a revolving credit agreement with
a group of banks which provides for a revolving credit facility of up to $65
million and includes a letter of credit facility of up to $9 million, through
July 13, 1998. This credit facility is secured by certain accounts receivable,
inventories, equipment, real estate, and general intangibles of the Company.
Available borrowings under the revolving credit facility bear interest at the
option of the Company at the prime rate plus an incremental .75 percentage
points or at the LIBOR rate plus an incremental 2.50 percentage points. The
Company also pays an annual commitment fee of .5% on the average unused portion
of the revolving credit line and certain additional fees. At December 31, 1996,
the weighted average interest rate on the outstanding revolving credit
facilities was 8.25%.
The credit facility contains certain covenants including limitations on
the acquisition and disposition of assets, the payment of dividends, the
pledging of assets other than those pledged under the industrial revenue bonds,
and the prepayment of other indebtedness. In addition, the Company is required
to maintain minimum tangible net worth and interest coverage ratios and a
maximum leverage ratio. The Company was in compliance with all of the amended
credit agreement covenants at December 31, 1996 and at every 1996 interim
reporting date. See Note 13 of the Consolidated Financial Statements.
As of December 31, 1996, the Company had utilized $1.4 million of its
$9 million letter of credit facility and had borrowings of $41.2 million under
the revolving credit facility.
The industrial revenue bonds outstanding at December 31, 1996 bear a
floating interest rate equal to eighty percent (80%) of the bond equivalent
yield applicable to 91-day United States Treasury Bills. These bonds are secured
by assets with a book value of $22.5 million and $1.8 million in letters of
credit.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
During 1991, the Company entered into a sale-leaseback transaction
which, based upon the applicable terms, is accounted for as a financing lease.
The term of the agreement is 15 years beginning on December 30, 1991 and
expiring on December 29, 2006 with an interest rate of 9.73% annually.
Future annual maturities of the Company's long-term debt as of December
31, 1996 are presented below (in thousands of dollars):
1997........................................... $ 1,136
1998........................................... 42,541
1999........................................... 1,304
2000........................................... 1,497
2001........................................... 1,241
Later years.................................... 2,297
-------
Future annual maturities of long-term debt..... $50,016
=======
The Company estimates that the fair value of the revolving credit
facilities approximates their carrying value at December 31, 1996 and 1995 since
interest rates vary with prime and that the fair value of the industrial revenue
bonds approximates their carrying value since they bear floating interest rates.
The carrying values of other long-term debt approximates their fair value as the
rates approximate current rates offered to the Company for debt with similar
maturities.
Note 7: Lease Obligations
Certain leased equipment and distribution facilities have been
capitalized by the Company. The Company also leases certain facilities,
equipment and vehicles under noncancelable agreements which are operating
leases.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
Future minimum lease payments required under long-term leases in effect
at December 31,1996 are as follows (in thousands of dollars):
Capital Operating Total
----------------------------------
1997................................... $ 1,079 $ 4,613 $ 5,692
1998................................... 1,079 3,756 4,835
1999................................... 1,079 3,271 4,350
2000................................... 1,079 2,378 3,457
2001................................... 961 1,415 2,376
Later years............................ 3,397 7,723 11,120
----------------------------------
Total minimum lease payments......... 8,674 $23,156 $31,830
======================
Less imputed interest.................. (4,285)
------------
Present value of net minimum lease
payments........................... $ 4,389
============
For 1996, 1995, and 1994, rental expense, including usage charges on
the long-haul fleet, was $6.7 million, $6.3 million, and $6.6 million
respectively.
Note 8: Stockholders' Equity
COMMON STOCK-The number of authorized shares of Common Stock is
20,000,000 shares.
PREFERRED STOCK-The number of authorized shares of Preferred Stock is
5,000,000 shares.
