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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 4, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9843
MORGAN PRODUCTS LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1095650
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
469 McLaws Circle, Williamsburg, Virginia 23185
(Address of principal executive offices, including zip code)
(757) 564-1700
(Registrant's telephone number, including area code)
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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 ( )
The number of shares outstanding of registrant's Common Stock, par value $.10
per share, at April 27, 1998 was 10,358,692; 2,386 shares are held in treasury.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORGAN PRODUCTS LTD.
Consolidated Balance Sheets
($000 Except Shares Outstanding)
April 4, April 5, December 31,
1998 1997 1997
----------- ----------- ------------
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 663 $ 774 $ 4,197
Accounts receivable, net 33,306 40,380 28,743
Inventories 35,974 75,562 40,533
Assets held for sale 0 0 32,285
Other current assets 1,160 1,241 558
---------- ---------- ----------
Total current assets 71,103 117,957 106,316
---------- ---------- ----------
PROPERTY, PLANT & EQUIPMENT, net 10,079 23,230 10,276
GOODWILL,net 6,558 5,062 6,632
OTHER ASSETS 4,584 5,743 5,552
---------- ---------- ----------
TOTAL ASSETS $ 92,324 $ 151,992 $ 128,776
---------- ---------- ----------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 376 $ 395 $ 0
Current maturities of long-term debt 1,111 1,282 1,213
Accounts payable 11,837 14,148 13,151
Accrued compensation and
employee benefits 4,186 5,847 8,729
Income taxes payable 134 0 0
Other current liabilities 3,369 3,510 5,899
---------- ---------- ----------
Total current liabilities 21,013 25,182 28,992
---------- ---------- ----------
LONG-TERM DEBT 30,454 66,686 57,353
STOCKHOLDERS' EQUITY:
Common Stock, $.10 par value,
10,358,512, 10,152,912, and 10,357,808
shares outstanding,respectively 1,036 1,015 1,036
Paid-in capital 43,417 42,252 43,413
Retained earnings (accumulated deficit) (3,548) 16,995 (1,970)
---------- ---------- ----------
40,905 60,262 42,479
Treasury stock, 2,386 shares, at cost (48) (48) (48)
Unearned compensation-restricted stock 0 (90) 0
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 40,857 60,124 42,431
---------- ---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $ 92,324 $ 151,992 $ 128,776
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
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MORGAN PRODUCTS LTD.
Consolidated Income Statements
($000, except earnings per share amounts
and shares outstanding)
For the Three Months Ended
----------------------------
April 4, April 5,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
Net sales $ 80,154 $ 95,805
Cost of goods sold 68,627 78,381
----------- -----------
Gross profit 11,527 17,424
----------- -----------
Operating expenses:
Sales & marketing 9,659 10,635
General & administrative 2,949 3,894
Restructuring & reorganization 0 3,610
----------- -----------
Total 12,608 18,139
----------- -----------
Operating income (loss) (1,081) (715)
----------- -----------
Other income (expense):
Interest (554) (1,236)
Other 87 49
----------- -----------
Total (467) (1,187)
----------- -----------
Loss before income taxes (1,548) (1,902)
Provision for income taxes 30 30
----------- -----------
Net loss $ (1,578) $ (1,932)
=========== ===========
Basic earnings per common share $ (0.15) $ (0.19)
=========== ===========
Diluted earnings per common share $ (0.15) $ (0.19)
=========== ===========
Basic shares outstanding 10,358,114 10,152,111
=========== ===========
Diluted shares outstanding 10,358,114 10,152,111
=========== ===========
The accompanying notes are an integral part of the financial statements.
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MORGAN PRODUCTS LTD.
Consolidated Statements of Cash Flows
( $ 000 ' s )
For the Three Months Ended
----------------------------
April 4, April 5,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
CASH GENERATED (USED) BY OPERATING ACTIVITIES:
Net loss $ (1,578) $ (1,932)
Add (deduct) noncash items included in income:
Depreciation and amortization 495 1,060
Provision for doubtful accounts 13 20
Other 0 58
Cash (used) generated by changes in components
of working capital, net of effects of
acquisition of business:
Accounts receivable (4,576) (7,841)
Inventories 4,559 (1,879)
Assets held for sale 579 0
Accounts payable (1,314) (3,397)
Other working capital (6,340) (1,920)
----------- -----------
NET CASH GENERATED (USED) BY OPERATING ACTIVITIES (8,162) (15,831)
----------- -----------
CASH GENERATED (USED) BY INVESTING ACTIVITIES:
Acquisition of property, plant, & equipment (204) (996)
Acquisition of Tennessee Building Products 0 (2,160)
Proceeds from disposal of property, plant, &
equipment 0 3
Proceeds from sale of manufacturing operations 31,706 0
Acquisition of other assets, net (253) (71)
----------- -----------
NET CASH GENERATED (USED) BY INVESTING ACTIVITIES 31,249 (3,224)
----------- -----------
CASH GENERATED (USED) BY FINANCING ACTIVITIES:
Net change in short-term debt 376 395
Proceeds from long-term debt 0 18,189
Repayments of long-term debt (27,054) (237)
Common stock issued for cash 4 15
Other 53 0
----------- -----------
NET CASH GENERATED (USED) BY FINANCING ACTIVITIES (26,621) 18,362
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,534) (693)
CASH AND CASH EQUIVALENTS:
Beginning of period 4,197 1,467
----------- -----------
End of period $ 663 $ 774
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,106 $ 1,524
Income taxes (115) 43
The accompanying notes are an integral part of the financial statements.
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MORGAN PRODUCTS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED APRIL 4, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Morgan Products Ltd. (the "Company") distributes
products (virtually all considered to be millwork) to the residential and light
commercial building materials industry for new construction and improvements,
maintenance and repairs. As further discussed in Note 2, the Company sold
substantially all of the operating assets of Morgan Manufacturing
("Manufacturing") on February 2, 1998.
CONSOLIDATION - The consolidated financial statements include the accounts of
all business units of the Company . All intercompany transactions, profits and
balances are eliminated.
BASIS OF PRESENTATION - The financial statements at April 4, 1998 and April 5,
1997, and for the three months then ended, are unaudited; however, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial position at these
dates and the results of operations and cash flows for these periods have been
included. The results for the three months ended April 4, 1998 are not
necessarily indicative of the results that may be expected for the full year or
any other interim period.
EARNINGS PER SHARE - During the fourth quarter of 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" and retroactively restated prior period earnings per share. SFAS No. 128
required the Company to report both basic earnings per share, which is based on
the weighted-average number of common share outstanding, and diluted earnings
per share, which is based on all dilutive potential common shares outstanding.
Options to purchase 825,000 and 893,166 shares of common stock were outstanding
at April 4, 1998 and April 5, 1997, respectively, but were not included in the
computation of diluted shares because the effect of including such options would
have been antidilutive to the net loss.
