2
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, 1997
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)
<TABLE>
<S> <C>
DELAWARE 06-1095650
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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
Common Stock $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
</TABLE>
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. __
Aggregate market value of voting stock of the Registrant held by
non-affiliates as of March 9, 1998: $51,750,895.
Number of shares of Common Stock outstanding as of March 9, 1998:
10,358,310 shares; 2,386 shares are held in treasury.
<TABLE>
<CAPTION>
Documents incorporated by reference Part
<S> <C>
Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 1998 III
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I...........................................................................................................1
ITEM 1. Business....................................................................................1
ITEM 2. Properties..................................................................................7
ITEM 3. Legal Proceedings...........................................................................8
ITEM 4. Submission of Matters to a Vote of Security Holders.........................................8
PART II..........................................................................................................9
ITEM 5. Market for the Company's Common Equity and Related Stockholder
Matters.....................................................................................9
ITEM 6. Selected Financial Data....................................................................10
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......11
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.................................17
ITEM 8. Financial Statements and Supplementary Data................................................17
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......17
PART III........................................................................................................18
ITEM 10. Directors and Executive Officers of the Company............................................18
ITEM 11. Executive Compensation.....................................................................19
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.............................20
ITEM 13. Certain Relationships and Related Transactions.............................................20
PART IV.........................................................................................................21
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........................21
</TABLE>
<PAGE>
18
PART I
ITEM 1. Business
The Company
Morgan Products Ltd. (the "Company"), founded in 1855, is a leading
distributor of millwork and other specialty building products, serving primarily
the residential construction market. The Company offers its customers a full
range of products that are sold through 16 Company-operated distribution
centers, including premium window systems manufactured by Andersen Corporation
("Andersen"), as well as leading brand-name interior and exterior Therma-Tru(R),
Morgan(R) and Nicolai(R) and Premdor(R) doors and entrance systems. The Company
sells its distributed products primarily to lumber yards (which, in turn, supply
the end-user), directly to builders or other end-users and to home center chains
and other volume retailers. The Company currently operates distribution centers
in 11 states and primarily serves markets in the Northeast, Midwest and
Southeast regions of the United States.
Faced in 1997 with continued disappointing performance of the Company's
manufacturing business ("Morgan Manufacturing"), and despite significant
improvements in operations, the Company decided in late 1997 to dispose of
Morgan Manufacturing. On February 2, 1998, the Company completed the sale of
substantially all of the assets of Morgan Manufacturing to JELD-WEN, inc., a
privately-held manufacturer of doors, windows and other millwork products based
in Klamath Falls, Oregon ("JELD-WEN"), for a sale price of approximately $38.475
million, subject to post-closing adjustments. Also in connection with the sale
of Morgan Manufacturing, the Company and JELD-WEN entered into an arrangement
for JELD-WEN to supply the company with products. With the sale of Morgan
Manufacturing, the Company has exited completely from the wood stile and rail
door manufacturing business. See "--Recent Developments" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Strategic Initiatives."
The Company is headquartered in Williamsburg, Virginia. In view of the
nature of its manufactured products and the types of products distributed,
management believes that the Company's business in 1997 and prior periods
constituted a single industry segment.
Business
The Company sells specialty building products, including Andersen
window systems, through 16 Company-operated distribution centers. In 1997,
approximately 85% of the Company's total sales were generated by its
Company-operated distribution centers.
The following is a list of Company-operated distribution centers as of
February 3, 1998:
Baton Rouge, Louisiana
Birch Run, Michigan
Charlotte, North Carolina
Chattanooga, Tennessee
Decatur, Illinois
Denver, Colorado
Gainesville, Virginia
Greenville (Greer), South Carolina
Harrisburg (Mechanicsburg), Pennsylvania
Kansas City (Shawnee), Kansas
Nashville, Tennessee (2 centers)
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.
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 and door systems; 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.
The Company conducted its disposed manufacturing business in Oshkosh,
Wisconsin where it manufactured premium wood interior and exterior door and
entrance systems and other specialty millwork.
Strategic Initiatives
The Company believes that it is well positioned in the millwork
industry to continue to establish a leading distribution network through its
ability to add value to its products and services. The Company intends to
capitalize on the well-known brand names for the quality products it
distributes, its outstanding reputation for customer service, its multi-channel
distribution capabilities and access to financial resources, which the Company
believes are substantial competitive advantages. In recent years, however, the
Company was hurt by operational and financial difficulties at Morgan
Manufacturing relating to the consolidation of manufacturing operations and the
late delivery of the high-speed door assembly line, rising raw materials prices,
the Company's customer base shifting its requirements to a less profitable
product mix, and poor financial results.
Since 1994, the Company has adopted a comprehensive strategic plan to
respond aggressively to industry consolidation, to restore profitability and to
regain industry leadership. As part of this plan, the Company has initiated
efforts designed to help the Company focus on its core business and outperform
the competition. Those efforts include reducing costs, expanding focus on
financial analysis, increasing market share through acquisitions and
"greenfields," improving operating performance at existing distribution centers
and improving its information management systems.
One major step in executing the Company's strategic plan was the sale
of the Company's manufacturing operations on February 2, 1998 to JELD-WEN.
Although Morgan Manufacturing had made significant progress operationally by the
middle of 1997, the disappointing financial performance of the manufacturing
operations continued and the Company made the decision to divest Morgan
Manufacturing. With the sale of Morgan Manufacturing, the Company has exited
completely from the wood stile and rail door manufacturing business. The
Company's management, who were devoting a significant amount of time and energy
to a business that was not a strategic fit with the Company's long-term growth
plans, will now be able to focus their efforts solely on the Company's
distribution operations.
An important part of the Company's strategic plan is to expand its
distribution capabilities. The Company believes that its principal opportunity
for growth is through acquisitions which capitalize on industry consolidation.
The Company is focused on regions with high growth. Other opportunities for
growth are in the further penetration of its existing markets, the establishment
of new Company-operated distributorships and the addition of new product lines
for distribution through Company-operated distribution centers. The new credit
facility the Company entered into in February 1998 with its lending group will
provide a source of funds to support the Company's growth strategy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
In implementing its plan to expand, in August 1996, the Company
acquired substantially all of the business and assets of Tennessee Building
Products, Inc. ("TBP"), a regional millwork and specialty building products
distributor 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 April 1997, the Company entered the Louisiana market in a joint
effort with Andersen to increase market share in the region. The Company was
awarded sole distribution rights for Andersen's products in Louisiana, as well
as in most counties in Mississippi and some in Texas. This was a "greenfield"
distribution start-up operation, which allows the Company to serve the Baton
Rouge market on a one-step basis (selling directly to the end-user) and to serve
the rest of the region primarily through two-step operations (selling to
lumberyard dealers who in turn sell to the end-user).
In July 1997, the Company acquired Wahlfeld Manufacturing Company
("Wahlfeld"), a distributor of millwork and other building products, located in
Peoria and Aurora, Illinois. Acquiring this two-step distributor enabled the
Company to substantially reduce the basic cost structure of its business in this
market by consolidating inventories and operating functions into the Company's
existing Illinois locations. The Wahlfeld acquisition also allowed the Company
to become the sole distributor for the Andersen Window product lines in most of
Illinois. In addition, the Company expanded its market area in the Carolinas by
opening a sales office and showroom in Pinehurst, North Carolina in October
1997. Although the Company had historically sold into this market, establishing
a sales office and showroom has enabled the Company to better serve this growth
area with high-end, quality products.
The Company will also consider opportunities for partnering with third
parties in bringing new and innovative products to the marketplace in response
to the evolving needs of the residential construction market. For example, the
Company opened a RenewalSM by Andersen retail operation in the Kansas City area
in late 1996. The Renewal by Andersen operation (which is aimed at the
replacement window buyer) sells Fibrex(TM) window systems. 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Strategic Initiatives."
In 1997, the Company began implementing several elements of its new
financial reporting information system which will be completed in 1998. In
addition, an automated customer order entry system will be installed at the
first distribution center during the second quarter of 1998 and is targeted to
be finished in 1999. The Company intends to take its efforts in the operations
systems arena far beyond the elements of standard software packages to include
state-of-the-art customer/supplier interfacing.
The steps taken by the Company in 1997 to fulfill its strategic plan
objectives have successfully built a foundation for an improved future. The
Company intends to aggressively continue pursuing the successful completion of
the plan with initiatives to complement, expand and advance the steps previously
taken.
Products
The Company distributes a full range of millwork and other specialty
building products, including window, door and entrance systems, wood, steel and
composite doors, moldings, stair parts, mantels, shutters and screens, which are
distributed to dealers, contractors and builders in the residential construction
industry. The Company's major millwork lines include Andersen premium window
systems, Morgan and Nicolai doors, ThermaTru steel and composite doors and
Premdor flush and molded doors.
Andersen products, which are sold under the "Andersen" trademark,
accounted for approximately 41.6%, 40.6% and 40.8% of the Company's total sales,
and 49.4%, 51.1% and 52.6% of the distribution division's total sales, in 1997,
1996 and 1995, respectively. 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 the Company's distributorship at any time
upon sixty (60) days notice. The Company believes that such a termination
provision is Andersen's standard arrangement with its distributors.
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 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 an estimated $125.3 billion in 1997, representing an increase of 172%.
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 Company has established a presence primarily in the Northeast,
Midwest and Southeast regions of the United States. As a result, the Company's
financial condition is less tied to a single geographic region's economy
or other characteristics. The risks to the Company posed by the cyclical nature
of the new residential construction market are somewhat offset by the less
cyclical nature of the residential improvement, maintenance and repair market.
Sales and Marketing
Through its advertising program, the Company emphasizes the residential
improvement, maintenance and repair markets. Certain of the Company's suppliers
advertise both to the trade and directly to the consumer through nationwide
print and other media. The Company's marketing programs emphasize the
strengthening of customer relationships and providing exceptional customer
service. Marketing activities include cooperative advertising programs with key
vendors, assisting customers in designing sales programs directed toward the
customers' buyers, and customer training for selling and merchandising products.
In 1997 in a continuing effort to reduce overhead and administrative expenses,
the Company consolidated its national accounts operations into its distribution
business. The Company's national accounts staff serves the Company's national
home center chain clients by training in-store personnel, assisting the customer
in improving the mix of products sold and directing in-store product placement,
packaging and merchandising.
As of December 31, 1997, the Company employed approximately 135
salespersons who sold directly to independent distributors, building supply
dealers, builders and remodelers, home improvement centers and factory home
manufacturers. The Company's sales organization consists of customer service
representatives located at each distribution center and outside field personnel
serving the customer on-site. Each outside field representative reports to his
or her regional center manager. The majority of outside sales representatives
are compensated through a commission system in which pay is directly related to
sales performance. The Company conducts ongoing educational training seminars
for all sales representatives.
Backlog
The Company anticipates no appreciable backlog level in the future as
customer orders at the Company-operated distribution centers are generally
filled within one to five days. The Company's backlogs of orders for
manufactured products at December 31, 1997 and 1996 were approximately $5.4
million and $9.6 million, respectively. Prior to the sale of Morgan
Manufacturing, backlog levels varied during the course of the year.
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. The Company does not believe that the seasonal nature of its business
will be affected by the sale of Morgan Manufacturing. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Seasonal Nature of Business."
Competition
Competition in the residential specialty building products market is
substantial, both from within the United States and from foreign manufacturers
and importers of building products. The Company's distribution centers compete
principally with other distributors of window systems and other manufacturers of
specialty building products that sell directly to the Company's target
customers. For example, the Company generally competes with up to two other
distributors of Andersen products in each territory in which the Company
distributes, as well as manufacturers and distributors of premium wood window
products that compete with Andersen products. Recently, however, the Company has
become the sole distributor of Andersen products in several regions, including
in Louisiana, most of Illinois, most counties in Mississippi and some counties
in Texas. See "--Strategic Initiatives" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Strategic
Initiatives." The Company believes that it competes in the distribution industry
primarily on the basis of the breadth of its product lines, the quality and
speed of its service and the quality and design of the products it sells. The
Company is also committed to accommodating the purchase requirements of its
customers by providing value-added services that are tailored to address each
customer's unique needs.
The wood stile and rail doors and the Andersen window systems that the
Company distributes are positioned primarily at the premium price end of their
respective markets. In addition, the Company's agreement with Andersen restricts
the Company's ability to offer for sale the window systems of other
manufacturers through the Company's distribution locations that carry Andersen
products. The Company believes, therefore, that producers and distributors of
lower priced or lower cost products may enjoy a competitive advantage where
price is the consumer's primary concern and that the Company may be
competitively disadvantaged in being restricted from offering its customers a
more varied product mix. However, the Company believes that it has a leading
position in premium interior and exterior doors and wood windows in the market
area surrounding most of its distribution centers.
Trademarks and Name
The Company's name and the Morgan Doorman logo are registered
trademarks. The Company uses its stylized "M" and its trademarks and trade names
"Tennessee Building Products, Inc.," "Titan Building Products, Inc.," "Windows,
Doors & More, Inc.," "Tennessee Kitchen and Bath," "Tennessee Glass Company,"
and "Tennessee Kitchen Center, Inc." in connection with the Company's
distribution operations. The Company considers its trademarks, trade names and
logos to be valuable to the conduct of its business. The Company also owns
certain patents which it does not consider material to the operation of its
business.
The Company has licensed its trademarks in the Company name, the
Morgan Doorman, its stylized "M" and the logos related thereto to JELD-WEN for
use in connection with the manufacture, marketing, sale and distribution of wood
stile and rail doors, patio and French doors, door frames and related parts.
Employees
As of December 31, 1997, the Company employed 1,593 persons, of whom
483 were employed at the Company's manufacturing facilities, 1,096 were employed
at the Company's distribution centers, and 14 were employed at the corporate
headquarters. Upon completion of the sale of Morgan Manufacturing on February 2,
1998, the Company employed 1,110 persons.