STOCK OFFERING-In November 1996, the Company and a significant
shareholder completed an underwritten primary and secondary public offering of
1.5 million shares and 1.9 million shares, respectively, of its Common Stock, at
a public offering price of $6.50 per share. The Company's net proceeds of
approximately $8.6 million were used to reduce amounts outstanding under the
Company's revolving credit facilities.
STOCK OPTION PLANS-In June 1985, the Company adopted an Incentive Stock
Option Plan (the "Stock Option Plan") which, as amended, provides for (I) the
issuance of incentive stock options at a purchase price approximating the fair
market value at the date of grant and (II) the issuance of non-qualified options
at a price determined by the Compensation Committee, a committee of the Board of
Directors, which cannot be less than 85% of the market price at the date of
grant. In May 1989, the stockholders ratified a proposal that amended the
Company's Stock Option Plan to increase from 500,000 to 750,000 the number of
shares of Common Stock reserved for issuance under the plan.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
At the annual meeting in May 1995, the stockholders voted to amend the
plan and authorized an additional 150,000 shares of Common Stock be set aside
for the granting of options. As of December 31, 1996, the Company has set aside
793,300 shares of Common Stock for the granting of such options. The options
become exercisable immediately or in two, three, four, or five installments from
the date of grant, and all of the options granted expire no more than ten years
from the date of grant.
Following is a summary of activity in the Stock Option Plan for 1994,
1995, and 1996:
Shares Weighted-
Subject Average
to Option Option Price
------------------------------------
Outstanding, January 1, 1994 583,200 $ 9.088
Granted........................... 492,500 5.267
Canceled.......................... (430,700) 9.536
Expired........................... (31,000) 9.625
------------------------------------
Outstanding, December 31, 1994...... 614,000 $5.682
Granted........................... 267,500 5.746
Exercised......................... (3,500) 5.375
Canceled.......................... (189,500) 6.527
------------------------------------
Outstanding, December 31, 1995...... 688,500 $5.476
Granted........................... 92,500 6.375
Canceled.......................... (45,000) 5.861
------------------------------------
Outstanding, December 31, 1996...... 736,000 $5.566
------------------------------------
Exercisable, December 31, 1996...... 464,333 $5.395
====================================
The exercise prices for options outstanding at December 31, 1996 range
from $5.00 to $6.625 per share. The weighted-average remaining contractual life
of these options approximates 7.7 years.
In May 1992, the stockholders approved the adoption of a Non-employee
Director Stock Option Plan (the "Director Plan"). The Director Plan provides for
the automatic grant of non-qualified stock options to purchase 1,000 shares of
Common Stock at a purchase price equal to the fair market value at the date of
grant upon a non-employee Director's election or re-election to the Board of
Directors. An aggregate of 50,000 shares of Common Stock is available for grant
under the Director Plan. The options granted become exercisable in three annual
installments from the date of grant, and all of the options granted expire ten
years from the date of grant.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
Following is a summary of activity in the Director Plan for 1994, 1995,
and 1996:
Shares Weighted-
Subject Average
to Option Option Price
--------------------------------------
Outstanding, January 1, 1994...... 8,000 $8.438
Granted......................... 3,000 5.750
Canceled........................ (2,000) 8.438
--------------------------------------
Outstanding, December 31, 1994.... 9,000 $7.542
Granted......................... 7,000 6.750
--------------------------------------
Outstanding, December 31, 1995.... 16,000 $7.195
Granted......................... 7,000 6.000
Canceled........................ (3,334) 6.300
--------------------------------------
Outstanding, December 31, 1996.... 19,666 $6.922
======================================
Exercisable, December 31, 1996.... 10,332 $7.319
======================================
The exercise prices for options outstanding at December 31, 1996 range
from $5.75 to $9.125 per share. The weighted-average remaining contractual life
of these options approximates 5.6 years.