RECLASSIFICATION - Certain amounts in the prior periods financial statements
have been reclassified to conform with the classifications used in the current
period.
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NOTE 2 - SALE OF MANUFACTURING OPERATIONS
In December 1997, the Company reached an agreement in principle to sell
the operating assets of Manufacturing in Oshkosh, Wisconsin to JELD-WEN, inc.
for $38.5 million, subject to certain post-closing adjustments. Based on the
proposed terms of the sale, the Company recorded a pre-tax charge in the fourth
quarter of 1997 amounting to $12.4 million including $6.8 million to adjust the
carrying value of Morgan Manufacturing's assets to their estimated fair market
value and a provision for anticipated closing costs of $5.6 million. On February
2, 1998, the Company completed the sale. All proceeds were used to retire the
acquisition term loan and to reduce the revolving credit facility.
The following unaudited pro forma results of operations assume that the
sale occurred as of January 1, 1997 ( in thousands except per share amounts):
Three Months Ended
----------------------------
April 4, April 5,
1998 1997
Net sales $80,154 $76,523
Net income (loss) (1,578) 59
Basic earnings per common share (0.15) 0.01
Diluted earnings per common share (0.15) 0.01
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the sale of Manufacturing been
consummated as of January 1, 1997, nor is it necessarily indicative of future
operating results.
NOTE 3 - INVENTORIES
Inventories consisted of the following at (in thousands of dollars):
April 4, 1998 April 5, 1997 December 31, 1997
------------- ------------- -----------------
(unaudited) (unaudited)
Raw material $1,815 $13,297 $ 2,016
Work-in-process 0 9,711 0
Finished goods 34,159 52,554 38,517
------- ------- -------
$35,974 $75,562 $40,533
======= ======= =======
Inventories are valued at the lower of cost or market. Cost is determined on the
first-in, first-out (FIFO) method.
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NOTE 4 - RESTRUCTURING AND REORGANIZATION
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.
In the first quarter of 1997, the Company recorded a restructuring charge
of $2.5 million for excessive costs incurred as a consequence of the
consolidation of manufacturing operations and the delayed start-up of the new
high-speed door manufacturing line. Additionally, the Company recorded a $1.1
million reorganization charge in connection with the termination of the
employment of the Chief Financial Officer and Senior Vice President-Human
Resources and Administration of the Company. These expenses were charged to
operations as incurred. Additional aggregate restructuring expenses of $2.2
million were recorded in the second quarter of 1997.
NOTE 5 - CREDIT AGREEMENT
On February 3, 1998, in connection with the sale of Manufacturing, the
Company and their bank group entered into an amended and restated credit
agreement which provides for a revolving credit facility of up to $65 million,
including a sub-line of up to $30 million for permitted acquisitions, and a
letter of credit facility of up to $5 million. Borrowings under the facility
bear interest at either the bank's prime rate plus a margin or LIBOR plus a
margin based upon a pricing matrix and expires on February 1, 2001. The facility
contains certain covenants, including limitations on the acquisition and
disposition of assets, the payment of dividends, and the prepayment of other
indebtedness. In addition, the Company is required to maintain earnings
coverage, interest coverage and fixed charge coverage ratios. On April 20, 1998,
the Company and the bank group entered into an amendment altering the
restrictive covenants under the agreement. The amendment has terms similar to
those previously in effect or more favorable to the Company. At April 4, 1998,
the Company had borrowings of $24.6 million under the revolving credit facility.
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Item 2. 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 Quarterly
Report on Form 10-Q 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 under the Securities Exchange Act
of 1934. 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, 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
Three Months Ended April 4, 1998 vs.
Three Months Ended April 5, 1997
The Company's net sales for the first quarter of 1998 were $80.2 million,
representing a 16.3% decrease from the same period in 1997, when sales were
$95.8 million. The $15.6 million decrease in sales is primarily attributable to
a $19.3 million decrease in sales at Manufacturing as a result of the sale of
its operating facility during December 1997. The disposal of Manufacturing was
offset by an increase in sales at Morgan Distribution ("Distribution") of $4.1
million, as a result of the addition of the Baton Rouge distribution center, the
acquisition of Wahlfeld Manufacturing Company ("Wahlfeld") and sales growth at
the Kansas City and Wilmington distribution centers.
The gross profit decline for the first quarter of 1998 of $5.9 million
from the first quarter of 1997 is due primarily to the sale of Manufacturing and
a shift to lower margin direct business and market price pressure at
Distribution. In addition, in the first quarter of 1997 the Company received a
volume incentive reward from a supplier partnership program which was not
received in the first quarter of 1998.
Operating expenses for the first quarter of 1998 were $12.6 million, or
15.7% of net sales compared to operating expenses in the first quarter of 1997
of $18.1 million, or 18.9% of net sales. The decrease is primarily due to the
elimination of restructuring and reorganization charges incurred in the prior
year and the sale of Manufacturing.
The provision for income taxes in each of the first quarters of 1998 and
1997 relates to the recording of state taxes. There was no provision for federal
taxes in either period given the Company's net operating loss position.
For the first quarter of 1998, the Company reported a net loss of $1.6
million or $0.15 per share compared to a net loss of $1.9 million or $0.19 per
share for the same period in 1997, on diluted shares outstanding of 10,358,114
and 10,152,111, respectively. The $.3 million decrease in net loss is primarily
a result of a $.7 million decrease in interest expense and the elimination of
restructuring and reorganization charges offset by the elimination of a volume
incentive reward from a supplier partnership program. The decrease in interest
expense was due to the $24.7 million decrease in average long-term debt in the
1998 first quarter from the same period in 1997 which was a result of the
proceeds received from the sale of Manufacturing.
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Significant Business Trends/Uncertainties
Management believes that single family housing starts and residential
remodeling expenditures have a significant influence on the Company's level of
business activity. Currently the National Association of Home Builders forecast
that housing starts for single family dwellings are to remain steady in
comparison to 1997, the third highest level in the last 10 years, and that
residential remodeling spending is to increase 4.2% over the prior year. No
assurances can be given, however, that housing start levels will remain steady,
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. 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.
Strategic Initiatives
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 TBP, 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.
In July 1997, the Company acquired certain assets of Wahlfeld, a distributor of
windows, doors, and other millwork products headquartered in Peoria, Illinois.
The Company consolidated Wahlfeld's operation into two of its existing
facilities.
With the February 2, 1998 sale of Manufacturing, Company debt was reduced
by half. The Company entered into a new credit facility with its bank group
which includes a $30.0 million revolving credit sub-line for permitted
acquisitions. This additional capital will provide funding for the strategic
plan described above.