<PAGE>
ITEM 2. Properties
The Company's principal executive offices are located at 469 McLaws
Circle, Williamsburg, Virginia 23185. The Company does not own any real
property. The Company leased the following facilities as of February 3, 1998:
<TABLE>
<CAPTION>
Approximate Lease
Square Feet Expiring
Leased
<S> <C>
Baton Rouge, Louisiana..................................................... 22,600 2002 (2)
Birch Run, Michigan........................................................ 113,022 2005
Charlotte, North Carolina.................................................. 115,010 2000
Chattanooga, Tennessee .................................................... 20,000 2006
Chesapeake, Virginia (showroom and sales office) .......................... 30,000 1999
Decatur, Illinois.......................................................... 93,000 2001 (3)
Denver, Colorado........................................................... 39,970 2002
Greenville (Greer), South Carolina......................................... 15,000 1999 (3)
Harrisburg (Mechanicsburg), Pennsylvania (2 facilities):
Office................................................................ 15,569 1998 (3)
Warehouse............................................................. 134,906 2002 (3)
Huntsville, Alabama (showroom)............................................. 1,737 1999
Kansas City, Kansas (2 facilities):
Shawnee Warehouse..................................................... 79,500 2000 (3)
Renewal by Andersen Center............................................ 2,860 1999
Nashville, Tennessee (2 facilities):
Glass facility and showroom........................................... 26,000 2000
Warehouse and showroom................................................ 170,000 2011
Oshkosh, Wisconsin (Former Manufacturing Division Office).................. 16,000 2000 (5)
Pinehurst, North Carolina.................................................. 25,000 2000 (2)
Scranton (Dunmore), Pennsylvania........................................... 80,917 1998 (4)
Washington, D.C. (Gainesville, Virginia)................................... 79,500 2006 (3)
Weed, California........................................................... 417,605 (1) 1999 (2)
West Chicago, Illinois..................................................... 100,925 2001 (2)
West Columbia (Cayce), South Carolina...................................... 89,480 2001 (2)
Williamsburg, Virginia (Headquarters)...................................... 6,909
Wilmington (Newark), Delaware.............................................. 97,421 2000 (2)
</TABLE>
(1) Of the 417,605 square feet leased, the Company has sublet 50,000 square
feet to a third party. The remainder of such space was sublet to the
purchaser of Morgan Manufacturing until April 2, 1998, after which date
approximately 367,605 square feet will be unoccupied.
(2) Optional renewal term of five years or less.
(3) Optional renewal term in excess of five years.
(4) Of the 80,917 square feet leased, 20,145 square feet have been sublet to a
third party.
(5) The Company no longer occupies this leased space and is seeking a
subtenant.
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 8 of Notes to Consolidated Financial Statements.
The Company believes that its distribution facilities 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 14, 1997.
<PAGE>
PART II
ITEM 5. Market for the Company's Common Equity and Related Stockholder
Matters
(a) The Common Stock of the Company commenced trading on the New York
Stock Exchange on March 7, 1988 (NYSE symbol: MGN). As of March 10, 1998, there
were approximately 2,915 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 instruments, cash flow, and other factors deemed relevant by
the Board of Directors. The Company is restricted in its ability to pay
dividends through February 1, 2001 by its bank agreement.
The following table sets forth the high and low sale prices of the
Company's Common Stock reported in the New York Stock Exchange Consolidated
Transaction Reporting System.
High Low
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
1997:
First Quarter.......................... $9-5/8 $7
Second Quarter......................... 9 6-1/4
Third Quarter.......................... 8-11/16 6
Fourth Quarter......................... 6-15/16 6-7/8
On March 10, 1998, the closing price of the Common Stock was $5.25.
(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.
<PAGE>
ITEM 6. Selected Financial Data
The following table sets forth selected consolidated financial data for
the Company for each of the five years ended December 31, 1993 through 1997. The
selected operating results and balance sheet data have been derived from the
Company's audited financial statements. The information contained herein should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited consolidated financial
statements of the Company for the three years ended December 31, 1997, and the
notes thereto included herein.
<TABLE>
<CAPTION>
Operating Results Year Ended December 31,
------------------------------------------------------------------------------
(In Thousands, Except Per Share Data) 1997 1996 1995 1994 1993
<S> <C>
Net sales. $ 412,249 $ 373,345 $ 338,026 $ 358,357 $ 392,702
Gross profit 58,340 55,428 47,463 52,398 52,797
Operating expenses 74,570 52,192 46,736 58,292 49,347
------------------------------------------------------------------------
Operating income (loss) (16,230) 3,236 727 (5,894) 3,450
==========================================================================
Other expense (4,667) (3,265) (3,313) (3,307) (2,248)
------------------------------------------------------------------------
Income (loss) before income taxes (20,897) (29) (2,586) (9,201) 1,202
--------------------------------------------------------------------------
Net income (loss) $ (20,897) $ 298 $ (2,628) $ (9,401) $ 952
========================================================================
Basic earnings per common share $ (2.03) $ 0.03 $ (0.30) $ (1.10) $ $0.11
========================================================================
Diluted earnings per common share $ (2.03) $ 0.03 $ (0.30) $ (1.10) $ $0.11
========================================================================
Basic shares outstanding 10,280 8,830 8,644 8,549 8,495
Diluted shares outstanding 10,280 8,882 8,644 8,549 8,502
Balance Sheet Data At December 31,
--------------------------------------------------------------------------
(In Thousands) 1997 1996 1995 1994 1993
--------------------------------------------------------------------------
Working capital $ 77,324 $ 77,088 $ 58,674 $ 61,639 $ 77,225
Total assets 128,776 142,116 109,515 113,308 133,280
Long-term debt, net of cash 53,156 47,413 30,439 27,050 43,215
Stockholders' equity 42,431 61,983 52,835 55,192 64,481
Long-term debt, net of cash to
total capitalization 55.6% 43.3% 36.6% 32.9% 40.1%
Return on stockholders' equity (40.0)% 0.5% (4.9)% (15.7)% 1.5%
</TABLE>
<PAGE>
ITEM 7. 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 on Form 10-K 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
Year Ended December 31, 1997 vs. Year Ended December 31, 1996
Net sales for 1997 were $412.2 million, representing a 10.4% increase
over 1996 sales of $373.3 million. The increase in sales is primarily
attributable to the acquisition of TBP in the third quarter of 1996 and a 5.6%
improvement in the sales of distributed products, which management believes is
due to increased marketing efforts with key suppliers and the acquisition of
Wahlfeld in the third quarter of 1997. External sales of manufactured products
in 1997 decreased 14.3% from 1996. Sales of manufactured products continued to
decline from prior year periods due to the disruption caused by the
consolidation of the Lexington, North Carolina operations into the Oshkosh,
Wisconsin facility and the delay in the start-up of the high-speed door
manufacturing line.
Gross profit increased $2.9 million from 1996 to 1997. The increase was
primarily the result of the aforementioned increase in sales and a volume
incentive reward from a supplier partnership program at the distribution
division ("Distribution"). The manufacturing division ("Manufacturing")
experienced a $5.6 million decrease in gross profit due to the aforementioned
decline in sales volume and the increase in raw material costs which were not
passed on to the customer. The price for pine, which accounts for 53% of the raw
materials purchased by Manufacturing, increased an average of 9.1% from 1996
while the price for fir, the second highest volume specie, increased 3% on
average over the prior year's prices.
Operating expenses for 1997, excluding $18.2 million in special charges
(see discussion that follows), were $56.3 million, or 13.7% of net sales,
compared to 1996 operating expenses, before special charges, of $47.5 million,
or 12.7% of net sales. The majority of the $8.8 million increase related to the
acquisition of TBP. Additional increases were incurred at Distribution for sales
promotions related to the implementation of a new selling program to gain market
share, and relocation expenses for the hiring of qualified key personnel in
marketing, logistics and finance.
In the fourth quarter of 1997, the Company recorded a non-recurring
charge of $12.4 million involving its sale of Manufacturing (the "Sale
Provision"). The Sale Provision included write-downs for the related assets to
estimated fair market value and costs of selling the business including employee
severance costs, pension fees, lease obligations and legal costs (aggregating,
$1.21 per basic share). In addition, the Company incurred restructuring charges
of $4.7 million to cover the incremental costs of consolidating the Lexington
and Oshkosh manufacturing facilities and a $1.1 million reorganization charge
related to changes in the executive management of the Company (aggregating, $.57
per basic share). See "--Restructuring of Operations" below.
Interest and other non-operating expenses in 1997 were $4.7 million, an
increase of $1.4 million from 1996. As a result of an increase in average debt
of $19.8 million from 1996, interest expense increased $1.5 million in 1997. The
increase in average debt was primarily the result of the financing associated
with the acquisition of TBP and Wahlfeld.
The provision for income taxes in both years 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. The state tax provisions
for both years were fully offset by the recognition of a tax benefit related to
the amendment of prior year federal returns. See Note 11 to Consolidated
Financial Statements.
The Company reported a net loss of $20.9 million or $2.03 per basic
share for 1997 compared to net income of $.3 million or $.03 per basic share for
1996, on basic shares outstanding of 10,280,484 and 8,829,622 respectively.
Excluding special charges, the Company had a net loss of $2.7 million for 1997
compared to net income of $5.0 million for 1996. The $7.7 million decline in
income from 1996, before special charges, is primarily due to lower volume and
higher material costs at Manufacturing and a $1.5 million increase in interest
expense.
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 TBP. Sales of manufactured products in 1996,
compared to sales in 1995, 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
manufacturing 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 five-year period from 1991 to 1995.
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 TBP. Manufacturing gross margins in 1996 were
reduced over those in 1995 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 operating costs. The Company's gross profit as a percentage of net
sales rose from 14.0% in 1995 to 14.8% in 1996.
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 operating expenses were $47.5 million
or 12.7% of net sales. The increase in operating expenses, which was due to the
acquisition of TBP 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 and entertainment, sales promotion,
and advertising costs.
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 basic share). See
"--Restructuring of Operations" below.
Interest and other non-operating expenses in 1996 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
11 to Consolidated Financial Statements.
The Company reported net income of $.3 million or $.03 per basic share
for 1996 compared to a net loss of $2.6 million or $.30 per basic share for
1995, on basic shares outstanding of 8,829,622 and 8,643,941 respectively.
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 TBP.
Significant Business Trends / Uncertainties
Management believes that single family 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
decreased 2.6% in 1997 from 1996. Despite this decline, the 1997 start rate for
single family homes was at the third highest level in the last 10 years. The
National Association of Home Builders ("NAHB") forecasts "despite an expected
overall economic slowdown in 1998, the NAHB expects low interest rates to help
the housing market which will result in only a slight decline from the previous
year." No assurances can be given, however, that single family housing starts
will not decline more severely.
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. However, sales to these home center chain customers
as a percentage of total sales decreased from 25.5% in 1996 to 18.3% in 1997,
representing a $19.8 million decrease in sales volume. Distribution sales to
these customers as a percentage of total sales decreased from 15.3% in 1996 to
13.0% in 1997, representing a $3.5 million decrease in sales 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.
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 December 31, 1997, 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
combination of capital leases and borrowings under the Company's revolving line
of credit. As of December 31, 1997, 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.
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, 1997 was $77.3 million, with a ratio of
current assets to current liabilities of 3.7 to 1.0, while at December 31, 1996
working capital was $77.1 million, with a current ratio of 3.5 to 1.0. Working
capital of $77.3 million at December 31, 1997 includes $12.3 million of
Manufacturing property, plant and equipment ("PP&E") held for sale. Excluding
PP&E held for sale, the Company's working capital decreased $12.1 million from
1996. The $12.1 million decrease in working capital was primarily due to reduced
inventory of $13.1 million. Additionally, $21.8 million in Manufacturing
inventory was reclassified to assets held for sale. The decline in inventory is
a continuance of the Company's plan to reduce working capital and interest on
long-term debt. Accounts receivable decreased $3.8 million after $3.4 million
was reclassified to assets held for sale. The decrease in accounts payable of
$6.3 million was offset by increased liabilities related to the provision for
loss on the sale of Manufacturing.
Long-term debt, net of cash, increased to $53.2 million at December 31,
1997 from $47.4 million at December 31, 1996. The Company's ratio of long-term
debt, net of cash, to total capitalization increased from 43.3% at December 31,
1996 to 55.6% at December 31, 1997. This increase was due to additional
borrowings required to offset continued losses in operations and additional
borrowings for the Wahlfeld acquisition.
Cash generated by operating activities totaled $4.1 million in 1997. By
comparison, the period ended December 31, 1996 reflected cash used by operations
of $7.9 million. The improvement is primarily due to the continued reductions in
inventory levels. Investing activities in 1997 used $10.2 million, principally
consisting of payments to acquire Wahlfeld of $5.0 million, the final payment to
acquire TBP of $2.2 million and payments to purchase capital equipment of $2.3
million. Investing activities in 1996 used $15.6 million, primarily for the
acquisition of TBP. Financing activities generated $8.8 million of cash in 1997,
with a $9.1 million increase in debt under the revolving line of credit, the
repayment of $1.5 million of debt, and $1.2 million net proceeds from the
exercise of stock options. Financing activities in 1996 generated $19.8 million
of cash from additional borrowings, net of debt repayments and net proceeds from
the Company's public offering of its common stock in 1996.
Prior to the sale of Manufacturing, the Company maintained a credit
agreement (the "Old Credit Agreement") with a group of banks which provided for
a revolving credit facility of up to $75 million and an incremental acquisition
term loan line of $10 million through July 14, 2000. At December 31, 1997, $45.3
million of borrowings were outstanding on the revolving credit facility and $4.8
million of borrowings were outstanding on the acquisition term loan line. On
February 3, 1998 in connection with the sale of Manufacturing, the Company and
the same group of banks entered into an amended and restated credit agreement
(the "New Credit Agreement"). The New Credit Agreement reduced the revolving
credit facility to $65 million which includes an acquisition sub-line of $30
million. The New Credit Agreement also introduced an interest rate matrix and
extended the credit facility through February 1, 2001. The New Credit Agreement
requires the Company, among other things, to maintain minimum interest coverage,
fixed charge coverage ratios, and maximum levels of debt to earnings before
income taxes and depreciation and amortization ratios. For the period between
December 31, 1997 through the effective date of the New Credit Agreement, the
Company's lenders waived its technical default (resulting from losses associated
with the disposition of Manufacturing) with respect to certain financial
covenants under the Old Credit Agreement.
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
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 approximately 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.
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.
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 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 TBP in the third quarter of 1996, which
serves the more moderate climates, should partially offset the effect of
seasonal influences on the Company's operations. The Company believes
that the seasonal effect on operations will be unchanged as a result of
the sale of Manufacturing.