On August 19, 1994, the Company issued 140,000 restricted shares of the
Company's Common Stock to the Chief Executive Officer. These shares were awarded
to a trust of which the Chief Executive Officer is the beneficiary, subject to
certain restrictions and forfeiture provisions. The shares vest ratably over a
three-year period ending August 19, 1997. The restrictions limit the sale or
transfer of shares during the restricted period. The trust will immediately vest
in the shares of Common Stock upon death, disability, or termination of the
Chief Executive Officer as described in the plan. The unamortized value of the
Common Stock totaling $700,000 was recorded at the date of award based upon the
market value of shares as a separate component of stockholders' equity and is
being amortized to expense over the three-year vesting period.
On August 19, 1994, the Company also granted the Chief Executive
Officer options to purchase 250,000 shares of Common Stock at an exercise price
of $5 per share under the Company's Stock Option Plan. This was the fair market
value at the date of grant. Vesting in these options will be over a three-year
period with 62,500 shares or 25% vested immediately. This grant is included in
the Stock Option Plan table.
In 1996, the Company granted an option to a former employee to purchase
90,000 shares of the Company's Common Stock with an exercise price of the $7.50
per share, which represented fair market value on the date of grant. The grant
was not made pursuant to the Stock Option Plan. The option vested
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
as to 22,500 shares immediately upon grant and will be exercisable until October
19, 1997. The remaining 67,500 shares were canceled on October 19, 1996.
On December 18, 1996, the Company granted 105,000 options in the
aggregate to certain employees as part of their employment agreements. These
grants were also outside of the Stock Option Plan. The exercise price is $7.00,
the fair market value per share on the date of grant, and the options terminate
on December 18, 2006.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Accordingly, no compensation cost has been
recognized for the stock option plans or out-of-plan grants. Had compensation
cost for the Company's two stock option plans and out-of-plan grants been
determined based on the fair value at the grant date for awards in 1996 and 1995
consistent with the provisions of SFAS No. 123, the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share data):
Year Ended December 31,
--------------------------------
1996 1995
--------------------------------
Net income (loss)-as reported........... $ 298 $(2,628)
Net income (loss)-pro forma............. (141) (2,845)
Income (loss) per share-as reported..... .03 (.30)
Income (loss) per share-pro forma....... (.02) (.33)
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes model with the following weighted-average
assumptions used for grants in 1996 and 1995:
Year Ended December 31,
------------------------------------
1996 1995
------------------------------------
Expected stock price volatility..... 43.70% 41.69%
Risk-free interest rate............. 6.35% 6.43%
Expected life of options............ 6.78 years 7.00 years
Note 9: Employee Benefit Plans
The Company has a profit sharing and 401(k) savings plan for all
salaried employees, and certain groups of hourly employees, who work for Morgan
Manufacturing, Morgan Distribution, Morgan National Accounts, and the corporate
headquarters. The Company matches 50% of participant contributions to the saving
plan, with Company contributions limited to 3% of the participant's
compensation. At the discretion of the Board of Directors, the Company may make
an additional contribution, which has been targeted at 3% of each participant's
compensation.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
A separate 401(k) savings plan is in place for employees of Tennessee
Building Products who have met the plan's eligibility requirements. The Company
matches 50% of participant contributions to the savings plan, with Company
contributions limited to 2 1/2% of a $40,000 maximum compensation base.
Profit sharing costs and the Company's matching contributions to the
401(k) savings plans charged to operations were $.9 million, $.4 million, and
$1.1 million for 1996, 1995, and 1994 respectively.