In 1996, Andersen determined to sell its Fibrex window systems through
Renewal by Andersen retail stores. Fibrex 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. The
Renewal by Andersen store (which is aimed at the replacement window buyer) is
devoted exclusively to the promotion and sale of such systems, with the stores
being established in various areas throughout the country and principally owned
and operated by independent distributors. The Company opened one of the first
such stores in Overland Park, Kansas which has performed at lower than expected
levels. As of April 4, 1998, the Company has not opened any additional Renewal
by Anderson retail stores.
The Company believes that its relationship with Andersen has improved in
recent years. In April 1997, the Company entered the Louisiana market where it
was awarded sole distribution rights for Andersen's products. In 1997, the
Company was also awarded sole distribution for Andersen's products in most
counties in Mississippi and some in Texas.
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 being
implemented. The Company approved total capital expenditures of $3.4 million for
the new management information system project, which has been financed through a
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combination of capital leases and borrowings under the Company's revolving line
of credit. As of April 4, 1998, the Company has incurred a cost of approximately
$3.3 million for the management information system. 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. Management believes that the final implementation of the
project will be completed in 1999.
Year 2000 Issues
The Company has investigated the extent to which its computer operations
are subject to Year 2000 issues. The Company has assessed the measures it
believes will be necessary to avoid any material disruption to its operations
relating to Year 2000 complications in the Company's computers. The Company is
currently implementing a Company-wide integrated management information system
that is Year 2000 compatible. Management believes that the cost to the Company
of the necessary modifications and upgrades to the Company's computer systems,
not including the costs of implementing the new management information system,
will not be material. The Company has not conducted a detailed investigation of
the Year 2000 readiness of its material suppliers. It is uncertain whether such
suppliers will be prepared fully for Year 2000 issues. Based on inquiries it has
received from many of its largest customers, management believes such customers
are assessing their Year 2000 issues. There can be no assurances, however, that
none of the Company's customers will have a Year 2000 issue that adversely
affects the Company.
Liquidity and Capital Resources
The Company's working capital requirements are related to its sales level,
which, because of its dependency on housing starts and the repair and remodeling
market, are 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 April 4, 1998 was $50.1 million, with a ratio of
current assets to current liabilities of 3.4 to 1.0, while at December 31, 1997
working capital was $77.3 million with a ratio of current assets to current
liabilities of 3.7 to 1.0. The decrease in working capital is primarily due to
the sale of Manufacturing which resulted in a net decrease of $29.2 million. In
addition, inventories decreased $4.6 million which is a continuation of the
Company-wide plan to reduce working capital and interest on long-term debt,
accounts payable decreased by $1.3 million due to the sale of Manufacturing and
accounts receivable increased by $4.6 million due to seasonality.
Long-term debt, net of cash, decreased to $29.8 million at April 4, 1998,
from $53.2 million at December 31, 1997. The Company's ratio of long-term debt,
net of cash, to total capitalization decreased from 55.6% at December 31, 1997
to 42.2% at April 4, 1998. The decrease in long-term debt of $23.4 million is
primarily attributable to the fact that the Company used the proceeds from the
Manufacturing sale to reduce the Company's revolving credit facility and to
repay the Company's acquisition term loan.
Cash used by operating activities totaled $8.2 million for the three
months ended April 4, 1998, as compared to $15.8 million used for the three
months ended April 5, 1997. The decrease was primarily due to accounts
receivable as at April 4, 1998 increased $3.3 million from accounts receivable
as at April 5, 1997 primarily due to the elimination of Manufacturing's seasonal
increase in receivables. Inventory as at April 4, 1998 increased $6.4 million
over inventory as at April 5, 1997 primarily due to reductions at Distribution.
In the first quarter of 1998, accounts payable, assets held for sale and other
working capital used $1.8 million more than first quarter 1997 primarily due to
the sale of Manufacturing. Investing activities in the first three months of
1998 generated $31.2 million, compared to the corresponding period in 1997, when
investing activities used $3.2 million. Activities in 1998 included $31.7
million in proceeds from the sale of Manufacturing and $.5 million used for
asset acquisitions, while 1997 activities consisted of $1.1 million used for
asset acquisitions and $2.2 for the final payment to purchase TBP. Financing
activities used $26.6 million through April 4, 1998, with $27.1 million used
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to reduce long-term debt and $.4 million by short-term financing. Of the
reduction of long-term debt, $20.7 million was used to reduce the revolving line
of credit, $4.8 million was used to retire the acquisition term loan, $1.3
million was used to retire the Industrial Revenue Bond, and $.3 was used for
principal payments under capital lease obligations. The $45.0 million difference
in the financing requirements from first quarter 1998 and the comparable period
in 1997 is primarily due to the sale of Manufacturing in 1998.
On February 3, 1998, in connection with the sale of Manufacturing, the
Company and its bank group entered into an amended and restated credit agreement
which provides for a revolving credit facility of up to $65 million, including a
sub-line of up to $30 million for permitted acquisitions, and a letter of credit
facility of up to $5 million. Borrowings under the facility bear interest at
either the bank's prime rate plus a margin or LIBOR plus a margin based upon a
pricing matrix and expires on February 1, 2001. The facility contains certain
covenants, including limitations on the acquisition and disposition of assets,
the payment of dividends, and the prepayment of other indebtedness. In addition,
the Company is required to maintain earnings coverage, interest coverage and
fixed charge coverage ratios. On April 20, 1998, the Company and the bank group
entered into an amendment altering the restrictive covenants under the
agreement. The amendment has terms similar to those previously in effect or more
favorable to the Company. At April 4, 1998, the Company had borrowings of $24.6
million under the revolving credit facility.
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.
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
Manufacturing, Company-wide management restructure charges (including
terminations and the elimination of certain positions), the restructuring of
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 restructuring charges in 1996 of $4.7 million, primarily related to the
sale of the Lexington facility and the consolidation of door manufacturing
operations into the Oshkosh facility.
In 1997, the Company recorded an additional restructuring charge of $4.7
million for excessive costs incurred as a consequence of the consolidation of
manufacturing operations and the delayed start-up of the new high-speed door
manufacturing line. Additionally, the Company recorded a $1.1 million
reorganization charge in 1997 in connection with the termination of the
employment of the Vice President and Chief Financial Officer and Senior Vice
President-Human Resources and Administration of the Company. Such provision is
to cover severance and related payments to such officers.
Although Manufacturing had made progress operationally in the first half
of 1997, the Company determined that Manufacturing was not a strategic fit with
its long-term growth plans. In December 1997, the Company reached an agreement
in principle to sell the operating assets of Manufacturing to JELD-WEN, inc. The
sale was completed on February 2, 1998. The sale resulted in a charge to
earnings of $12.4 million with half the charge related to an asset write-down
and half related to the costs of selling the business including employee
severance costs, pension expenses, lease obligations and legal costs.