The table below sets forth the Company's quarterly net sales for the
years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------
Net % of Net % of
Sales Total Sales Total
---------------------------------------------------------------------
(millions) (millions)
<S> <C>
First Quarter $ 95.8 23.2% $ 74.5 20.0%
Second Quarter 106.8 25.9 95.2 26.5
Third Quarter 111.6 27.1 97.4 26.1
Fourth Quarter 98.0 23.8 106.2 28.4
---------------------------------------------------------------------
Total Year $412.2 100.0% $373.3 100.0%
=====================================================================
</TABLE>
See Note 14 of Notes to Consolidated Financial Statements for further
quarterly information.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
See Item 14 below for a listing of financial statements and the
financial statement schedule included therein.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Company
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the caption
"Election of Directors" in the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days after the close
of the fiscal year. The information concerning delinquent filers pursuant to
Item 405 of Regulation S-K is incorporated herein by reference from the material
contained under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive Proxy Statement for the Annual Meeting
of Shareholders to be filed pursuant to Regulation 14A, not later than 120 days
after the close of the fiscal year.
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, 1997. Company officers are appointed
by the Board of Directors and such appointments are effective until resignation
or earlier removal by the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C>
Frank J. Hawley, Jr.................................. 70 Chairman of the Board
Larry R. Robinette................................... 54 President and Chief Executive Officer
Mitchell J. Lahr..................................... 39 Vice President, Chief Financial Officer
and Secretary
Darrell J. Olson..................................... 51 Vice President-Human Resources
David A. Braun....................................... 40 Vice President; President-Morgan
Distribution
Duane R. Greenly..................................... 47 Vice President; President-Morgan
Manufacturing
Dawn E. Neuman....................................... 35 Treasurer and Assistant Secretary
</TABLE>
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,
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.
Mr. Lahr was appointed Vice President, Chief Financial Officer and
Secretary of the Company in April 1997. From September 1994 until he joined the
Company, Mr. Lahr was Vice President and Chief Financial Officer of Stella Foods
Corp., a subsidiary of Specialty Foods Corporation. From September 1992 to
August 1994, Mr. Lahr was Vice President and Chief Financial Officer of Anchor
Hocking Packaging Company, a subsidiary of Carnaud Metalbox, Inc. From 1980 to
1992 he served in various positions with General Electric Company.
Mr. Olson was appointed Vice President, Human Resources of the Company
in April 1997. From September 1995 until he joined the Company, Mr. Olson was
Vice President, Human Resources of Twin Disc Inc., a manufacturer of highly
engineered power transmission equipment. From February 1994 through December
1994, Mr. Olson was the Vice President of Operations of the Intercraft Division
of Newell Company. From October 1983 through February 1994, Mr. Olson served as
Vice President, Human Resources of the Mirro Division of Newell Company.
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 from 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 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. Effective March 13, 1998,
Mr. Greenly was no longer employed by the Company.
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.
ITEM 11. Executive Compensation
The information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 13, 1998 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 13, 1998 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 13, 1998 under "Certain Transactions" is
incorporated by reference in this Annual Report on Form 10-K.
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following financial statements and financial statement schedule
of the Company are included in this Report:
<TABLE>
<CAPTION>
Page
<S> <C>
1. Financial Statements:
Reports of Independent Accountants......................................................... 29
Consolidated Income Statements for the years ended December 31, 1997, 1996 and 1995........ 30
Consolidated Balance Sheets at December 31, 1997 and 1996.................................. 31
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. 32
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 33
and 1995...................................................................................
Notes to Consolidated Financial Statements.................................................
34
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1997, 1996 50
and 1995...................................................................................
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
EXHIBIT INDEX
Exhibit
Number 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)).
10.1 Amended and Restated Loan and Security Agreement among
the Company, the lender parties thereto and Fleet
Capital Corporation as agent for the lenders, dated as
of February 3, 1998 (incorporated by reference to
Exhibit 99 to the Company's Current on Form 8-K filed
February 17, 1998 (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 between the Company and Larry
R. Robinette dated as of January 1, 1998.
*+ 10.6 Morgan Products Ltd. Executive Severance Plan dated
October 1997.
+ 10.7 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)).
+ 10.8 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)).
+ 10.9 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)).
10.10 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)).
*+ 10.11 Morgan Products Ltd. Chief Executive Officer Severance
Plan dated October 1997.
+ 10.12 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)).
+ 10.13 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)).
+ 10.14 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)).
10.15 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)).
10.16 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)).
10.17 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)).
10.18 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)).
+ 10.19 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;
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)).
10.20 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 reference to Exhibit 10.28 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 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)).
10.22 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)).
10.23 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)).
10.24 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)).
10.25 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)).
10.26 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)).
+ 10.27 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
filed September 26 1996 (Commission File No. 1-9843)).
+ 10.28 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
filed September 26 1996 (Commission File No. 1-9843)).
10.29 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 filed
September 26 1996 (Commission File No. 1-9843)).
10.30 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
filed September 26 1996 (Commission File No. 1-9843)).
10.31 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 filed September 26,
1996 (Commission File No. 1-9843)).
10.32 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
filed September 26 1996 (Commission File No. 1-9843)).
10.33 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 filed September 26
1996 (Commission File No. 1-9843)).
10.34 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 filed September 26
1996 (Commission File No. 1-9843)).
10.35 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 filed September 26
1996 (Commission File No. 1-9843)).
+ 10.36 Employment agreement between the Company and Duane
R. Greenly dated November 23, 1996 (incorporated by
reference to Exhibit 10.47 to the Company's Annual
Report on Form 10-K for the Fiscal Year ended December
31, 1996 (Commission File No. 1-9843)).
+ 10.37 Form of Indemnification Agreement, dated December
18, 1996, between the Company and Duane R. Greenly
(incorporated by reference to Exhibit 10.48 to the
Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1996 (Commission File No. 1-9843)).
10.38 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 (incorporated by reference to Exhibit
10.49 to the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1996 (Commission File
No. 1-9843)).
+ 10.39 Amendment to the Company's 1985 Incentive Stock
Option Plan approved by the Board of Directors on
September 30, 1996 (incorporated by reference to Exhibit
10.50 to the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1996 (Commission File
No. 1-9843)).
10.40 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
(incorporated by reference to Exhibit 10.52 to the
Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1996 (Commission File No. 1-9843)).
10.41 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
(incorporated by reference to Exhibit 10.53 to the
Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1996 (Commission File No. 1-9843)).
10.42 Lease, dated October 30, 1996, between the Company and
Wisconsin Warehousing, LLC, for warehousing for a
three-year term in Oshkosh, Wisconsin (incorporated by
reference to Exhibit 10. to the Company's Annual Report
on Form 10-K for the Fiscal Year ended December 31, 1996
(Commission File No. 1-9843)).
10.43 Lease, dated October 30, 1996, between the Company and
Wisconsin Warehousing, LLC, for warehousing for a
three-year term in Oshkosh, Wisconsin (incorporated by
reference to Exhibit 10.55 to the Company's Annual
Report on Form 10-K for the Fiscal Year ended December
31, 1996 (Commission File No. 1-9843)).
+ 10.44 Employment agreement between the Company and
Mitchell J. Lahr dated March 11, 1997 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the Second Quarter of the Fiscal
Year ended December 31, 1997 (Commission File No.
1-9843)).
+ 10.45 Employment agreement between the Company and
Darrell J. Olson dated March 21, 1997 (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the Second Quarter of the Fiscal
Year ended December 31, 1997 (Commission File No.
1-9843)).
+ 10.46 Form of Indemnification Agreement, dated April 7,
1997, between the Company and Mitchell J. Lahr
(incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the Second
Quarter of the Fiscal Year ended December 31, 1997
(Commission File No. 1-9843)).
+ 10.47 Form of Indemnification Agreement, dated April 14,
1997, between the Company and Darrell J. Olson
(incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the Second
Quarter of the Fiscal Year ended December 31, 1997
(Commission File No. 1-9843)).
+ 10.48 Employment termination agreement between the
Company and Dennis C. Hood dated March 31, 1997
(incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the Second
Quarter of the Fiscal Year ended December 31, 1997
(Commission File No. 1-9843)).
+ 10.49 Employment termination agreement between the
Company and Douglas H. MacMillan dated March 31, 1997
(incorporated by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the Second
Quarter of the Fiscal Year ended December 31, 1997
(Commission File No. 1-9843)).
10.50 Lease, dated March 7, 1997, between the Company and
BR/NO LA. Properties, LLC for warehousing for a five
year term in Baton Rouge, Louisiana (incorporated by
reference to Exhibit 10.7 to the Company's Quarterly
Report on Form 10-Q for the Second Quarter of the Fiscal
Year ended December 31, 1997 (Commission File No.
1-9843)).
10.51 Asset Purchase Agreement dated as of July 15, 1997 by
and among Morgan Products Ltd., Wahlfeld Manufacturing
Company and Ted Wahlfeld and John Wahlfeld, as amended
on July 18, 1997 and July 25, 1997 (incorporated by
reference to Exhibit 1 to the Company's Current Report
on Form 8-K dated August 8, 1997 (Commission File No.
1-9843)).
10.52 Asset Purchase Agreement dated as of February 2, 1998 by
JELD-WEN, inc. and Morgan Products Ltd. (incorporated by
reference to Exhibit 2 to the Company's Current Report
on Form 8-K dated February 17, 1998 (Commission
File No. 1-9843)).
* 10.53 Lease Agreement between the Company and Security
Capital Industrial Trust for property located at Denver
Business Center #1, 11101-A East 53rd Avenue, Denver,
Colorado, dated April 15, 1997.
* 10.54 Relocation Agreement between the Company and Duane R.
Greenly dated November 3, 1997.
* 23.1 Consent of Price Waterhouse LLP.
* 27.1 Financial Data Schedule
--------------------------------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
On October 7, 1997, the Company filed a Current Report on Form
8-K/A to amend its Current Report on Form 8-K dated August 8, 1997 reporting the
acquisition of Wahlfeld. Such amendment included financial statements of the
acquired company and pro forma financial information showing the effects of such
acquisition pursuant to Item 7 of Form 8-K.
<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/ Mitchell J. Lahr
-----------------------------------------
Mitchell J. Lahr
Vice President, Chief Financial
Officer and Secretary
March 31, 1998
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.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C>
/s/ Frank J. Hawley, Jr. Chairman of the Board March 31, 1998
- -------------------------------------------------- and Director
Frank J. Hawley, Jr.
President, Chief Executive Officer
/s/ Larry R. Robinette and Director March 31, 1998
- -------------------------------------------------- (Principal Executive Officer)
Larry R. Robinette
/s/ Mitchell J. Lahr Vice President, Chief Financial March 31, 1998
- -------------------------------------------------- Officer and Secretary
Mitchell J. Lahr (Principal Financial Officer and
Principal Accounting Officer)
Director March 31, 1998
- --------------------------------------------------
John S. Crowley
/s/ Howard G. Haas Director March 31, 1998
- --------------------------------------------------
Howard G. Haas
/s/ William R. Holland Director March 31, 1998
- --------------------------------------------------
William R. Holland
/s/ Patrick J. McDonough, Jr. Director March 31, 1998
- --------------------------------------------------
Patrick J. McDonough, Jr.
/s/ Edward T. Tokar Director March 31, 1998
- --------------------------------------------------
Edward T. Tokar
</TABLE>
<PAGE>
Consolidated Financial Statements
Morgan Products Ltd.
Contents
<TABLE>
<S> <C>
Report of Independent Accountants.......................................................... 29
Financial Statements....................................................................... 30
Consolidated Income Statements for the years ended December 31, 1997, 1996 and 1995........ 30
Consolidated Balance Sheets at December 31, 1997 and 1996.................................. 31
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. 32
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 33
and 1995...................................................................................
Notes to Consolidated Financial Statements................................................. 34
Financial Statement Schedule............................................................... 50
Schedule II-Valuation and Qualifying Accounts for the years ended December 31,
1997, 1996 and 1995........................................................................ 50
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Morgan Products Ltd.
In our opinion, the financial statements listed in the index appearing under
14(a)(1) and (2) of this Form 10-K present fairly, in all material respects, the
financial position of Morgan Products Ltd. at December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, 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.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
February 4, 1998
<PAGE>
MORGAN PRODUCTS LTD.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C>
Net sales............................................ $412,249 $373,345 $338,026
Cost of goods sold................................... 353,909 317,917 290,563
--------------------------------------------
Gross profit.................................... 58,340 55,428 47,463
--------------------------------------------
Operating expenses:
Sales and marketing............................. 41,377 35,687 35,652
General and administrative...................... 14,947 11,793 11,033
Loss on sale of manufacturing
operations (Note 2).......................... 12,416 -- --
Restructuring and reorganization (Note 3).......