The Company has a pension plan which covers some of its hourly
employees. This plan generally provides a stated benefit amount for each year of
service. Prior to December 31, 1994, the Company also had a plan to cover
participants of the former Restated Nicolai Company and Millmen's Local No. 1746
plans. That plan was merged into the current Hourly Employees' Pension Plan
effective December 31, 1994.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
The components of net periodic pension expense are as follows (in
thousands of dollars):
Year Ended December 31,
----------------------------------------
1996 1995 1994
----------------------------------------
Service cost.................... $ 183 $ 137 $ 149
Interest cost on projected
benefit obligation ........... 1,140 1,026 949
Actual return on assets......... (926) (2,312) 209
Net amortization and deferral... (95) 1,375 (1,302)
----------------------------------------
Net periodic pension expense ... $ 302 $ 226 $ 5
========================================
The funded status of the plan is as follows (in millions of dollars):
December 31,
-----------------------------------
1996 1995
-----------------------------------
Accumulated benefit obligation:
Vested........................... $15.3 $14.1
Nonvested........................ .1 .1
-----------------------------------
$15.4 $14.2
===================================
Projected benefit obligation....... $15.4 $14.2
Fair value of plan assets.......... 14.6 13.6
-----------------------------------
Plan assets in excess of or (less than) (.8) (.6)
projected benefit obligation.....
Unrecognized net transitional
asset............................ (.4) (.5)
Unrecognized net loss.............. 2.81 .7
Unrecognized prior service
cost............................. 1.1 1.2
-----------------------------------
Prepaid pension expense............ $ 2.7 $ 1.8
===================================
The projected benefit obligations were determined using assumed
discount rates of 7.75% and 7.5% at December 31, 1996 and 1995 respectively. The
expected long-term rate of return on plan assets was 8.5% at both December 31,
1996 and 1995. Prepaid pension expense is included in other assets in the
accompanying balance sheet.
Plan assets consist of equity and fixed income securities and insurance
annuity contracts. It is the policy of the Company to fund at least the minimum
required amount in accordance with the requirements of the Employee Retirement
Income Security Act of 1974.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
For the hourly employees not covered by Company pension or profit
sharing plans, the Company makes contributions to multi-employer pension plans
based on compensable hours worked in accordance with union contracts. Pension
expense related to these contributions was $.1 million for each of 1996, 1995
and 1994. Under certain conditions, principally the withdrawal from such plans,
the Company may have further obligations for pensions with respect to such
employees, but the amount thereof, if any, cannot be determined at the present
time.
Note 10: Income Taxes
The components of the income tax provision (benefit) consisted of the
following (in thousands of dollars):
Year Ended December 31,
------------------------------------
1996 1995 1994
------------------------------------
Current:
Federal........................... $(444) $(78) $ --
State............................. 117 120 200
------------------------------------
Total current................... (327) 42 200
------------------------------------
Deferred:
Federal........................... -- -- --
State............................. -- -- --
Total deferred.................. -- -- --
------------------------------------
Income tax provision (benefit)...... $(327) $ 42 $200
====================================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
The income tax provision (benefit) differed from the amounts computed
by applying the U.S. Federal income tax rate of 34% to pre-tax income (loss) as
a result of the following (in thousands of dollars):
Year Ended December 31,
-----------------------------------
1996 1995 1994
-----------------------------------
Provision (benefit) for
income taxes at U.S. Federal
income tax rate.................... $ (10) $(879) $(3,128)
Non-utilization (utilization) of
operating loss carryforward........ (483) 740 3,049
State income taxes, net of
federal benefit.................... 77 55 107
Non-deductible items................. 91 90 135
Other................................ (2) 36 37
-----------------------------------
Income tax provision
(benefit).......................... $(327) $ 42 $ 200
===================================
The tax effects of temporary differences and carryforwards which gave
rise to deferred tax assets and liabilities consisted of the following at (in
thousands of dollars):
December 31,
-----------------------------------
1996 1995
-----------------------------------
Gross deferred tax assets:
Operating loss carryforwards....... $ 5,488 $ 5,345
Accrued expenses and reserves...... 2,242 2,457
Post-retirement benefits........... 140 140
Other.............................. 245 172
-----------------------------------
8,115 8,114
Valuation allowance ............... (6,850) (6,779)
-----------------------------------
1,265 1,335
-----------------------------------
Gross deferred tax liabilities:
Depreciation and amortization...... (342) (776)
Pensions........................... (923) (559)
(1,265) (1,335)
-----------------------------------
Net deferred tax asset............... $ -- $ --
===================================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
The valuation allowance primarily reflects operating loss carryforwards
for which utilization is uncertain.