11
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to Amended and Restated Loan and Security Agreement,
dated April 20, 1998, among the Company, the lender parties thereto
and Fleet Capital Corporation as agent for the lenders, dated as
February 3, 1998.
10.2 Option agreement between the Company and Duane Greenly dated as of
December 18, 1996.
10.3 Amendment to the option agreement, dated January 31, 1998, between
the Company and Duane Greenly dated as of December 18, 1996.
*10.4 Supply agreement dated February 2, 1998 between JELD-WEN, inc. and
the Company.
27 Financial Data Schedule
(b) Two reports on Form 8-K were filed during the quarter
1. A Current Report on Form 8-K was filed by the Company on February 10, 1998
with respect to the sale of substantially all of the assets of Morgan
Manufacturing to JELD-WEN, inc (Commission File No. 1-9843).
2. An Amendment on Form 8-K/A to the Current Report on Form 8-K filed on
February 10, 1998, was filed by the Company with the respect to the sale
of substantially all of the assets of Morgan Manufacturing to
JELD-WEN,inc. on March 24, 1998 to include the unaudited pro forma
combined financial statements (Commission File No. 1-9843).
* Not filed herewith. Confidential treatment requested pursuant to Rule
24b-2 of the Securities Exchange Act of 1934.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORGAN PRODUCTS LTD.
Date: April 28, 1998 By: /s/ Mitchell J. Lahr
-------------------------
Mitchell J. Lahr
Vice President, Secretary
and Chief Financial Officer
(For the Registrant and as
Principal Finance Officer)
13
04/06/98
FIRST AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
FIRST AMENDMENT, dated as of April 20, 1998, to the Amended and
Restated Loan and Security Agreement, dated as of February 3, 1998, among Morgan
Products Ltd. ("Borrower"), a Delaware corporation, the Lenders named therein
and Fleet Capital Corporation, as Agent and Lender.
WHEREAS, Borrower, the lender signatories thereto ("Lenders") and
Fleet Capital Corporation ("FCC") as agent for such Lenders (FCC, in such
capacity, "Agent") entered into a certain Amended and Restated Loan and Security
Agreement dated as of February 3, 1998 (said Amended and Restated Loan and
Security Agreement, the "Loan Agreement"); and
WHEREAS, Borrower, Lenders and Agent desire to amend certain
provisions of the Loan Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained and contained in the Loan Agreement, 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 them in the Loan Agreement.
2. Additional Definition. The following definition of "Rolling
Period" is hereby added to the definitions contained in Appendix A of the Loan
Agreement.
* * *
"Rolling Period - as of any date of calculation, the immediate
preceding four full fiscal quarters; provided, however that prior to the fiscal
quarter ended on December 31, 1998, for purposes of calculating the financial
covenants under Section 8.3, for the Rolling Periods ending (i) April 4, 1998,
EBITDA from April 6, 1997 through December 31, 1997 shall be deemed to equal
$5,000,000; (ii) July 4, 1998, EBITDA from July 6, 1997 through December 31,
1997 shall be deemed to equal $2,600,000; and (iii) October 3, 1998, EBITDA from
October 5, 1997 through December 31, 1997, shall be deemed to equal $200,000."
* * *
3. Amended Definitions. The definition of "Applicable Margin"
contained in Appendix A to the Loan Agreement is hereby deleted and the
following is inserted in its stead:
* * *
<PAGE>
Applicable Margin - a percent determined by the ratio of the
Borrower's Money Borrowed to EBITDA for the Rolling Period then ended, as set
forth in Borrower's annual or quarterly financial statements delivered pursuant
to Section 8.1.3 of the Agreement pursuant to the following schedule:
Ration of Money Borrowed Applicable Margin Applicable Margin
to Annualized EBITDA or (Prime Portion) (LIBOR Portions)
EBITDA (as applicable)
less than 1.5 to 1 0% 1%
greater than and equal to 1.5 to 1
but less than 2.0 to 1 0% 1.25%
greater than and equal to 2.0 to 1
but less than 2.50 to 1 0% 1.50%
greater than and equal to 2.5 to 1
but less than 3.0 to 1 0% 1.75%
greater than and equal to 3.0 to 1
but less than 3.50 to 1 .25% 2.00%
greater than and equal to 3.5 to 1 .50% 2.25%
As of February 3, 1998 the Applicable Margin shall be zero percent
(0%) (Prime Portion) and one and one-half percent (12%) (LIBOR Portions).
Changes in the Applicable Margins shall be made quarterly, commencing with the
fiscal quarter ended December 31, 1998 and shall be effective as of the first
day of the month in which Borrower delivers to Agent the financial statements
for the applicable fiscal quarter or year in accordance with Section 8.1.3.
* * *
4. Specific Financial Covenants. Section 8.3 of the Loan Agreement
is hereby deleted and the following is inserted in its stead:
"8.3 Specific Financial Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations (other than
contingent indemnity Obligations arising from any claim unknown to Borrower,
Agent or any Lender) to Lenders, Borrower covenants that, unless otherwise
consented to by Required Lenders in writing, it shall:
8.3.1 Money Borrowed to EBITDA Ratio. Have at the end of each fiscal
quarter within the Original Term a ratio of Money Borrowed as at the end of the
applicable fiscal quarter to EBITDA for the Rolling Period then ended equal to
or less than the ratio set forth opposite such Rolling Period in the following
schedule:
Rolling Period Ratio
Rolling Period Ended April 4, 1998 8.50 to 1
Rolling Period Ended July 4, 1998 8.50 to 1
Rolling Period Ended October 3, 1998 6.00 to 1
2
<PAGE>
Rolling Period Ratio
Rolling Periods Ended December 31, 1998 5.50 to 1
and the last day of each fiscal quarter
thereafter
8.3.2 Interest Coverage Ratio. Have at the end of each fiscal
quarter within the Original Term, an Interest Coverage Ratio for the Rolling
Period then ended equal to or greater than the ratio set forth opposite such
Rolling Period in the following schedule:
Rolling Period Ratio
Rolling Period Ended April 4, 1998 1.25 to 1
Rolling Period Ended July 4, 1998 1.25 to 1
Rolling Period Ended October 3, 1998 and 2.00 to 1
the last day of each fiscal quarter
thereafter
8.3.3 Fixed Charge Coverage Ratio. Have at the end of each fiscal
quarter within the Original Term, commencing with the fiscal quarter ending
October 3, 1998, a Fixed Charge Coverage Ratio for the Rolling Period then ended
equal to or greater than 1.25 to 1."
* * *
5. Counterparts. This Amendment may be executed in any number of
separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
6. Continuing Effect. Except as otherwise specifically provided for
herein, the Loan Agreement remains in full force and effect.
3
<PAGE>
IN WITNESS WHEREOF, this First Amendment has been duly executed as
of the date first written above.