5,830 4,712 51
--------------------------------------------
74,570 52,192 46,736
--------------------------------------------
Operating income (loss).............................. (16,230) 3,236 727
--------------------------------------------
Other income (expense):
Interest........................................ (4,999) (3,485) (3,763)
Other........................................... 332 220 450
--------------------------------------------
(4,667) (3,265) (3,313)
--------------------------------------------
Loss before income taxes............................. (20,897) (29) (2,586)
Provision (benefit) for income taxes................. -- (327) 42
--------------------------------------------
Net income (loss).................................... $ (20,897) $ 298 $ (2,628)
==============================================
Basic earnings per common share...................... $ (2.03) $ .03 $ (.30)
==============================================
Diluted earnings per common share.................... $ (2.03) $ .03 $ (.30)
==============================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN PRODUCTS LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares outstanding)
<TABLE>
<CAPTION>
December 31,
Assets 1997 1996
<S> <C>
Current Assets
Cash and cash equivalents.................................... $ 4,197 $ 1,467
Accounts receivable (less allowances of $921 in 1997
and $1,622 in 1996)...................................... 28,743 32,559
Inventories (Note 5)......................................... 40,533 73,683
Assets held for sale (Note 2)................................ 32,285 --
Other current assets......................................... 558 632
-----------------------------
Total current assets..................................... 106,316 108,341
-----------------------------
Property, Plant and Equipment, Net (Note 6)....................... 10,276 23,137
Other Assets (Notes 1 and 10)..................................... 12,184 10,638
-----------------------------
Total Assets................................................. $ 128,776 $ 142,116
=============================
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt (Note 7)................ $ 1,213 $ 1,136
Accounts payable............................................. 13,151 19,449
Accrued compensation and employee benefits................... 8,729 6,219
Other current liabilities.................................... 5,899 4,449
-----------------------------
Total current liabilities ............................... 28,992 31,253
-----------------------------
Long-Term Debt (Note 7)........................................... 57,353 48,880
-----------------------------
Commitments and Contingencies (Note 13)
Stockholders' Equity (Note 9):
Common stock, $.10 par value, 10,357,808 and
10,149,816 shares outstanding, respectively............... 1,036 1,015
Paid-in capital.............................................. 43,413 42,237
Retained earnings (accumulated deficit)...................... (1,970) 18,927
-----------------------------
42,479 62,179
Treasury stock, 2,386 shares, at cost........................ (48) (48)
Unearned compensation-restricted stock....................... -- (148)
-----------------------------
Total stockholders' equity............................... 42,431 61,983
-----------------------------
Total Liabilities and Stockholders' Equity................... $ 128,776 $ 142,116
=============================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN PRODUCTS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
<S> <C> ------- -------- ---------
Cash Generated (Used) by Operating Activities:
Net income (loss)............................................ $ (20,897) $ 298 $ (2,628)
Add (deduct) noncash items included in income:
Depreciation and amortization............................ 4,170 3,571 3,694
Provision for doubtful accounts.......................... 248 139 214
Loss on sale of manufacturing operations................. 12,416 -- --
Provision for restructuring and reorganization........... 732 881 8
(Gain) loss on sale of property, plant and equipment..... (125) 58 (44)
Other.................................................... 148 234 232
Cash generated (used) by changes in components of
working capital, net of effects of acquisition of businesses:
Accounts receivable...................................... 1,605 (5,081) 3,346
Inventories.............................................. 13,097 (12,747) 1,606
Accounts payable......................................... (4,394) 6,450 (389)
Other working capital.................................... (2,886) (1,706) (3,401)
---------------------------------------------
Net Cash Generated (Used) by Operating Activities................. 4,114 (7,903) 2,638
Cash Generated (Used) by Investing Activities: ---------------------------------------------
Acquisition of property, plant and equipment.................. (2,319) (3,912) (5,212)
Acquisition of Tennessee Building Products, Inc............... (2,197) (15,680) --
Acquisition of Wahlfeld Manufacturing Company................. (4,959) -- --
Proceeds from disposal of property, plant and equipment....... 184 4,654 117
Proceeds from surrender of life insurance policies............ -- 925 --
Acquisition of other assets, net.............................. (876) (1,598) (720)
---------------------------------------------
Net Cash Generated (Used) by Investing Activities.................. (10,167) (15,611) (5,815)
Cash Generated (Used) by Financing Activities: ---------------------------------------------
Proceeds from long-term debt.................................. 9,131 13,018 3,223
Repayments of long-term debt.................................. (1,545) (1,788) (1,145)
Common stock issued for cash.................................. 1,197 8,616 39
---------------------------------------------
Net Cash Generated (Used) by Financing Activities.................. 8,783 19,846 2,117
---------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents............... 2,730 (3,668) (1,060)
Cash and Cash Equivalents:
Beginning of period........................................... 1,467 5,135 6,195
---------------------------------------------
End of period................................................. $ 4,197 $ 1,467 $ 5,135
=============================================
Cash Paid (Received) During the Year for:
Interest...................................................... $ 5,245 $ 3,789 $ 3,885
Income taxes.................................................. (16) (192) 134
Non-Cash Investing Activities:
Assets acquired under capital lease........................... $ 967 $ 1,505 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN PRODUCTS LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Retained Unearned
Earnings Compensation-
Common Paid-in (Accumulated Treasury Restricted
Stock Capital Deficit) Stock Stock
------ ------- ------------ -------- -------------
<S> <C>
Balance at December 31, 1994......... $ 864 $33,733 $21,257 $ (48) $ (614)
Net loss............................. -- -- (2,628) -- --
Amortization of unearned
compensation........................ -- -- -- -- 232
Exercise of options.................. 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
Exercise of options.................. -- 14 -- -- --
------------------------------------------------------------------------------
Balance at December 31, 1996......... 1,015 42,237 18,927 (48) (148)
Net loss............................. -- -- (20,897) -- --
Amortization of unearned
compensation........................ -- -- -- -- 148
Exercise of options.................. 21 1,176 -- -- --
--------------------------------------------------------------------------------
Balance at December 31, 1997......... $ 1,036 $43,413 $ (1,970) $ (48) $ --
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN PRODUCTS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Morgan Products Ltd. ("Morgan" or the
"Company") distributes and manufactures (for the period indicated) 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, for the
periods reported, the Company's business constitutes a single industry segment.
PRINCIPLES OF 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 reported amounts and related
disclosures. Actual amounts could differ from those estimates.
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
7 to Consolidated Financial Statements.
INVENTORIES - Inventories are valued at the lower of cost or market.
Cost is determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is 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.
INTANGIBLES - Included in other assets are goodwill, software costs,
and deferred debt issue costs. Goodwill, which represents the excess of the fair
market value over the net tangible and identified intangible assets acquired, is
being 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. Accumulated amortization of intangibles
at December 31, 1997 and 1996 was $.3 million and $.1 million, respectively.
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 or the value of the asset. Long-lived assets to be disposed of
are reported at the lower of carrying amount over the fair value less cost to
sell.
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 $2.9 million in 1997, $2.5
million in 1996, and $3.7 million in 1995.
EARNINGS PER SHARE - In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." This statement establishes revised
standards for computing and presenting earnings per share and has been adopted
by the Company during the fourth quarter of 1997. SFAS No. 128 requires the
Company to report both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and all dilutive potential
common shares outstanding. All prior years' earnings per share data in this
report have been recalculated to reflect the provisions of SFAS No. 128 (in
thousands, except per share amount):
<TABLE>
<CAPTION>
Income Per Share
(loss) Shares Amount
<S> <C>
1997
Basic earnings per share of common stock............. $(20,897) 10,280 $ (2.03)
Effect of dilutive stock options:.................... -- -- --
-------------------------------------------------------
Diluted earnings per share of common stock........... $(20,897) 10,280 $ (2.03)
-------------------------------------------------------
1996
Basic earnings per share of common stock............. $ 298 8,830 $ 0.03
Effect of dilutive stock options..................... -- 52 --
-------------------------------------------------------
Diluted earnings per share of common stock........... $ 298 8,882 $ 0.03
-------------------------------------------------------
1995
Basic earnings per share of common stock.............. $ (2,628) 8,644 $ (0.30)
Effect of dilutive stock options...................... -- -- --
------------------------------------------------------
Diluted earnings per share of common stock............ $ (2,628) 8,644 $ (0.30)
-------------------------------------------------------
</TABLE>
Options to purchase 875,000 and 705,000 shares of common stock were
outstanding during 1997 and 1995, 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.
Options to purchase 831,000 shares of common stock were outstanding
during 1996, but were not included in the computation of diluted shares because
the options' exercise price was greater than the average market price of the
common shares.
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>
NOTE 2 - SALE OF MANUFACTURING OPERATIONS
In December 1997, the Company reached an agreement in principle to sell
the operating assets of Morgan Manufacturing in Oshkosh, Wisconsin to JELD-WEN,
inc. for $38.5 million, subject to certain post-closing adjustments. Subsequent
to December 31, 1997, the Company sold its manufacturing operations. 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.
At December 31, 1997, the net assets held for sale totaled $32.3
million and have been classified as current assets on the Consolidated Balance
Sheet. Proceeds from the sale will be used to reduce the revolving credit
facility. See Note 7 to Consolidated Financial Statements.
NOTE 3 - RESTRUCTURING AND REORGANIZATION
An $11.3 million restructuring charge was recorded in the second
quarter of 1994 to cover the cost of closing the Springfield, Oregon plant and
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.
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, a multi-year plan involving necessary management structure changes, a
new management information system and future facility requirements was
developed. A new organizational structure was announced that eliminated several
management positions. The costs of severance and certain other cost more than
offset the lower-than-originally-anticipated expenses of the 1994 restructuring.
In the second quarter of 1996, the Company sold its Lexington, North
Carolina door manufacturing facility. The entire product line of doors
previously manufactured in Lexington shifted to the Company's Oshkosh, Wisconsin
door manufacturing facility during the third and fourth quarters of 1996. The
Company recorded an additional restructuring charge in the second quarter of
1996 of $.9 million, of which $.4 million 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.
These restructuring expenses, which include 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.
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 the new high-speed door
manufacturing line. These expenses were charged to operations as incurred.
Additionally, during 1997 the Company has 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.
<PAGE>
The following summarizes the activity related to the restructuring and
reorganization reserves (in millions):
<TABLE>
<CAPTION>
Reserve at Utilized Reserve at
December 31, ------------------- Provision/ December 31,
1994 Cash Noncash Reallocation 1995
------------ ---- ------- ------------ ----------
<S> <C>
Employee benefits (1) .............. $ 2.7 $ (2.5) $ -- $ 1.2 $ 1.4
Inventory (2)....................... 1.8 -- -- -- 1.8
Fixed assets........................ 1.3 -- -- (.9) .4
Holding and other costs (3)......... .6 (.1) -- (.3) .2
-----------------------------------------------------------------
Total reserve....................... $ 6.4 $ (2.6) $ -- $ -- $ 3.8
=================================================================
Reserve at Reserve at
December 31, Utilized Provision/ December 31,
1995 Cash Noncash Reallocation 1996
Employee benefits (1)............... $ 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 (3)......... .2 -- (.1) -- .1
------------------------------------------------------------------
Total restructuring reserve......... $ 3.8 $ (1.6) $(2.0) $ .9 $ 1.1
==================================================================
Reserve at Reserve at
December 31, Utilized Provision/ December 31,
1996 Cash Noncash Reallocation 1997
Employee benefits (1)............... $ .6 $ (.9) $ -- $ 1.1 $ .8
Inventory (2)....................... .1 -- -- -- .1
Fixed assets........................ .3 -- -- -- .3
Holding and other costs (3)......... .1 -- -- -- .1
------------------------------------------------------------------
Total reserve....................... $ 1.1 $ (.9) $ -- $ 1.1 $ 1.3
==================================================================
</TABLE>
(1) 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 divisions offices, and
the restructuring of the Corporate Headquarters.
(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.
<PAGE>
NOTE 4 - ACQUISITIONS
On August 30, 1996, the Company acquired certain assets and assumed
certain liabilities of Tennessee Building Products, Inc. and its subsidiary
("TBP") for $17.9 million, including $.4 million in acquisition costs. 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. 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):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
---- ----
<S> <C>
Net sales................................... $ 407,322 $ 384,848
Net income (loss)........................... 1,127 (2,111)
Income (loss) per share..................... .13 (.24)
</TABLE>
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 the third quarter of 1997, the Company acquired substantially all of
the assets of Wahlfeld Manufacturing Company ("Wahlfeld") for $5.0 million. The
Company consolidated Wahlfeld's operations into two existing facilities. Pro
forma results would not materially change the results of operations as presented
in the financial statements.
NOTE 5 - INVENTORIES
Inventories consisted of the following at (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C>
Raw materials..................................................... $ 2,016 $14,139
Work-in-process................................................... -- 9,899
Finished goods.................................................... 38,517 49,645
------------------------------
Total inventories............................................ $40,533 $73,683
==============================
</TABLE>
<PAGE>
NOTE 6 + PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C>
Land and improvements............................................. $ 903 $ 2,095
Buildings and improvements....................................... 4,898 14,043
Machinery and equipment........................................... 10,673 26,500
Capitalized building and equipment leases......................... 7,613 5,977
Less accumulated depreciation and amortization.................... (13,905) (26,640)
Construction in progress........................................ 94 1,162
-------------------------------
Total property, plant and equipment.......................... $10,276 $23,137
===============================
</TABLE>
At December 31, 1997 and 1996, accumulated amortization relating to
capitalized building and equipment leases was approximately $4.3 million and
$3.8 million respectively.
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following at (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C>
Revolving credit facilities....................................... $45,309 $41,178
Acquisition term loan............................................. 4,767 --
Industrial revenue bonds.......................................... 1,300 1,700
Obligations under capital leases (Note 8)......................... 4,566 4,389
Obligations under financing leases (Note 8)....................... 2,016 2,077
Other............................................................. 608 672
------------------------------
58,566 50,016
Less current maturities........................................... (1,213) (1,136)
-------------------------------
Total long-term debt......................................... $57,353 $48,880
===============================
</TABLE>
On July 14, 1994, the Company signed a revolving credit agreement with
a group of banks which provided for a revolving credit facility of up to $65
million and included a letter of credit facility of up to $9 million. During
1997, the Company amended this agreement to increase the revolving credit
facility to $75 million and added an acquisition term loan facility of $10
million. The amendment also modified certain definitions and restrictive
covenants, decreased the rates of interest to be paid, and extended the
agreement through July 14, 2000. This credit agreement 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 .50
percentage points or at the LIBOR rate plus an incremental 2.25 percentage
points. The Company also pays an annual commitment fee of .5% on the average
unused portion of the revolving credit and acquisition term loan facilities and
certain additional fees. At December 31, 1997, the weighted average interest
rate on the outstanding revolving credit facilities was 8.23%. The Company had
utilized $1.8 million of its $9 million letter of credit facility as of December
31, 1997.
The credit agreement contains certain covenants including limitations
on the acquisition and disposition of assets, the payment of dividends, the
pledging of assets, and the prepayment of other indebtedness. In addition, the
Company is required to maintain minimum tangible net worth, fixed charge
coverage, and interest coverage ratios and a maximum leverage ratio. As a result
of losses associated with the disposition of the Oshkosh, Wisconsin
manufacturing facility, the Company was in violation of certain financial
covenants at December 31,1997. The Company's lending institutions have waived
such defaults through February 3, 1998, at which time the Company negotiated and
executed an Amended and Restated Loan and Security Agreement which adjusts the
present and ongoing covenants so that they now more realistically reflect the
current operating conditions.
The new facility, which expires on February 1, 2001, 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.