As of December 31, 1996, the Company has unused operating loss
carryforwards for tax purposes of approximately $16.1 million, which expire in
years 2002 through 2011. No benefit for the remaining operating loss
carryforwards has been recognized in the consolidated financial statements.
Should an ownership change occur, as defined under Section 382 of the Internal
Revenue Code, the Company's ability to utilize the operating loss carryforwards
could be restricted.
Note 11: Related Parties
As of December 31, 1995, Saugatuck Capital Company Limited Partnership
("Saugatuck") in the aggregate beneficially owned approximately 24% of the
Company's Common Stock. During 1996, 1995, and 1994, the Company paid Saugatuck
$115,000, $115,000, and $125,000, respectively, for services rendered, pursuant
to a consulting and management assistance agreement. Saugatuck sold 1.9 million
of its 2.0 million shares concurrently with the November 13, 1996 primary stock
issue by the Company. The remaining 100,000 shares were distributed by Saugatuck
to its partners in 1996. The Company's consulting and management assistance
agreement with Saugatuck was terminated upon the sale of the shares.
Note 12: Commitments and Contingencies
Andersen Corporation whose products accounted for 40% of 1996 net
sales, distributes its products only through independent distributors such as
the Company. The Company and its predecessors have distributed Andersen products
for over 40 years; however, the Company's agreement with Andersen provides that
Andersen can terminate any of the Company's distributorships at any time upon a
60-day notice. A termination or significant modification of the distribution
relationship with Andersen could have a material adverse effect on revenues and
earnings.
As of December 31, 1996, the Company had capital expenditure purchase
commitments outstanding of approximately $.9 million.
Note 13: Subsequent Events
On March 13, 1997, the Company and its lending institutions executed an
amendment to the loan and security agreement for the Company's $65 million
revolving credit facility, which gives the Company additional financial
flexibility. This amendment modified certain definitions and restrictive
covenants, with the changes being more favorable to the Company.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
Note 14: Interim Financial Information
(UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 is presented below (in
thousands, except per share data):
1st Quarter 2nd Quarter
-----------------------------------------------------
1996 1995 1996 1995
-----------------------------------------------------
Net sales........... $74,536 $80,664 $95,208 $84,262
Gross profit........ 10,498 11,968 14,379 11,553
Net income (loss)... (559) (510) 562 (729)
Earnings (loss)
per share......... $ (.06) $ (.06) $ .06 $ (.08)
3rd Quarter 4th Quarter
-----------------------------------------------------
1996 1995 1996 1995
-----------------------------------------------------
Net sales........... $97,377 $90,723 $106,224 $82,377
Gross profit........ 14,602 12,445 15,949 11,497
Net income (loss)... 935 111 (640) (1,500)
Earnings (loss)
per share......... $ .11 $ .01 $ (.08) $ (.17)
During 1996, the acquisition of Tennessee Building Products resulted in
a significant increase in fourth quarter sales and gross profit.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
MORGAN PRODUCTS LTD.
- --------------------------------------------------------------------------------
Common Stock Price Range and Dividend Policy
The Common Stock of the Company commenced trading on the New York Stock
Exchange on March 7, 1988 (NYSE symbol: MGN). As of March 17, 1997, there were
approximately 2,957 holders of record of such Common Stock. The Company
currently does not pay cash dividends on its Common Stock. Any payment of future
dividends, and the amounts thereof, will be dependent upon the Company's
earnings, financial requirements, cash flow, and other factors deemed relevant
by the Board of Directors. The Company is restricted in its ability to pay
dividends though July 13, 1998 by its bank agreements.
The following table sets forth the high and low sale price of the
company's Common stock reported in the New York Stock Exchange Consolidate
Transaction Reporting System.