MORGAN PRODUCTS LTD. FLEET CAPITAL CORPORATION ("Agent"
("Borrower") and "Lender")
By: /s/ Mitchell J. Lahr By: /s/ Sandra J. Evans
Name: Mitchell J. Lahr Name: Sandra J. Evans
Title: CFO & Secretary Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND HARRIS TRUST AND SAVING BANK
SAVINGS ASSOCIATION ("Lender")
("Lender")
By: /s/ Richard J. Kerbis By: /s/ Lee A. Vandermyde
Name: Richard J. Kerbis Name: Lee A. Vandermyde
Title: Vice President Title: Vice President
4
OPTION AGREEMENT
AGREEMENT dated as of the 18th day of December, 1996 (the "Agreement")
between MORGAN PRODUCTS LTD., a Delaware corporation having its principal place
of business at 469 McLaws Circle, Williamsburg, Virginia 23185 (the "Company"),
and Duane Greenly (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Optionee the option of
acquiring shares of the common stock, par value $.10 per share, of the Company
(the "Common Stock"); and
WHEREAS, the Optionee desires to have the option to acquire shares of
Common Stock;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, the parties hereto agree as follows:
1. Definitions. As used herein, the following words and phrases shall
have the following meanings:
(a) Board: The Board of Directors of the Company.
(b) Change of Control shall mean the occurrence of any one or more of the
following:
(i) Any transaction or series of transactions which, within
a twelve (12) month period, constitute a change of management or control,
which shall be deemed to have occurred whenever;
(1) At least thirty-five percent (35%) of the then
outstanding shares of Common Stock of the Company are for cash, property
(including, without limitation, stock in any corporation), or
indebtedness, or any combination thereof redeemed by the Company or
purchased by any person(s), firm(s) or entity(ies), or
<PAGE>
exchanged for shares in any other corporation whether or not affiliated
with the Company, or any combination of such redemption, purchase or
exchange, or
(2) At least fifty-one percent (51%) of the Company's
assets are acquired by any person(s), firm(s) or entity(ies) whether or
not affiliated with the Company for cash, property (including without
limitation, stock in any corporation) or indebtedness or any combination
thereof, or
(3) During any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the Board (and
any new Director, whose election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the Directors then
still in office who either were Directors at the beginning of the period
or whose election or nomination for election was so approved), cease for
any reason to constitute a majority thereof, or
(4) The Company is merged or consolidated with another
corporation regardless of whether the Company is the survivor.
(ii) Any substantial equivalent of any such redemption,
purchase, exchange, transaction or series of transactions, acquisition,
merger or consolidation, which the Board of Directors reasonably
determines constitutes such a change of management or control.
For purposes of the foregoing definition the term "control"
shall have the meaning ascribed thereto under the Securities Exchange Act
of 1934, as amended, and the regulations thereunder, the term "management"
shall mean both the Chief Executive Officer and the Chief Operating
Officer of the Company.
(c) Code: The Internal Revenue Code of 1986, as amended.
2
<PAGE>
2. Grant of Option. The Company hereby grants to the Optionee, as of the
day and year first written above, the right, option and privilege (the "Option")
to purchase from the Company up to 90,000 shares (the "Option Shares") of Common
Stock. The Option may be exercised only in accordance with the terms and
conditions of this Agreement.
3. Term of Option. The term of the Option shall be until the close of
business on December 18, 2006 unless sooner terminated under the provisions of
Section 5 hereof.
4. Option Price. The price to be paid to the Company for each of the
Option Shares purchased pursuant to this Agreement shall be seven dollars
($7.00).
5. Exercise of Option.
(a) Exercise During Term. The Option shall be exercisable only during
the term of the Option.
(b) Procedure for Exercise. The Option shall be deemed to be exercised
when the Optionee (or the person authorized to exercise the Option on behalf of
the Optionee under Section 6(c) hereof) delivers to the Company at its address
as given in the Agreement and to the attention of the Secretary:
(i) Written notice of such exercise, which notice shall
identify this Agreement and shall specify the number of shares of Common
Stock being so acquired and the per share purchase price of such Common
Stock; and
(ii) Payment for the shares of Common Stock being so
acquired, made in full by certified or bank cashier's check.
(c) Vesting of Option. Except as otherwise provided in Section 5(d) and
(e) hereof, the Option shall be exercisable (i) to the extent of twenty-five
percent (50%) of the total number of shares covered by the Option at any time
after December 18, 1996, and (ii) to the extent of
3
<PAGE>
seventy-five percent (75%) of the total number of shares covered by the Option
at any time after December 18, 1997, and (iii) to the extent of one hundred
percent (100%) of the total number of shares covered by the Option at any time
after December 18, 1998; provided, however, that to the extent the Option is not
exercised in any such period for the total number of shares for which it could
have been exercised, such unexercised portion of the Option shall be exercisable
during the remaining term of the Option.
(d) Acceleration in the Event of a Change of Control. Notwithstanding
Section 5(c), in the event of a Change of Control of the Company during the term
of the Option, the Option shall, effective as of the effective time of the
Change of Control, become exercisable with respect to all unexercised shares
thereunder.
(e) Acceleration Upon Achieving Budgeted Income Before Income Taxes.
Notwithstanding Section 5(c), provided that the Option shall have been
outstanding for at least 180 days during any fiscal year, the Option shall
become exercisable with respect to all unexercised shares thereunder upon a
determination that the Company has met 100% of the targeted business plan for
such fiscal year of the Company. The determination that the Company has met 100%
of such targeted business plan shall be based upon the Company's audited
financial statements for such fiscal year, with the date of such determination
being the date of certification of such financial statements by the independent
accountants for the Company.
6. Termination of Option.
(a) Termination of Employment. If the Optionee shall cease to be an
employee of the Company for any reason other than retirement, death or permanent
and total disability (as defined in Section 22(e)(3) of the Code) and other than
after a Change of Control, the Option shall at once terminate. This Agreement
shall not confer upon the Optionee any right with
4
<PAGE>
respect to continuation of employment by the Company, nor shall it interfere in
any way with the Optionee's right or the Company's right to terminate the
Optionee's employment.
(b) Retirement of Optionee. In the event of the retirement of the Optionee
during the term of the Option and while in the employ of the Company and in
accordance with the Company's retirement policies, the Option may be exercised
at any time within ninety (90) days following the date of retirement to the
extent the Option could be exercised under Section 5 hereof on the date of
retirement.
(c) Death or Disability of Optionee. In the event of the death of the
Optionee or the termination of employment of the Optionee due to permanent and
total disability (as defined above) during the term of the Option and while in
the employ of the Company, the Option may be exercised at any time within twelve
(12) months following the date of death or the termination of employment due to
such permanent and total disability, as the case may be, to the extent the
Option could be exercised under Section 5 hereof on the date of death or
termination of employment. In the case of death of the Optionee, the Option may
be exercised by the estate of the Optionee or by a person who is the Optionee's
spouse or surviving child and who acquired the right to exercise the Option by
bequest or inheritance.