Interest on outstanding borrowings currently accrues at the bank's prime rate of
interest (8.5% at December 31, 1997) or LIBOR plus one and one-half percent
(7.5% at December 31, 1997) at the Company's option. The new 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.
The industrial revenue bonds outstanding at December 31, 1997 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 $1.4 million in letters of credit.
During 1991, the Company entered into a sale-leaseback transaction
which, based upon the applicable terms, is accounted for as a financing lease.
The term of the agreement is 15 years beginning on December 30, 1991 and
expiring on December 29, 2006 with an interest rate of 9.73% annually.
Future annual maturities of the Company's long-term debt as of December
31, 1997, which reflect the terms of the amended and restated credit agreement
are presented below (in thousands):
1998 ..........................................................$ 1,213
1999 .......................................................... 1,087
2000 .......................................................... 1,197
2001 .......................................................... 52,806
2002 .......................................................... 592
Later years.................................................... 1,671
------
Future annual maturities of long-term debt................ $58,566
======
The Company estimates that the fair value of the revolving credit and
acquisition term loan facilities approximates their carrying value at December
31, 1997 and 1996 since interest rates vary with market conditions, and that the
fair value of the industrial revenue bonds approximates their carrying value
since they bear floating interest rates. The carrying value 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 8 - 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.
Future minimum lease payments required under long-term leases in effect
at December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating Total
<S> <C>
1998............................................. $ 1,666 $ 4,296 $ 5,962
1999............................................. 1,666 3,768 5,434
2000............................................. 1,666 3,122 4,788
2001............................................. 1,547 2,018 3,565
2002............................................. 1,145 1,517 2,662
Later years...................................... 4,670 4,126 8,796
-----------------------------------------
Total minimum lease payments..................... 12,360 $18,847 $31,207
=======================
Less imputed interest....................... (5,778)
-------
Present value of net minimum
lease payments........................... $ 6,582
=====
</TABLE>
For 1997, 1996, and 1995, rental expense, including usage charges on the
long-haul fleet, was $7.4 million, $6.7 million, and $6.3 million respectively.
NOTE 9 - 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. The stockholders have ratified amendments to the Company's Stock
Option Plan that increase from 500,000 to 900,000 the number of shares of Common
Stock reserved for issuance under the plan. 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.
<PAGE>
Following is a summary of activity in the Stock Option Plan for 1995,
1996, and 1997:
<TABLE>
<CAPTION>
Shares Weighted
Subject Average
to Option Option Price
<S> <C>
Outstanding, January 1, 1995........................... 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
Granted........................................... 60,000 6.875
Exercised......................................... (205,667) 5.747
Canceled.......................................... (24,333) 5.876
---------------------------------
Outstanding, December 31, 1997......................... 566,000 $ 5.626
=================================
Exercisable, December 31, 1997......................... 420,999 $ 5.356
=================================
</TABLE>
The exercise price for options outstanding at December 31, 1997 ranges
from $5.00 to $6.875 per share. The weighted-average remaining contractual life
of these options approximates 7.4 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>
Following is a summary of activity in the Non-employee Director Stock
Option Plan for 1995, 1996, and 1997:
<TABLE>
<CAPTION>
Shares Weighted
Subject Average
to Option Option Price
--------- ------------
<S> <C>
Outstanding, January 1, 1995............................. 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
Granted............................................. 5,000 8.250
Canceled............................................ (666) 7.938
--------------------------------
Outstanding, December 31, 1997........................... 24,000 $ 7.203
================================
Exercisable, December 31, 1997........................... 14,000 $ 7.170
================================
</TABLE>
The exercise prices for options outstanding at December 31, 1997 range
from $5.75 to $9.125 per share. The weighted-average remaining contractual life
of these options approximates 7.3 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, vesting and forfeiture provisions. 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 value
of the Common Stock totaling $700,000 was recorded at the date of award as a
separate component of stockholders' equity and was amortized to expense over the
three-year vesting period.
In addition, the Company grants options, outside of the Stock Option
Plan, to certain employees as part of their employment agreements. The options
granted generally 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>
Following is a summary of activity for options granted outside the
Stock Option Plan:
<TABLE>
<CAPTION>
Shares Weighted
Subject Average
to Option Option Price
--------- ------------
<S><C>
Outstanding, January 1, 1996............................. -- $ --
Granted............................................. 195,000 7.231
Canceled............................................ (67,500) 7.500
---------------------------------
Outstanding, December 31, 1996........................... 127,500 $ 7.088
Granted............................................. 180,000 6.733
Canceled............................................ (22,500) 7.500
---------------------------------
Outstanding, December 31, 1997........................... 285,000 $ 6.831
=================================
Exercisable, December 31, 1997........................... 72,500 $ 7.000
=================================
</TABLE>
The exercise price for options outstanding at December 31, 1997 range
from $6.625 to $8.375 per share. The weighted average contractual life of these
options approximates 9.2 years.
In May 1997, the Company adopted the 1997 Incentive Compensation Plan,
which authorized an additional 250,000 shares of Common Stock to be issued
through the Incentive Plan. No shares were outstanding under this plan as of
December 31, 1997.
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 the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net earnings would have been
reduced to the pro forma amounts indicated below (in thousands, except per share
data):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C>
Net earnings+as reported............................... $ (20,897) $ 298 $(2,628)
Net earnings+pro forma............................... (21,844) (141) (2,845)
Basic earnings per share+as reported................... (2.03) .03 (.30)
Diluted earnings per share+as reported................. (2.03) .03 (.30)
Basic earnings per share+pro forma..................... (2.12) (.02) (.33)
Diluted earnings per share+pro forma................... (2.12) (.02) (.33)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are
not necessarily indicative of future amounts because transition rules require
pro forma disclosure only for awards granted after January 1, 1995.
<PAGE>
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 1997, 1996, and 1995:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C>
Expected stock price volatility.............................. 40.50% 43.70% 41.69%
Risk-free interest rate...................................... 6.65% 6.35% 6.43%
Expected life of options..................................... 6.69 years 6.78 years 7.00 years
</TABLE>
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company has a profit sharing and 401(k) savings plan for all
salaried employees who have met the plans eligibility requirements. 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.
A separate 401(k) savings plan is in place for employees of the
Tennessee Building Products Division who have met the plan's eligibility
requirements. The Company matches 50% of participant contributions to the
savings plan, with Company contributions limited to 3% of the participant's
compensation.
Profit sharing costs and the Company's matching contributions to the
401(k) savings plans charged to operations were $.1 million, $.9 million, and
$.4 million for 1997, 1996, and 1995 respectively.
The Company has a pension plan which covers certain of its hourly
employees. This plan generally provides a stated benefit amount for each year of
service.
The components of net periodic pension expense are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C>
Service cost.............................................. $ 201 $ 183 $ 137
Interest cost on projected benefit obligation............. 1,172 1,140 1,026
Actual return on assets................................... (2,253) (926) (2,312)
Net amortization and deferral............................. 1,189 (95) 1,375
-----------------------------------------
Net periodic pension expense.............................. $ 309 $ 302 $ 226
-----------------------------------------
<PAGE>
The funded status of the plan is as follows (in millions):
December 31,
------------
1997 1996
---- ----
Accumulated benefit obligation:
Vested................................................... $ 16.9 $ 15.3
Nonvested................................................ .1 .1
---------------------
$ 17.0 $ 15.4
=====================
Projected benefit obligation.................................. $ 17.0 $ 15.4
Fair value of plan assets..................................... 16.2 14.6
---------------------
Plan assets less than projected benefit obligation............ (.8) (.8)
Unrecognized net transitional asset........................... (.3) (.4)
Unrecognized net loss ........................................ 3.1 2.8
Unrecognized prior service cost .............................. 1.0 1.1
--------------------
Prepaid pension expense ...................................... $ 3.0 $ 2.7
====================
</TABLE>
The projected benefit obligations were determined using assumed
discount rates of 7.10% at December 31, 1997 and 7.75% at December 31, 1996. The
expected long-term rate of return on plan assets was 8.25% and 8.5% at December
31, 1997 and 1996, respectively. 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.
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 1997, 1996
and 1995. Under certain conditions, principally 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.
<PAGE>
NOTE 11 - INCOME TAXES
The components of the income tax provision (benefit) consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C>
Current:
Federal......................................... $ (100) $ (444) $ (78)
State........................................... 100 117 120
----------------------------------------
Total current............................... (--) (327) 42
----------------------------------------
Deferred:
Federal ....................................... -- -- --
State ....................................... -- -- --
--------------------------------------
Total deferred.............................. -- -- --
--------------------------------------
Income tax provision (benefit)....................... $ ([]) $ (327) $ 42
======================================
</TABLE>
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):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C>
Provision (benefit ) for income taxes at
U.S. Federal income tax rate.................... $(7,105) $ (10) $ (879)
Non-utilization (utilization) of
operating loss carryforward.......................... 7,041 (483) 740
State income taxes, net of Federal benefit........... 66 77 55
Non-deductible items................................. (36) 91 90
Other................................................ 34 (2) 36
-----------------------------------------
Income tax provision (benefit).................. $ -- $ (327) $ 42
=========================================
</TABLE>
<PAGE>
The tax effects of temporary differences and carryforwards which give
rise to deferred tax assets and liabilities consisted of the following at ( in
thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C>
Gross deferred tax assets:
Operating loss carryforwards...................................... $ 8,967 $ 5,488
Accrued expenses and reserves..................................... 5,911 2,242
Post-retirement benefits.......................................... 140 140
Other............................................................. 46 245
-------------------------
15,064 8,115
Valuation allowance............................................... (13,580) (6,850)
--------------------------
1,484 1,265
--------------------------
Gross deferred tax liabilities:
Depreciation and amortization..................................... (501) (342)
Pensions.......................................................... (983) (923)
--------------------------
(1,484) (1,265)
--------------------------
Net deferred tax asset................................................. $ -- $ --
==========================
</TABLE>
The valuation allowance primarily reflects operating loss carryforwards
for which utilization is uncertain.
As of December 31, 1997, the Company has unused operating loss
carryforwards for tax purposes of approximately $26.4 million, which expire in
years 2002 through 2012. 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
would be restricted.
NOTE 12 - 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 and 1995, the Company paid Saugatuck
$115,000 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 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.
<PAGE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Andersen Corporation ("Andersen"), whose products accounted for 42% of
1997 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.
NOTE 14 - INTERIM FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is presented
below (in thousands, except per share data):
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C>
Net sales............................... $98,805 $74,536 $106,801 $ 95,208
Gross profit............................ 17,424 10,498 15,042 14,379
Net income (loss)....................... (1,932) (559) (1,929) 562
Earnings (loss) per share............... $ (.19) $ (.06) $ (.19) $ .06
3rd Quarter 4th Quarter
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
Net sales............................... $111,656 $97,377 $ 97,987 $106,224
Gross profit............................ 13,752 14,602 12,122 15,949
Net income (loss)....................... (1,083) 935 (15,953) (640)
Earnings (loss) per share............... $ (.10) $ .11 $ (1.55) $ (.08)
</TABLE>
<PAGE>
MORGAN PRODUCTS LTD.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Accounts Receivable
Allowance for doubtful accounts consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C>
Balance at beginning of period $1,622 $ 722 $953
Provision charged to expense 245 139 214
Write-offs (530) (254) (468)
Addition related to Tennessee Building Products Acquisition -- 901 --
Recoveries/Other (416) 114 23
----- ----- -----
Balance at end of period $ 921 $1,622 $722
==== ===== ===
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number 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)).
10.1 Amended and Restated Loan and Security Agreement among
the Company, the lender parties thereto and Fleet
Capital Corporation as agent for the lenders, dated as
of February 3, 1998 (incorporated by reference to
Exhibit 99 to the Company's Current on Form 8-K filed
February 17, 1998 (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 between the Company and Larry
R. Robinette dated as of January 1, 1998.
*+ 10.6 Morgan Products Ltd. Executive Severance Plan dated
October 1997.
+ 10.7 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)).
+ 10.8 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)).
+ 10.9 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)).
10.10 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)).
*+ 10.11 Morgan Products Ltd. Chief Executive Officer Severance
Plan dated October 1997.
+ 10.12 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)).
+ 10.13 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)).
+ 10.14 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)).
10.15 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)).
10.16 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)).
10.17 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)).
10.18 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)).
+ 10.19 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;
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)).
10.20 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 reference to Exhibit 10.28 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 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)).
10.22 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)).
10.23 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)).
10.24 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)).
10.25 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)).
10.26 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)).
+ 10.27 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
filed September 26 1996 (Commission File No. 1-9843)).
+ 10.28 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
filed September 26 1996 (Commission File No. 1-9843)).
10.29 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 filed
September 26 1996 (Commission File No. 1-9843)).
10.30 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
filed September 26 1996 (Commission File No. 1-9843)).
10.31 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 filed September 26,
1996 (Commission File No. 1-9843)).
10.32 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
filed September 26 1996 (Commission File No. 1-9843)).
10.33 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 filed September 26
1996 (Commission File No. 1-9843)).
10.34 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 filed September 26
1996 (Commission File No. 1-9843)).
10.35 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 filed September 26
1996 (Commission File No. 1-9843)).
+ 10.36 Employment agreement between the Company and Duane
R. Greenly dated November 23, 1996 (incorporated by
reference to Exhibit 10.47 to the Company's Annual
Report on Form 10-K for the Fiscal Year ended December
31, 1996 (Commission File No. 1-9843)).
+ 10.37 Form of Indemnification Agreement, dated December
18, 1996, between the Company and Duane R. Greenly
(incorporated by reference to Exhibit 10.48 to the
Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1996 (Commission File No. 1-9843)).
10.38 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 (incorporated by reference to Exhibit
10.49 to the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1996 (Commission File
No. 1-9843)).
+ 10.39 Amendment to the Company's 1985 Incentive Stock
Option Plan approved by the Board of Directors on
September 30, 1996 (incorporated by reference to Exhibit
10.50 to the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1996 (Commission File
No. 1-9843)).
10.40 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
(incorporated by reference to Exhibit 10.52 to the
Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1996 (Commission File No. 1-9843)).
10.41 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
(incorporated by reference to Exhibit 10.53 to the
Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1996 (Commission File No. 1-9843)).