High Low
-----------------------------------
1995:
First Quarter................. $6-1/2 $5-3/4
Second Quarter................ 6-7/8 5-3/8
Third Quarter................. 7-3/4 5-5/8
Fourth Quarter................ 7 5-1/4
1996:
First Quarter................. $6 $5
Second Quarter................ 6-1/2 4-7/8
Third Quarter................. 8-1/8 6-1/8
Fourth Quarter................ 8 6-3/8
On March 3, 1997, the closing price of the Common Stock was $7.62.
<PAGE>
REPORT OF MANAGEMENT
- --------------------------------------------------------------------------------
The management of Morgan Products Ltd. is responsible for the
Consolidated Financial Statements and other information included in this Annual
Report and for ascertaining that the data fairly reflects the Company's
financial condition and results of operations. The Company prepared the
Consolidated Financial Statements in accordance with generally accepted
accounting principles appropriate in the circumstances, and such statements
necessarily include amounts that are based on best estimates and judgments with
appropriate considerations given to materiality.
The Company's system of internal control is designed to provide
reasonable assurance that Company assets are safeguarded from loss or
unauthorized use or disposition and that transactions are executed in accordance
with management's authorization and are properly recorded to permit the
preparation of financial statements in accordance with generally accepted
accounting principles. The internal control system is augmented by careful
selection and training of qualified employees, proper division of
responsibilities and the development and dissemination of written policies and
procedures.
The Audit Committee of the Board of Directors is comprised of Directors
who are not employees of the Company. The Audit Committee is responsible for
reviewing and evaluating the Company's financial reporting and accounting
practices and related matters. The Audit Committee meets periodically with
management and the independent accountants to discuss any and all matters within
the Committee's responsibilities. The independent accountants have free access
to the Committee, without the presence of management.
The Company's Consolidated Financial Statements have been audited by
Price Waterhouse LLP, independent accountants, whose report also appears on this
page.
/s/Larry R. Robinette
_____________________________
Larry R. Robinette
President and Chief Executive Officer
/s/Douglas H. MacMillan
_____________________________
Douglas H. MacMillan
Vice President and Chief Financial Officer
Williamsburg, Virgina
February 4, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTS
- --------------------------------------------------------------------------------
To the Board of Directors and
Stockholders of Morgan Products Ltd.
In our opinion, the statements appearing on pages 14 to 23 of this
report present fairly, in all material respects, the financial position of
Morgan Products Ltd. at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/Price Waterhouse LLP
Milwaukee, Wisconsin
February 4, 1997, except as to Note 13,
which is as of March 13, 1997
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (No. 33-32264 and
No. 33-23882) and the Registration Statement on Form S-8 (No. 33-62148 and
333-13025) of Morgan Products Ltd. of our report dated February 4, 1997, except
as to Note 13, which is as of March 13, 1997, appearing in the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule which appears in this Form 10-K.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
March 28, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains annual summary financial information extracted from
Morgan Products 1996 Annual Form 10-K and is qualified in its entirety by
reference to such Form 10-K filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,467
<SECURITIES> 0
<RECEIVABLES> 34,181
<ALLOWANCES> 1,622
<INVENTORY> 73,683
<CURRENT-ASSETS> 108,341
<PP&E> 49,777
<DEPRECIATION> 26,640
<TOTAL-ASSETS> 142,116
<CURRENT-LIABILITIES> 31,253
<BONDS> 48,880
43,056
0
<COMMON> 0
<OTHER-SE> 18,927
<TOTAL-LIABILITY-AND-EQUITY> 142,116
<SALES> 373,345
<TOTAL-REVENUES> 373,345
<CGS> 317,917
<TOTAL-COSTS> 370,109
<OTHER-EXPENSES> (220)
<LOSS-PROVISION> 139
<INTEREST-EXPENSE> 3,485
<INCOME-PRETAX> (29)
<INCOME-TAX> (327)
<INCOME-CONTINUING> 298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 298
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<PAGE>
</TABLE>