(d) Change of Control of Company. In the event the Optionee's employment
with the Company (or any successor company) is terminated after a Change of
Control, the Option shall remain exercisable for a period equal to the lesser of
(i) seven (7) calendar months after such termination of employment or (ii) the
remainder of its term.
(e) The provisions of this Section 6 shall not operate to extend the term
of the Option as stated in Section 3 hereof.
5
<PAGE>
7. Nontransferability of Option. The Option may not be transferred in any
manner other than by will or by the laws of descent or distribution. The
exercise of an Option so transferred shall be subject to the terms of this
Agreement.
8. Compliance with Securities Laws. The Optionee acknowledges, represents,
and agrees that:
(a) The Company shall not be obligated to transfer Option Shares pursuant
to the exercise of the Option granted under this Agreement unless the exercise
of such Option and the transfer of such Option Shares shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the applicable state securities laws.
(b) The Company shall be entitled to rely upon an opinion of counsel
selected by the Company as to whether any such transfer would be lawful.
(c) All Common Stock purchased pursuant to the Option granted under this
Agreement is being purchased for investment and not with a view to the
distribution or resale thereof; and
(d) Common Stock purchased pursuant to the Option granted under this
Agreement will not be sold, assigned, or transferred except in compliance with
applicable federal and state securities laws.
9. Adjustment of Shares. In the event of any change in corporate
capitalization, such as a stock split, or a corporate transaction, such as any
merger, consolidation, separation, including a spin-off, or other distribution
of stock or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or any partial or complete liquidation of the Company, an adjustment shall
be made in the
6
<PAGE>
number and class of the Option Shares, and in the number and class of and/or
price of the shares of Common Stock subject to the outstanding Option granted
under this Agreement, as may be determined to be appropriate and equitable by
the Board, in its sole discretion, to prevent dilution or enlargement of rights;
provided, however, that the number of shares subject to any Option shall always
be a whole number.
10. Registration or Qualification of Shares. Notwithstanding anything
herein to the contrary, no Option granted hereunder may be exercised, and no
shares shall be issued with respect to the Option granted under this Agreement,
unless at the time of exercise either (A)(i) a registration statement has been
filed with the Securities and Exchange Commission which has become effective
with respect to the shares subject to the Option; (ii) appropriate registration
or qualification has been effected under applicable state securities laws; (iii)
the exercise of the Option and the issuance and delivery of such shares pursuant
thereto shall comply with all applicable provisions of law and the requirements
of any stock exchange upon which the shares may then be listed; or (B) the Board
shall have determined, based upon the advice of counsel, that an exemption from
registration shall be available with respect to the issuance of shares subject
to the Option, and the issuance and delivery of such shares pursuant thereto
shall comply with all applicable provisions of law. Any such exercise of the
Option and the issuance of shares with respect thereto shall be further subject
to the approval of counsel for the Company with respect to such compliance.
11. Withholding Tax. The Company may make such provisions as it may deem
appropriate for the withholding of any taxes which the Company determines it is
required to withhold in connection with the grant or exercise of the Option
granted under this Agreement or the disposition of any Common Stock acquired
pursuant to the exercise of the Option, and may authorize the Optionee to
satisfy such withholding obligations by having the Company withhold
7
<PAGE>
the number of shares of Common Stock under the Option necessary to satisfy all
or part of the withholding liability.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware
13. Merger. This Agreement memorializes the terms of the Option authorized
to be granted to the Optionee by action of the Board on December 18, 1996 and
supersedes any other agreement, written or oral, between the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
Attest: MORGAN PRODUCTS LTD.
- ------------------------------------- By: /s/ Larry R. Robinette
Name: Larry R. Robinette
Title: President and CEO
- ------------------------------------- /s/ Duane Greenly
Name: Duane Greenly
8
MORGAN PRODUCTS LTD.
469 MCLAWS CIRCLE
WILLIAMSBURG, VIRGINIA 23185
January 31, 1998
Mr. Duane Greenly
c/o Morgan Manufacturing
500 Park Plaza
Oshkosh, Wisconsin 54901
Dear Duane:
Reference is made to that certain Option Agreement (the "Option
Agreement") dated as of December 18, 1996 between Morgan Products Ltd. (the
"Company") and you. Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Option Agreement.
The parties hereto agree that the Option Agreement is hereby amended
as follows:
1. Section 5(d) of the Option Agreement is hereby deleted in its
entirety and replaced with the following:
(d) Acceleration in the Event of a Change in Control or Sale
of Manufacturing Division. Notwithstanding Section 5(c), in the event of (i) a
Change in Control (as defined in the Plan) during the term of the Option, or
(ii) the acquisition of all or substantially all of the assets of the
manufacturing division of the Company by JELD-WEN, inc. on or before August 31,
1998 for cash, property (including without limitation, stock in any corporation)
or indebtedness or any combination thereof (a "Sale of Manufacturing"), then the
Option shall, effective as of the effective time of the Change of Control or
Sale of Manufacturing, become exercisable with respect to all unexercised shares
thereunder; provided, that, no Sale of Manufacturing shall become effective (i)
until the expiration of six (6) months following the closing of the Sale of
Manufacturing (the "Transition Period") in respect of such Sale of
Manufacturing, and (ii) unless the Optionee remains an employee of the acquiror
or the Company, as the case may be (except as provided in Section 6(d) below),
until the end of the Transition Period; and provided, further, that the
exercisability of any portion of the Option that may have already vested and
become exercisable prior to the closing of the Sale of Manufacturing pursuant to
the terms of Section 5(c) shall also be subject to the provisions of this
Section 5(d). At such time as the Sale of Manufacturing becomes effective, the
option shall be fully exercisable for a period equal to the lesser of seven (7)
months after such effective date or the remainder of its term.
<PAGE>
2. Section 6(a) of the Option Agreement is hereby deleted in its
entirety and replaced with the following:
(a) Termination of Employment. If the Optionee shall cease to
be an employee of the Company for any reason other than retirement, death or
permanent and total disability (as defined in Section 22(e) (3) of the Internal
Revenue Code of 1986, as amended (the "Code")), and other than after a Change in
Control or Sale of Manufacturing, the Option shall at once terminate. This
Agreement shall not confer upon the Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with the Optionee's right to terminate the Optionee's employment.