10.42 Lease, dated October 30, 1996, between the Company and
Wisconsin Warehousing, LLC, for warehousing for a
three-year term in Oshkosh, Wisconsin (incorporated by
reference to Exhibit 10. to the Company's Annual Report
on Form 10-K for the Fiscal Year ended December 31, 1996
(Commission File No. 1-9843)).
10.43 Lease, dated October 30, 1996, between the Company and
Wisconsin Warehousing, LLC, for warehousing for a
three-year term in Oshkosh, Wisconsin (incorporated by
reference to Exhibit 10.55 to the Company's Annual
Report on Form 10-K for the Fiscal Year ended December
31, 1996 (Commission File No. 1-9843)).
+ 10.44 Employment agreement between the Company and
Mitchell J. Lahr dated March 11, 1997 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the Second Quarter of the Fiscal
Year ended December 31, 1997 (Commission File No.
1-9843)).
+ 10.45 Employment agreement between the Company and
Darrell J. Olson dated March 21, 1997 (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the Second Quarter of the Fiscal
Year ended December 31, 1997 (Commission File No.
1-9843)).
+ 10.46 Form of Indemnification Agreement, dated April 7,
1997, between the Company and Mitchell J. Lahr
(incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the Second
Quarter of the Fiscal Year ended December 31, 1997
(Commission File No. 1-9843)).
+ 10.47 Form of Indemnification Agreement, dated April 14,
1997, between the Company and Darrell J. Olson
(incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the Second
Quarter of the Fiscal Year ended December 31, 1997
(Commission File No. 1-9843)).
+ 10.48 Employment termination agreement between the
Company and Dennis C. Hood dated March 31, 1997
(incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the Second
Quarter of the Fiscal Year ended December 31, 1997
(Commission File No. 1-9843)).
+ 10.49 Employment termination agreement between the
Company and Douglas H. MacMillan dated March 31, 1997
(incorporated by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the Second
Quarter of the Fiscal Year ended December 31, 1997
(Commission File No. 1-9843)).
10.50 Lease, dated March 7, 1997, between the Company and
BR/NO LA. Properties, LLC for warehousing for a five
year term in Baton Rouge, Louisiana (incorporated by
reference to Exhibit 10.7 to the Company's Quarterly
Report on Form 10-Q for the Second Quarter of the Fiscal
Year ended December 31, 1997 (Commission File No.
1-9843)).
10.51 Asset Purchase Agreement dated as of July 15, 1997 by
and among Morgan Products Ltd., Wahlfeld Manufacturing
Company and Ted Wahlfeld and John Wahlfeld, as amended
on July 18, 1997 and July 25, 1997 (incorporated by
reference to Exhibit 1 to the Company's Current Report
on Form 8-K dated August 8, 1997 (Commission File No.
1-9843)).
10.52 Asset Purchase Agreement dated as of February 2, 1998 by
JELD-WEN, inc. and Morgan Products Ltd. (incorporated by
reference to Exhibit 2 to the Company's Current Report
on Form 8-K dated February 17, 1998 (Commission
File No. 1-9843)).
* 10.53 Lease Agreement between the Company and Security
Capital Industrial Trust for property located at Denver
Business Center #1, 11101-A East 53rd Avenue, Denver,
Colorado, dated April 15, 1997.
* 10.54 Relocation Agreement between the Company and Duane R.
Greenly dated November 3, 1997.
* 23.1 Consent of Price Waterhouse LLP.
* 27.1 Financial Data Schedule
--------------------------------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
Morgan Products Ltd.
469 McLaws Circle
Williamsburg, VA 23185
As of January 1, 1998
Mr. Larry R. Robinette
c/o Morgan Products Ltd.
469 McLaws Circle
Williamsburg, VA 23185
Dear Larry:
I am pleased to confirm the terms of your continuing employment with
Morgan Products Ltd. (the "Company"). This letter agreement supersedes the
agreement dated August 19, 1994 between the Company and you.
1. You will receive an annual salary of $400,000, subject to annual
review. In no event shall your annual salary be reduced.
2. Both you and the Company shall have the right to terminate your
employment at any time. Your rights to any payments or continuing benefits in
the event of termination of employment shall be governed by the Morgan Products
Ltd. Chief Executive Officer Severance Plan adopted by the Company on September
8, 1997.
3. You will be entitled to participation in the Company"s Profit
Sharing and Savings Retirement Plan; Long Term Incentive Plan and the Deferred
Compensation Plan.
4. You will hold the offices of President and Chief Executive
Officer of the Company. You agree that you shall, except during the time of any
vacation or sick leave, devote the whole of your time, attention and skill
during usual business hours (and outside those hours when reasonably necessary
to your duties hereunder) to your duties hereunder; you will faithfully and
diligently perform such duties and exercise such powers as may be from time to
time assigned to or vested in you by the Board of Directors (the "Board") or by
the Chairman of the Board; you will implement the decisions of the Board and the
Chairman of the Board and use your best efforts to promote the
<PAGE>
interests of the Company. The Company agrees to use its reasonable best efforts
to cause you to be re-elected as a director of the Company, and you agree to
serve in such capacity if so re-elected.
5. You shall be eligible to receive a bonus at the end of each
calendar year based upon the Company's performance for such calendar year. Such
bonus shall be determined in accordance with the Company's bonus plan for
executive officers and you shall receive a bonus of 70% of your annual base
salary if the Company meets its budget under the Company's bonus plan then in
effect. Such bonus eligibility shall be increased to up to 105% of your annual
base salary if the Company exceeds its budget and meets certain targets under
the Company's bonus plan then in effect.
6. So long as you shall be employed by the Company, you shall be
entitled to use of the Company automobile, reimbursement of membership dues to
one country club, reimbursement of fees paid for preparation of your individual
income tax returns and term life insurance in the amount of $2,000,000.
7. So long as you shall be employed by the Company, you shall
be entitled to such expense accounts, vacation time, sick leave, perquisites of
office, fringe benefits, medical and dental insurance coverage and disability
insurance and other terms and conditions of employment as the Company generally
provides to its employees having rank and seniority at the Company comparable to
yours.
8. You acknowledge and agree that this Agreement and the CEO Plan
replace and supersede your Employment Agreement dated August 19, 1994, the
Change-In-Control Severance Policy adopted in December 1992, as amended in
September 1995 (the "1995 Change-In-Control Policy") and the 1994 Special
Severance/Retention Plan for Executive Officers effective March 29, 1994 (the
"1994 Severance Plan") which are no longer of any force or effect. You further
acknowledge and agree that the Company has no further obligation of any kind to
you under the Employment Agreement, the 1995 Change-In-Control Policy or the
1994 Severance Plan.
9. You hereby agree that any and all improvements, inventions,
discoveries, formulae, processes, methods, know-how, confidential data, trade
secrets and other proprietary information (collectively, "Work Products") within
the scope of any business of the Company which you may conceive or make or
2
<PAGE>
have conceived or made during your employment with the Company shall be and are
the sole and exclusive property of the Company, and that you shall, whenever
requested to do so by the Company, at its expense, execute and sign any and all
applications, assignments or other instruments and do all other things which the
Company may deem necessary or appropriate (i) in order to apply for, obtain,
maintain, enforce or defend letters patent of the United States or any foreign
country for any Work Product, or (ii) in order to assign, transfer, convey or
otherwise make available to the Company the sole and exclusive right, title and
interest in and to any Work Product.
10. In the event of any dispute between the parties hereto arising
out of or relating to this Agreement or the employment relationship between the
Company and you (except any dispute with respect to paragraph 6 hereof), such
dispute may be settled by arbitration as provided in the CEO Plan. Judgment upon
the award rendered may be entered in any court having jurisdiction thereof.
Notwithstanding anything herein or in the CEO Plan to the contrary, if any
dispute arises between the parties under paragraph 9 of this letter agreement or
Article 11 of the CEO Plan, the Company shall not be required to arbitrate such
dispute or claim but shall have the right to institute judicial proceedings in
any court of competent jurisdiction with respect to such dispute or claim. If
such judicial proceedings are instituted, the parties agree that such
proceedings shall not be stayed or delayed pending the outcome of any
arbitration proceeding hereunder.
11. This Agreement (including the documents referenced herein)
constitutes the entire agreement between the parties hereto with respect to your
employment by the Company and supersedes and is in full substitution for any and
all prior understandings or agreements with respect to your employment,
including, without limitation, the Employment Agreement, the 1995
Change-In-Control Policy and the 1994 Severance Plan.
12. This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either party hereto at any
time to require the performance by the other party hereto of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach
3
<PAGE>
of such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
13. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors, administrators
and other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to any affiliate or
successor) or by you.
14. If any provision of this letter agreement, or portion thereof,
is so broad, in scope or duration, so as to be unenforceable, such provision or
portion thereof shall be interpreted to be only so broad as is enforceable.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois.
16. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
17. You represent and warrant that you are not party to any
agreement that would prohibit you from entering into this Agreement or
performing fully your obligations hereunder.
Very truly yours,
MORGAN PRODUCTS LTD.
By: /s/Frank J. Hawley, Jr
------------------------
Frank J. Hawley, Jr.
Chairman of the Board
Accepted and agreed as of the
date first above written.
/s/Larry R. Robinette
- -----------------------
LARRY R. ROBINETTE
4
Executive Severance Plan
Morgan Products Ltd.
October 1997
<PAGE>
Contents
- ------------------------------------------------------------------------------
Article 1. Establishment, Term, and Purpose 1
Article 2. Definitions 1
Article 3. Participation 6
Article 4. Severance Benefits Other Than Upon a Change in Control 6
Article 5. Severance Benefits Upon a Change in Control 8
Article 6. Excise Tax 10
Article 7. Outplacement Assistance 11
Article 8. The Company's Payment Obligation 11
Article 9. Legal Remedies 12
Article 10. Withholding 12
Article 11. Noncompetition 13
Article 12. Successors and Assignment 13
Article 13. Miscellaneous 14
<PAGE>
Morgan Products Ltd.
Executive Severance Plan
Article 1. Establishment, Term, and Purpose
1.1 Establishment of the Plan. Morgan Products Ltd. (hereinafter referred
to as the "Company") hereby establishes a severance plan to be known as the
"Morgan Products Ltd. Executive Severance Plan" (the "Plan"). The Plan provides
severance benefits to certain employees of the Company upon a termination of
employment from the Company, including termination of employment as a result of
a Change in Control of the Company. The Plan is intended to supersede any and
all plans, programs, or agreements providing for severance-related payments.
This specifically includes, but is not limited to the Morgan Products Ltd.
Special Severance/Retention Plan for Executive Officers, the Morgan Products
Ltd. Change-in-Control Severance Policy, and any employment agreement or offer
letter summarizing a Participant's compensation with the Company.
1.2. Term of the Plan. This Plan will commence upon September 8,1997 (the
"Effective Date") and shall continue in effect for three (3) full calendar
years. However, at the end of such three (3) year period and, if extended, at
the end of each additional year thereafter, the term of this Plan shall be
extended automatically for one (1) additional year, unless the Committee
delivers written notice six (6) months prior to the end of such term, or
extended term, to each Participant, that the Plan will not be extended. However,
in the event a Change in Control occurs during the original or any extended
term, this Plan will remain in effect for the longer of: (i) twelve (12) months
beyond the month in which such Change in Control occurred; or (ii) until all
obligations of the Company hereunder have been fulfilled, and until all benefits
required hereunder have been paid to Participants.
In the event the term of the Plan is not extended for any reason, the Plan
will terminate at the end of the term, or extended term, then in progress, and
the Participant will be deemed terminated by the Company without Cause on such
date.
1.3. Purpose of the Plan. The purpose of the Plan is to provide certain
key employees of the Company financial security in the event of a termination of
employment from the Company, including termination of employment as a result of
a Change in Control of the Company.
Article 2. Definitions
Whenever used in this Plan, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word is capitalized:
2.1 "Base Salary" means an amount equal to a Participant's base annual
salary as of the date of a termination. For this purpose, "Base
Salary" shall not include bonuses, long-term incentive compensation,
or any remuneration other than base annual salary.
2.2 "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
1
<PAGE>
2.3 "Beneficiary" means the persons or entities designated or deemed
designated by a Participant pursuant to Section 13.2 herein.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Cause" shall mean the occurrence of any one or more of the
following:
(a) The willful and continued failure by a Participant to
substantially perform his or her normal duties (other than any
such failure resulting from the Participant's Disability),
after a written demand for substantial performance is
delivered to the Participant that specifically identifies the
manner in which the Committee believes that the Participant
has not substantially performed his or her duties, and the
Participant has failed to remedy the situation within thirty
(30) business days of receiving such notice; or
(b) The Participant's conviction for committing an act of fraud,
embezzlement, theft, or other act constituting a felony; or
(c) The willful engaging by the Participant in gross negligence
materially and demonstrably injurious to the Company, as
determined by the Committee. However, no act, or failure to
act on the Participant's part, shall be considered "willful"
unless done, or omitted to be done, by the Participant not in
good faith and without reasonable belief that his or her
action or omission was in the best interest of the Company.
2.6 "Change in Control" shall mean the occurrence of any one or more of
the following:
(a) 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:
(i) 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 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
<PAGE>
(ii) During any period of two (2) consecutive years (not
including any period prior to the execution of this
severance policy), 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
(iii) The stockholders of the Company approve:
(A) A plan of complete liquidation of the Company; or
(B) An agreement for the sale or disposition of all or
substantially all the Company's assets; or
(C) A merger, consolidation, or reorganization of the
Company with or involving any other corporation,
other than a merger, consolidation, or
reorganization that would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) at
least sixty-five percent (65%) of the combined
voting power of the voting securities of the
Company (or such surviving entity) outstanding
immediately after such merger, consolidation, or
reorganization.
(b) 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.
(c) Solely with respect to the president of a division of the
Company, the sale or disposition of all or substantially all
of the assets of the division, other than a disposition to an
entity controlled by the Company.
For purposes of the foregoing definition the term "control" shall
have the meaning ascribed thereto under the Exchange Act, as
amended, and the regulations thereunder, and the term "management"
shall mean both the Chief Executive Officer and the Chief Operating
Officer of the Company.
2.7 "Change in Control Severance Benefits" means the payment of
severance compensation as provided in Article 5 herein.
2.8 "Code" means the United States Internal Revenue Code of 1986, as
amended.