3. Section 6(d) of the Option Agreement is hereby deleted in its
entirety and replaced with the following:
(d) Change in Control of Company and Sale of Manufacturing. In
the event that (i) the Optionee's employment with the Company (or any successor
company) is terminated after a Change in Control, (ii) the Optionee is hired as
an employee of the acquiror after a Sale of Manufacturing and the Optionee's
employment with the acquiror is terminated by the acquiror without cause during
the Transition Period or (iii) the Optionee is not hired by the acquiror and the
Optionee's employment with the Company is terminated without cause during the
Transition Period, then the Option shall remain exercisable for a period equal
to the lesser of (i) seven (7) calendar months after the expiration of the
Transition Period, or (ii) the remainder of its term.
No other term or provision of the Option Agreement shall be amended,
modified or changed except as provided herein. From and after the date hereof,
any reference to the Option Agreement shall be deemed to be a reference to the
Option Agreement as amended hereby.
If you are in agreement with the foregoing please so indicate by
executing below in the space provided.
MORGAN PRODUCTS LTD.
By:/s/ Larry R. Robinette
------------------------------------------
Name:Larry R. Robinette
Title:President & CEO
Accepted and agreed
this 31 day of January, 1998
/s/ Duane R. Greenly
- -------------------------------
Duane Greenly
2
SUPPLY AGREEMENT
This supply agreement (the "Agreement") is made between the following parties on
February 2, 1998:
JELD-WEN, inc.
an Oregon corporation ("JELD-WEN"),
- and -
Morgan Products Ltd.
a Delaware corporation ("Morgan"),
WHEREAS, JELD-WEN, its subsidiaries and its affiliates (together the "Company")
is in the business of manufacturing and selling stile and rail doors and other
building products;
WHEREAS, JELD-WEN and Morgan have entered an asset purchase agreement for the
sale of Morgan's Morgan Manufacturing division to JELD-WEN (the "Asset Purchase
Agreement");
WHEREAS, Morgan is in the business of distributing building products;
WHEREAS, the Company would like to have a steady customer for its products and
Morgan would like to have a steady supplier of products for its distribution
operations;
* * *
THEREFORE, in consideration of each other's promises herein and in the Asset
Purchase Agreement, JELD-WEN and Morgan (together the "Parties") agree to the
following terms and conditions in this Agreement:
ARTICLE I - DEFINITIONS
1.1 Terms. The following terms shall have the following meanings:
"Products"
* * *
1.2 Preamble Integration. The preamble hereto is hereby
incorporated into this Agreement and forms an integral part
thereof.
ARTICLE II - TERM OF AGREEMENT
2.1 Term.
* * *
ARTICLE III - PURCHASE OBLIGATIONS
* * *
3.5 Marketing. Morgan shall use its reasonable best efforts to market
and sell the Products.
ARTICLE IV - SUPPLY OBLIGATIONS
* * *
ARTICLE V - TERMS AND CONDITIONS OF SALES
* * *
5.1 Morgan shall pay all invoices for its purchase of Products
from the Company pursuant to the Company's communicated
standard credit terms, as they may be modified from time to
time by the Company.
5.2 Warranties. The Products shall be covered by and subject to the
Company's standard warranties. Morgan undertakes and agrees that
it will not furnish to any customer or prospective customer, any
warranties, undertakings or guarantees of any nature whatsoever
which may tend to involve the responsibility or liability of the
Company, without the consent of the Company, and Morgan agrees
that if it breaches this promise, it will indemnify and save the
Company harmless from any claims, demands, damages, costs or
losses whatsoever arising out of or in any way connected with such
warranties, undertakings or guarantees.
Morgan agrees to honour the terms and conditions of the Company's
standard form warranty in effect on the date of sale of any such
Products by Morgan, at JELD-WEN's expense, subject to obtaining
JELD-WEN's prior authorization to perform service for Products
under warranty.
ARTICLE VI - TERM AND TERMINATION
6.1 Termination Events. This Agreement shall be capable of
termination at any time by either Party forthwith upon written
notice to the other Party in the event that:
a. Assignment for Creditors. The other Party makes an
assignment for the benefit of its creditors or
admission of its inability to pay its obligations as they
become due;
b. Financial Insolvency. The other Party files a voluntary
petition in bankruptcy or any pleading seeking any
reorganization, liquidation or dissolution under any law,
or admits or fails to contest the material allegations of
any such pleading filed against it, or is adjudicated
bankrupt or insolvent or a receiver is appointed for a
substantial part of the assets of such Party or the claims
of creditors of such Party are abated or subjected to a
moratorium under any law or if execution is levied against
a substantial part of such Party's assets;
c. Assignment Without Consent. The other Party purports to
make an assignment of this Agreement without the prior
written consent of the first Party; or
d. Breach. The other Party has violated one or several
provisions of this Agreement and fails to remedy such
default within a period of 30 days of written notice
thereof from the first Party.
* * *
6.2 Termination Effects.
a. Return of Information. Upon termination of the
relationship between the Parties, Morgan agrees to
forthwith deliver to the Company all samples, pricing
information, cost information, customer information
including all copies of customer lists in the possession
of Morgan, strategies, plans and such other books,
documents, record and confidential information as may have
been kept by Morgan in connection with this Agreement.
Morgan acknowledges and confirms that all such documents
are the exclusive property of the Company. Morgan hereby
appoints JELD-WEN as its true and lawful attorney to take
possession of all such items.
Upon termination of this Agreement, any and all rights and
privileges Morgan has under this Agreement shall
terminate. Upon termination of this Agreement, Morgan will
immediately discontinue all uses of the Company's
trademarks and tradenames and copyrighted materials,
except those licensed by Morgan to JELD-WEN, to the extent
they preserve Morgan's rights to such intellectual
property.
In the event of termination, the Company agrees to return
to Morgan any information or property of Morgan Products,
Ltd.'s Morgan Distribution operations and any of such
operations' confidential information.
b. Remedies. The Parties acknowledges that a breach of any of
the provisions contained in this Agreement may cause a
Party great and irreparable injury and damage, which
cannot be reasonably or adequately compensated only in
damages in any action in law and hereby expressly agrees
that either Party shall be entitled to remedies of
injunction, specific performance and other equitable
relief to prevent a breach or recurrence of a breach of
this Agreement by the other Party.
6.3
* * *
ARTICLE VII - MISCELLANEOUS PROVISIONS
7.1 Nature of Relationship. This Agreement does not constitute
Morgan as an agent, employee, legal representative or attorney
of the Company for any purpose.
The status of Morgan shall be that of an independent contractor
and Morgan shall have no authority to assume or create any
obligation whatsoever, expressed or implied, in the name of the
Company, nor to bind the Company in any manner whatsoever.
Morgan shall have no authority hereunder to enter into any
contract of sale or employment on behalf of the Company, nor to
endorse the Company's checks, nor to make allowances or
adjustments on Morgan's accounts for the return of merchandise,
except pursuant to written authorization of the Company.
7.2 No Assignment. Neither this Agreement nor any rights hereunder
shall be in any way assignable by either party either directly or
indirectly to any other person, firm or corporation without
the prior written consent of the other.
7.3 Severability. Each and every term, condition and provision of this
Agreement is and shall be severable one from the other, and in the
event that any term, condition or provision hereof is at any time
declared by a court of competent jurisdiction to be void, invalid
or unenforceable, the same shall not extend to invalidate, make
void or unenforceable any other term, condition or provision of
this Agreement.
Any such term, condition or provision shall be replaced by a term,
condition or provision which legally and economically comes
closest to the desired purpose and intent of the void, invalid or
unenforceable provision.
7.4 Notices. Any notices, designation or other communication
acquired or permitted by this Agreement shall be in writing and
shall be deemed to have been given when delivered by hand or
sent by overnight mail to the other Party, one (1) day after
being sent by overnight mail to the respective addresses as
follows:
To the Company:
Attn: Doug Kintzinger
JELD-WEN, inc.
3250 Lakeport Blvd.
Klamath Falls, Oregon 97601
To Morgan:
Attn: Larry Robinette
Morgan Products, Ltd.
469 McClaws Circle
Williamsburg, Virginia 23185
or at such other address as such person may have previously
furnished in writing to the other in the manner herein-before
described.
7.5 Integration. This Agreement supersedes any prior
understandings or written or oral agreements between the
Parties respecting the within subject matter and contains
the entire understanding between the Parties with respect
thereto.
7.6 Time of the Essence. Time is hereby declared to be of the essence
of this Agreement.
7.7 Governing Law. Notwithstanding the place of agreement, the place
of performance, the place of payment or otherwise, this Agreement,
and all amendments, modifications, alterations or supplements
hereto shall be interpreted and construed according to and shall
be governed by the laws of Wisconsin which for all purposes shall
be the proper law of this Agreement.
7.8 Confidential Information. The Parties recognize and acknowledge
that their relationship with each other is based on trust and
reliance and that in the course of this Agreement, each will be
entrusted with confidential information about the other and the
other's customers as well as technology relating to the Products,
the use or disclosure of which confidential information would be
highly detrimental to the business of the other Party and its best
interests and would impair, damage or destroy the business of the
other Party.
As a result, each party agrees during the term of this Agreement
and at all times thereafter, neither the party nor any of its
owners, officers or personnel shall disclose to any third party
any information imparted to it by the other which the party knows
or has reason to believe to be a trade secret or otherwise
confidential.
Each party shall be fully responsible to the other for any
non-compliance with the provisions of this Section 7.8 by any of
party's owners, officers or personnel to the extent that
compliance by such persons is enforceable by the party under
applicable law.
Upon termination of the relationship between the Parties, the
Company agrees to forthwith deliver to Morgan any documents,
information and property of Morgan and any of Morgan's
confidential information. The Company hereby appoints Morgan as
its true and lawful attorney to take possession of such items.
7.9 Legal Counsel and Drafting. The Parties acknowledge and agree: 1)
that each has been represented by counsel of their own choosing in
the negotiation and preparation of this Agreement; 2) that they
have read this Agreement; 3) that they have had the Agreement
fully explained to them by such counsel; and 4) that they are
fully aware of the contents and legal effect of this Agreement.
Furthermore, both Parties participated in the drafting of this
Agreement and neither shall be deemed its drafter or construed as
causing any uncertainty or ambiguity as to any of its provisions.
7.10 Amendments and Waivers. Any term or provision of this Agreement
may be waived without affecting any of the rights, conditions, or
limitations relating to the other terms and conditions of this
Agreement at any time by an instrument in writing signed by the
Party which is entitled to the benefits thereof and this Agreement
may be amended or supplemented at any time by an instrument in
writing signed by all Parties hereto.
7.11 Force Majeure. JELD-WEN shall be excused for delay in performance
or from nonperformance of this Agreement due to extreme weather
conditions, war, fire, strikes, riots, lockouts, civil commotion,
cessation or stoppage of labor, extraordinary breakdown, acts of
God, or for any other cause reasonably beyond the control of
JELD-WEN.
* * *
In the case of a force majeure event, the Company shall give
Morgan reasonably prompt notice in writing of the event.
7.12 Attorney Fees. In the event of litigation or arbitration arising
out of this Agreement or any provision of this Agreement,
including, but not limited to, the collection of monies owing
JELD-WEN for the purchase of Products, any breach of this
Agreement, the prevailing Party in any such litigation or
arbitration shall be entitled to recover its reasonable costs and
reasonable attorney fees, including fees on appeal, if any, in
addition to other relief awarded.
7.13 Waiver. Failure of either Party at any time, or from time to time,
to enforce any of the terms of this Agreement shall not be
construed to be a waiver of such term or such Party's right to
thereafter enforce each and every provision of this Agreement. No
waiver of any term or condition of this Agreement shall be
effective unless made in writing signed by the Party against whom
any such waiver is sought to be enforced.
7.14 Marks, Advertising
* * *
7.15 No Inconsistent Actions. JELD-WEN and Morgan will not voluntarily
undertake any course of action materially inconsistent with the
provisions or intent of this Agreement, and each such Party will
promptly do all acts and take all such measures as may be appropriate
to comply in all material respects, as soon as practicable, with the
terms, conditions and provisions of this Agreement.
The Parties signing below agree to all of the terms of this Agreement.
JELD-WEN, inc. Morgan Products Ltd.
By: /s/ Douglas P. Kintzinger By: /s/ Larry Robinette
Douglas P. Kintzinger Larry Robinette
Its Secretary Its President
* * *
Confidential portion omitted and filed separately with the
Commission pursuant to Rule 24b-2 of the Securities Exchange Act
of 1934.
<PAGE>
Exhibit A
* * *
<PAGE>
Exhibit B
* * *
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Morgan
Products Form 10-Q as of April 4, 1998 and is qualified in its entirety by
reference to such Form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-END> APR-4-1998
<FISCAL-YEAR-END> DEC-31-1998
<CASH> 663
<SECURITIES> 0
<RECEIVABLES> 34,191
<ALLOWANCES> 885
<INVENTORY> 35,974
<CURRENT-ASSETS> 71,103
<PP&E> 24,385
<DEPRECIATION> 14,306
<TOTAL-ASSETS> 92,324
<CURRENT-LIABILITIES> 21,013
<BONDS> 30,454
0
0
<COMMON> 44,405
<OTHER-SE> (3,548)
<TOTAL-LIABILITY-AND-EQUITY> 92,324
<SALES> 80,154
<TOTAL-REVENUES> 80,154
<CGS> 68,627
<TOTAL-COSTS> 81,235
<OTHER-EXPENSES> (87)
<LOSS-PROVISION> 13
<INTEREST-EXPENSE> 554
<INCOME-PRETAX> (1,548)
<INCOME-TAX> 30
<INCOME-CONTINUING> (1,578)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,578)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