3
<PAGE>
2.9 "Committee" means the Compensation Committee of the Board, or any
other committee appointed by the Board to perform the functions of
the Compensation Committee.
2.10 "Company" means Morgan Products Ltd., a Delaware corporation
(including any and all subsidiaries), or any successor thereto as
provided in Article 12 herein.
2.11 "Disability" means permanent and total disability, within the
meaning of Code Section 22(e)(3), as determined by the Committee in
the exercise of good faith and reasonable judgment, upon receipt of
and in reliance on sufficient competent medical advice from one or
more individuals, selected by the Committee, who are qualified to
give professional medical advice, provided, however, that the
Participant must be entitled to disability benefits under the
Company sponsored disability plans or programs.
2.12 "Effective Date" means the date this Plan is approved by the Board,
or such other date as the Board shall designate in its resolution
approving this Plan.
2.13 "Effective Date of Termination" means the date on which a
termination occurs which triggers the payment of Severance Benefits
or Change in Control Severance Benefits hereunder.
2.14 "Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
2.15 "Good Reason" means, without the Participant's express written
consent, the occurrence of any one or more of the following:
(a) Any material reduction in the Participant's Base Salary below
the amount in effect as of the Effective Date.
(b) Any significant reduction in the Participant's benefits
package, except in the case of a reduction which similarly
applies to all executives on a nondiscriminatory basis.
(c) Any material reduction in the Participant's long-term
incentive opportunity with the Company.
(d) Any assignment of new duties that requires the Participant to
relocate his or her domicile more than fifty (50) miles from
the Company's current headquarters.
(e) Any dissolution or liquidation of the Company.
(f) Any significant reduction or diminution in the duties,
responsibilities, or position of the Participant from that in
effect as of the Effective Date, provided that there has been
a Change in Control of the Company, within the six (6) full
calendar month period prior to the effective date of a Change
in Control, or within twelve (12) calendar months following
the effective date of a Change in Control, and provided
further that the sale of a Company division will not
automatically be
4
<PAGE>
deemed to result in the significant reduction or diminution in
the duties, responsibilities, or position of any Participant
not directly employed by such division without a specific
showing of such reduction or diminution.
A Participant's right to terminate employment for Good Reason shall
not be affected by the Participant's incapacity due to Disability. A
Participant's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting
Good Reason herein.
2.16 "Notice of Termination" shall mean a written notice which shall
indicate the specific termination provision in this Plan relied
upon, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Participant's employment under the provision so indicated.
2.17 "Participant" means an executive of the Company who is named by the
Committee as a Participant in the Plan, as set forth in Article 2
herein.
2.18 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
2.19 "Plan" has the meaning ascribed to such term in Section 1.1 hereof.
2.20 "Retention Period" means the period of time beginning on the
Effective Date of this Plan, and ending on the earlier to occur of:
(a) the termination of the Plan; or (b) six (6) months prior to the
effective date of a Change in Control.
2.21 "Retirement" means a voluntary termination of a Participant's
employment other than for Good Reason following the time when: (a)
the Participant has attained age sixty-two (62); or (b) the
Participant has attained age fifty-five (55) and has completed at
least seven (7) full years of continuous service with the Company.
2.22 "Severance Benefits" means the payment of severance compensation as
provided in Article 4 herein.
5
<PAGE>
Article 3. Participation
3.1. Eligible Employees. Individuals eligible to participate in the Plan
shall include all key employees of the Company other than the Chief Executive
Officer, as determined by the Committee in its sole discretion.
3.2. Participation. Subject to the terms of the Plan, the Committee may,
from time to time select from all eligible employees those who shall participate
in the Plan.
Article 4. Severance Benefits Other Than Upon a Change in Control
4.1. Right to Severance Benefits. Subject to the provisions herein, each
Participant shall be entitled to receive from the Company Severance Benefits as
described in Section 4.2 herein, if, during the Retention Period, the
Participant's employment with the Company shall be terminated by the Company
without Cause, or voluntarily by the Executive for Good Reason.
A Participant shall not be entitled to receive Severance Benefits under
Section 4.2 hereof if he or she is terminated for Cause, or if his or her
employment with the Company ends due to death, Disability, Retirement, or due to
a voluntary termination of employment by the Participant without Good Reason.
4.2. Description of Severance Benefits. In the event that a Participant
becomes entitled to receive Severance Benefits, as provided in Section 4.1
herein, the Participant shall receive the following Severance Benefits:
(a) One (1) times the sum of: (i) the Participant's Base Salary;
and (ii) the greater of: (a) the Participant's average annual
bonus earned over the three (3) full fiscal years prior to the
Effective Date of Termination; or (b) the Participant's target
annual bonus established for the bonus plan year in which the
Participant's Effective Date of Termination occurs.
(b) An amount equal to the Participant's unpaid targeted annual
bonus, established for the plan year in which the
Participant's Effective Date of Termination occurs, multiplied
by a fraction, the numerator of which is the number of days
the Participant was employed by the Company in the
then-existing fiscal year through the Effective Date of
Termination, and the denominator of which is three hundred
sixty-five (365) less, in the case of a Participant who began
employment with the Company after the beginning of the fiscal
year, the number of days from the beginning of the fiscal year
to the date the Participant commenced employment with the
Company; provided, however, that such bonus amount shall in no
event be less than any bonus amount guaranteed to the
Participant under any other agreement between the Company and
the Participant.
6
<PAGE>
(c) A continuation of the welfare benefits of medical insurance,
dental insurance, and group term life insurance for one (1)
full year after the Effective Date of Termination. These
benefits shall be provided to Participants at the same premium
cost, and at the same coverage level, as in effect as of the
Participant's Effective Date of Termination.
However, in the event the premium cost and/or level of
coverage shall change for all employees of the Company, the
cost and/or coverage level, likewise, shall change for each
Participant in a corresponding manner.
The continuation of these welfare benefits shall be
discontinued prior to the end of the one (1) year period in
the event the Participant has available substantially similar
benefits from a subsequent employer, as determined by the
Committee.
(d) A cash payment of vacation earned prior to the Effective Date
of Termination, but not taken by the Participant.
(e) All outstanding long-term incentive awards shall be subject to
the treatment provided under the applicable long-term
incentive plan of the Company.
4.3. Termination Due to Disability. If a Participant's employment is
terminated due to Disability during the term of this Plan, the Participant shall
receive his or her Base Salary and accrued vacation through the Effective Date
of Termination. All other benefits provided to the Participant shall be
determined in accordance with the Company's disability, retirement, insurance,
and other applicable plans and programs then in effect.
4.4. Termination Due to Retirement or Death. If a Participant's employment
is terminated by reason of Retirement or death, the Participant, or where
applicable, the Participant's Beneficiaries, shall receive the Participant's
Base Salary and accrued vacation through the Effective Date of Termination. All
other benefits provided to the Participant or the Participant's Beneficiaries
shall be determined in accordance with the Company's retirement, survivor's
benefits, insurance, and other applicable programs of the Company then in
effect; provided, however, that the Committee, at its sole discretion, shall
have the authority to provide for full or partial payout in connection with a
termination of employment by reason of Retirement or death.
4.5. Termination for Cause or by a Participant Other Than for Good Reason.
If a Participant's employment is terminated either: (a) by the Company for
Cause; or (b) by the Participant other than for Good Reason, the Company shall
pay the Participant his or her unpaid Base Salary and accrued vacation through
the Effective Date of Termination, at the rate then in effect, plus all other
amounts to which the Participant is entitled under any compensation plans of the
Company, at the time such payments are due, and the Company shall have no
further obligations to the Participant under this Plan.
4.6. Notice of Termination. Any termination by the Company for Cause or by
a Participant for Good Reason shall be communicated by Notice of Termination at
least sixty (60) days prior to the date on which such termination shall be
effective.
7
<PAGE>
4.7. Form and Timing of Severance Benefits. All cash payments set forth in
this Article 4 shall be made in one (1) lump sum, within forty-five (45) days
after the Effective Date of Termination.
Article 5. Severance Benefits Upon A Change in Control
5.1. Right to Change in Control Severance Benefits. A Participant shall be
entitled to receive from the Company Change in Control Severance Benefits, as
described in Section 5.2 herein, if there has been a Change in Control of the
Company and if, within the six (6) full calendar month period prior to the
effective date of a Change in Control, or within twelve (12) calendar months
following the effective date of a Change in Control, the Participant's
employment with the Company shall end as a result of either an involuntary
termination of the Participant's employment by the Company for reasons other
than Cause, or by voluntary termination by the Participant for Good Reason.
Participants shall not be entitled to receive Change in Control Severance
Benefits if they are terminated for Cause, or if their employment with the
Company ends due to death, Disability, or Retirement, or due to a voluntary
termination of employment by the Participant without Good Reason.
5.2. Description of Change in Control Severance Benefits. In the event
that a Participant becomes entitled to receive Change in Control Severance
Benefits, as provided in Section 5.1 herein, the Company shall pay to the
Participant and provide him or her with the following:
(a) An amount equal to two (2) times the sum of (i) the
Participant's Base Salary; and (ii) the greater of: (a) the
Participant's average annual bonus earned over the three (3)
full fiscal years prior to the Effective Date of Termination;
or (b) the Participant's target annual bonus established for
the bonus plan year in which the Participant's Effective Date
of Termination occurs.
(b) An amount equal to the Participant's unpaid Base Salary and
accrued vacation pay through the Effective Date of
Termination.
(c) An amount equal to the Participant's unpaid targeted annual
bonus, established for the plan year in which the
Participant's Effective Date of Termination occurs, multiplied
by a fraction, the numerator of which is the number of days
the Participant was employed by the Company in the
then-existing fiscal year through the Effective Date of
Termination, and the denominator of which is three hundred
sixty-five (365) less, in the case of a Participant who began
employment after the beginning of the fiscal year; the number
of days from the beginning of the fiscal year to the date the
Participant commenced employment with the Company; provided,
however, that such amount shall in no event be less than any
bonus amount guaranteed to the Participant under any other
agreement between the Company and the Participant.
(d) A continuation of the welfare benefits of medical insurance,
dental insurance, and group term life insurance for two (2)
full years after the Effective Date of
8
<PAGE>
Termination. These benefits shall be provided to Participants
at the same premium cost, and at the same coverage level, as
in effect as of the Participant's Effective Date of
Termination.
However, in the event the premium cost and/or level of
coverage shall change for all employees of the Company, the
cost and/or coverage level, likewise, shall change for each
Participant in a corresponding manner.
The continuation of these welfare benefits shall be
discontinued prior to the end of the two (2) year period in
the event the Participant has available substantially similar
benefits from a subsequent employer, as determined by the
Committee.
(e) All outstanding long-term incentive awards shall be subject to
the treatment provided under the applicable long-term
incentive plan of the Company.
5.3. Termination for Disability. Following a Change in Control of the
Company, if a Participant's employment is terminated due to Disability, the
Participant shall receive his or her Base Salary and accrued vacation through
the Effective Date of Termination. All other benefits provided to the
Participant shall be determined in accordance with the Company's disability,
retirement, insurance, and other applicable plans and programs then in effect.
5.4. Termination for Retirement or Death. Following a Change in Control of
the Company, if a Participant's employment is terminated by reason of his or her
Retirement or death, the Participant, or where applicable, the Participant's
Beneficiaries, shall receive the Participant's Base Salary and accrued vacation
through the Effective Date of Termination. All other benefits provided to the
Participant or the Participant's Beneficiaries shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
5.5. Termination for Cause or by a Participant Other Than for Good Reason
or Retirement. Following a Change in Control of the Company, if a Participant's
employment is terminated either: (i) by the Company for Cause; or (ii) by the
Participant (other than for Retirement) and other than for Good Reason, the
Company shall pay the Participant his or her full Base Salary and accrued
vacation through the Effective Date of Termination, at the rate then in effect,
plus all other amounts to which the Participant is entitled under any
compensation plans of the Company, at the time such payments are due, and the
Company shall have no further obligations to the Participant under this Plan.
5.6. Notice of Termination. Any termination by the Company for Cause or by
a Participant for Good Reason shall be communicated by Notice of Termination at
least sixty (60) days prior to the date on which such termination shall be
effective.
9
<PAGE>
5.7. Form and Timing of Change in Control Severance Benefits. The Change
in Control Severance Benefits described in Sections 5.2(a), (b) and (c) herein
shall be paid in cash to the Participant in a single lump sum as soon as
practicable following the Effective Date of Termination, but in no event beyond
thirty (30) days from such date.
Article 6. Excise Tax
6.1. Excise Tax. Notwithstanding any other provision of this Plan, if any
portion of the severance benefits or any other payment under this Plan, or under
any other agreement with or plan of the Company (in the aggregate "Total
Payments") would constitute an "excess parachute payment," then the payments to
be made to the Participant under the Plan shall be reduced such that the value
of the aggregate Total Payments that the Participant is entitled to receive
shall be one dollar ($1) less than the maximum amount which the Participant may
receive without becoming subject to the tax imposed by Section 4999 of the
Internal Revenue Code of 1986 (the "Code"), or which the Company may pay without
loss of deduction under Section 280G(a) of the Code.
However, the payments to be made to the Participant under this severance
policy shall be reduced if and only if so reducing the payments results in the
Participant receiving a greater net benefit than he would have received had a
reduction not occurred and an excise tax been paid by the Participant pursuant
to Code Section 4999.
For purposes of this severance policy, the terms "excess parachute
payment" and "parachute payments" shall have the meanings assigned to them in
Section 280G of the Code, and such "parachute payments" shall be valued as
provided therein.
6.2. Procedure for Establishing Limitation on Termination Payment. Within
sixty (60) days following delivery of the notice of termination or notice by the
Company to the Participant of its belief that there is a payment or benefit due
to the Participant which will result in an "excess parachute payment" as defined
in Section 280G of the Code, the Participant and the Company, at the Company's
expense, shall obtain the opinion of such legal counsel, which need not be
unqualified, as the Participant may choose, which sets forth: (i) the amount of
the Participant's "annualized includible compensation for the base period" (as
defined in Code Section 280G(d)(1)); (ii) the present value of the Total
Payments; and (iii) the amount and present value of any "excess parachute
payment." The opinion of such legal counsel shall be supported by the opinion of
a certified public accounting firm and, if necessary, a firm of recognized
executive compensation consultants. Such opinion shall be binding upon the
Company and the Participant.
In the event that such opinion determines that there would be an "excess
parachute payment," the severance benefits hereunder or any other payment
determined by such counsel to be includible in Total Payments shall be reduced
or eliminated as specified by the Participant in writing delivered to the
Company within thirty (30) days of his receipt of such opinion, or, if the
Participant fails to so notify the Company, then as the Company shall reasonably
determine, so that under the basis of calculations set forth in such opinion,
there will be no "excess parachute payment."
10
<PAGE>
The calculations, notices, and opinion provided for herein shall be based
upon the conclusive presumption that; (i) the compensation and benefits provided
for herein; and (ii) any other compensation earned prior to the effective date
of termination by the Participant pursuant to the Company's compensation
programs (if such payments would have been made in the future in any event, even
though the timing of such payment is triggered by the Change in Control), are
reasonable.
6.3. Subsequent Imposition of Excise Tax. If, notwithstanding compliance
with the provisions herein, it is ultimately determined by a court or pursuant
to a final determination by the Internal Revenue Service that any portion of the
Total Payments is considered to be a "parachute payment," subject to excise tax
under Section 4999 of the Code, which was not contemplated to be a "parachute
payment" at the time of payment (so as to accurately determine whether a
limitation should have been applied to the Total Payments to maximize the net
benefit to the Participant), the Participant shall be entitled to receive a lump
sum cash payment sufficient to place the Participant in the same net after-tax
position, computed by using the "Special Tax Rate" as such term is defined
below, that the Participant would have been in had such payment not been subject
to such excise tax, and had the Participant not incurred any interest charges or
penalties with respect to the imposition of such excise tax. For purposes of
this severance policy, the "Special Tax Rate" shall be the highest effective
Federal and state marginal tax rates applicable to the Participant in the year
in which the payment contemplated under this severance policy is made.
Article 7. Outplacement Assistance
Following a termination of employment in which Severance Benefits or
Change in Control Severance Benefits are payable hereunder the Participant shall
be reimbursed by the Company for the costs of all outplacement services obtained
by the Participant within the two (2) year period after the Effective Date of
Termination; provided, however, that the total reimbursement shall be limited to
an amount equal to fifteen percent (15%) of the Participant's Base Salary as of
the effective date of termination.
Article 8. The Company's Payment Obligation
8.1. Payment Obligations Absolute. The Company's obligation to make the
payments and the arrangements provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against Participants or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
Each and every payment made hereunder by the Company shall be final, and the
Company shall not seek to recover all or any part of such payment from
Participants or from whomsoever may be entitled thereto, for any reasons
whatsoever.
Participants shall not be obligated to seek other employment in mitigation
of the amounts payable or arrangements made under any provision of this Plan,
and the obtaining of any such other employment shall in no event effect any
reduction of the Company's obligations to make the payments and arrangements
required to be made under this Plan, except to the extent provided in Sections
4.2(c) and 5.2(d) herein.
11
<PAGE>
8.2. Contractual Rights to Benefits. This Plan establishes and vests in
each Participant a contractual right to the benefits to which he or she is
entitled hereunder. However, nothing herein contained shall require or be deemed
to require, or prohibit or be deemed to prohibit, the Company to segregate,
earmark, or otherwise set aside any funds or other assets, in trust or
otherwise, to provide for any payments to be made or required hereunder.
Article 9. Legal Remedies
9.1. Payment of Legal Fees. To the extent permitted by law, the Company
shall pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Participant as a result of the Company's
refusal to provide the Severance Benefits or Change in Control Severance
Benefits to which the Participant becomes entitled under this Plan, or as a
result of the Company's contesting the validity, enforceability, or
interpretation of this Plan, or as a result of any conflict between the parties
pertaining to this Plan; provided, however, that the Company shall be reimbursed
by the Participant for all such fees and expenses in the event the Participant
fails to prevail with respect to any one (1) material issue of dispute in
connection with such legal action.
9.2. Arbitration. Subject to the following sentences, participants shall
have the right and option to elect (in lieu of litigation) to have any dispute
or controversy arising under or in connection with this Plan settled by
arbitration, conducted before a panel of three (3) arbitrators sitting in a
location selected by the Participant within fifty (50) miles from the location
of his job with the Company, in accordance with the rules of the American
Arbitration Association then in effect. The Participant shall not have the right
to elect to have any dispute which arise under Article 11 of this Plan settled
by arbitration, but rather, the Company or the Participant shall have the right
to institute judicial proceedings in any court of competent jurisdiction with
respect to such dispute or claim. If judicial proceedings are instituted, the
parties agree that such proceedings shall not be stayed or delayed pending the
outcome of any arbitration proceeding hereunder.
Except as provided above for claims or disputes under Article 11, judgment
may be entered on the award of the arbitrator in any court having proper
jurisdiction. All expenses of such arbitration, including the fees and expenses
of the counsel for the Participant, shall be borne by the Company; provided,
however, that the Company shall be reimbursed by the Participant for all such
fees and expenses in the event the Participant fails to prevail with respect to
any one (1) material issue of dispute in connection with such legal action.
Article 10. Withholding
The Company shall be entitled to withhold from any amounts payable under
this Plan all taxes as legally shall be required (including, without limitation,
any United States federal taxes, and any other state, city, or local taxes).
12
<PAGE>
Article 11. Noncompetition
11.1.Prohibition on Competition. Without the prior written consent of the
Company, during the term of this Plan, and for a period of two (2) years
following the payment of Severance Benefits or Change in Control Severance
Benefits under this Plan, Participants shall not, as an employee or an officer,
engage directly or indirectly in any business or enterprise which is "in
competition" with the Company or its successors or assigns. For purposes of this
Plan, a business or enterprise will be deemed to be "in competition" if it is
engaged in any significant business activity of the Company or its subsidiaries
within the United States of America.
However Participants shall be allowed to purchase and hold for investment
less than two percent (2%) of the shares of any corporation whose shares are
regularly traded on a national securities exchange or in the over-the-counter
market.
11.2.Disclosure of Information. Participants recognize that they have
access to and knowledge of certain confidential and proprietary information of
the Company which is essential to the performance of their duties as employees
of the Company. Participants will not, during or after the term of their
employment by the Company, in whole or in part, disclose such information to any
person, firm, corporation, association, or other entity for any reason or
purpose whatsoever, nor shall he make use of any such information for their own
purposes.
11.3.Covenants Regarding Other Employees. During the term of this Plan,
and for a period of two (2) years following the payment of Severance Benefits or
Change in Control Severance Benefits under this Plan, each Participant agrees
not to attempt to induce any employee of the Company to terminate his or her
employment with the Company, accept employment with any competitor of the
Company, or to interfere in a similar manner with the business of the Company.
Article 12. Successors and Assignment
12.1.Successors to the Company. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
of all or substantially all of the business and/or assets of the Company or of
any division or subsidiary thereof to expressly assume and agree to perform the
Company's obligations under this Plan in the same manner and to the same extent
that the Company would be required to perform them if no such succession had
taken place. Failure of the Company to obtain such assumption and agreement
prior to the effective date of any such succession shall be a breach of this
Plan and shall entitle Participants to compensation from the Company in the same
amount and on the same terms as they would be entitled to hereunder if they had
terminated their employment with the Company voluntarily for Good Reason. Except
for the purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Effective Date of Termination.
13
<PAGE>
12.2.Assignment by the Participant. This Plan shall inure to the benefit
of and be enforceable by each Participant's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If a Participant dies while any amount would still be payable to him
or her hereunder had he or she continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Plan, to the Participant's Beneficiary. If the Participant has not named a
Beneficiary, then such amounts shall be paid to the Participant's devisee,
legatee, or other designee, or if there is no such designee, to the
Participant's estate.
Article 13. Miscellaneous
13.1.Employment Status. Except as may be provided under any other
agreement between a Participant and the Company, the employment of the
Participant by the Company is "at will," and, prior to the effective date of a
Change in Control, may be terminated by either the Participant or the Company at
any time, subject to applicable law.
13.2.Beneficiaries. Each Participant may designate one or more persons or
entities as the primary and/or contingent Beneficiaries of any Severance
Benefits or Change in Control Severance Benefits owing to the Participant under
this Plan. Such designation must be in the form of a signed writing acceptable
to the Committee. Participants may make or change such designations at any time.
13.3.Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the feminine
shall include the masculine, the plural shall include the singular, and the
singular shall include the plural.
13.4.Severability. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included. Further, the captions
of this Plan are not part of the provisions hereof and shall have no force and
effect.
13.5.Modification. No provision of this Plan may be modified, waived, or
discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by each affected Participant and by an authorized member of
the Committee, or by the respective parties' legal representatives and
successors.
13.6.Applicable Law. To the extent not preempted by the laws of the United
States, the laws of the state of Illinois, shall be the controlling law in all
matters relating to this Plan.
14
Chief Executive Officer
Severance Plan
Morgan Products Ltd.
October 1997
<PAGE>
Contents
Article 1. Establishment, Term, and Purpose 1
Article 2. Definitions 1
Article 3. Participation 5
Article 4. Severance Benefits Other Than Upon a Change in Control 5
Article 5. Severance Benefits Upon a Change in Control 7
Article 6. Excise Tax 9
Article 7. The Company's Payment Obligation 11
Article 8. Legal Remedies 11
Article 9. Withholding 11
Article 10. Outplacement Assistance 12
Article 11. Noncompetition 12
Article 12. Successors and Assignment 13
Article 13. Miscellaneous 13
<PAGE>
Morgan Products Ltd.
Chief Executive Officer Severance Plan
Article 1. Establishment, Term, and Purpose
1.1 Establishment of the Plan. Morgan Products Ltd. (hereinafter referred
to as the "Company") hereby establishes a severance plan to be known as the
"Morgan Products Ltd. Chief Executive Officer Severance Plan" (the "Plan"). The
Plan provides severance benefits to the Chief Executive Officer of the Company
(the "Participant") upon a termination of employment from the Company, including
termination of employment as a result of a Change in Control of the Company. The
Plan is intended to supersede any and all plans, programs, or agreements
providing for severance- related payments. This specifically includes, but is
not limited to the Morgan Products Ltd. Special Severance/Retention Plan for
Executive Officers and any employment agreement discussing the Participant's
compensation with the Company.
1.2 Term of the Plan. This Plan will commence upon September 8, 1997 (the
"Effective Date") and shall continue in effect for three (3) full calendar
years. However, at the end of such three (3) year period and, if extended, at
the end of each additional year thereafter, the term of this Plan shall be
extended automatically for one (1) additional year, unless the Committee
delivers written notice six (6) months prior to the end of such term, or
extended term, to the Participant, that the Plan will not be extended, provided,
however, that in the event a Change in Control occurs during the original or any
extended term, this Plan will remain in effect for the longer of: (i) twelve
(12) months beyond the month in which such Change in Control occurred; or (ii)
until all obligations of the Company hereunder have been fulfilled, and until
all benefits required hereunder have been paid to the Participant.
In the event the term of the Plan is not extended for any reason, the Plan
will terminate at the end of the term, or extended term, then in progress, and
the Participant will be deemed terminated by the Company without Cause on such
date.
1.3 Purpose of the Plan. The purpose of the Plan is to provide the Chief
Executive Officer of the Company financial security in the event of a
termination of employment from the Company, including termination of employment
as a result of a Change in Control of the Company.
Article 2. Definbitions
Whenever used in this Plan, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word is capitalized:
2.1 "Base Salary" means an amount equal to the Participant's base annual
salary as of the date of a termination. For this purpose, "Base
Salary" shall not include bonuses, long-term incentive compensation,
or any remuneration other than base annual salary.
2.2 "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
1
<PAGE>
2.3 "Beneficiary" means the persons or entities designated or deemed
designated by the Participant pursuant to Section 13.2 herein.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Cause" shall mean the occurrence of any one or more of the
following:
(a) The willful and continued failure by the Participant to
substantially perform his normal duties (other than any such
failure resulting from the Participant's Disability), after a
written demand for substantial performance is delivered to the
Participant that specifically identifies the manner in which
the Committee believes that the Participant has not
substantially performed his duties, and the Participant has
failed to remedy the situation within thirty (30) business
days of receiving such notice; or
(b) The Participant's conviction for committing an act of fraud,
embezzlement, theft, or other act constituting a felony; or
(c) The willful engaging by the Participant in gross negligence
materially and demonstrably injurious to the Company, as
determined by the Committee. However, no act, or failure to
act on the Participant's part, shall be considered "willful"
unless done, or omitted to be done, by the Participant not in
good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
2.6 "Change in Control" shall mean the occurrence of any one or more of
the following:
(a) 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:
(i) 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 exchanged for
shares in any other corporation whether or not
affiliated with the Company, or any combination of such
redemption, purchase or exchange; or
(ii) During any period of two (2) consecutive years (not
including any period prior to the execution of this
severance policy), 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
2
<PAGE>
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
(iii) The stockholders of the Company approve:
(A) A plan of complete liquidation of the Company; or
(B) An agreement for the sale or disposition of all or
substantially all the Company's assets; or
(C) A merger, consolidation, or reorganization of the
Company with or involving any other corporation,
other than a merger, consolidation, or
reorganization that would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) at
least sixty- five percent (65%) of the combined
voting power of the voting securities of the
Company (or such surviving entity) outstanding
immediately after such merger, consolidation, or
reorganization.
(b) 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.
(c) Solely with respect to the president of a division of the
Company, the sale or disposition of all or substantially all
of the assets of the division, other than a disposition to an
entity controlled by the Company. For purposes of the
foregoing definition the term "control" shall have the meaning
ascribed thereto under the Exchange Act, as amended, and the
regulations thereunder, and the term "management" shall mean
both the Chief Executive Officer and the Chief Operating
Officer of the Company.
2.7 "Change in Control Severance Benefits" means the payment of
severance compensation as provided in Article 5 herein.
2.8 "Code" means the United States Internal Revenue Code of 1986, as
amended.
2.9 "Committee" means the Compensation Committee of the Board, or any
other committee appointed by the Board to perform the functions of
the Compensation Committee.
3
<PAGE>
2.10 "Company" means Morgan Products Ltd., a Delaware corporation
(including any and all subsidiaries), or any successor thereto as
provided in Article 12 herein.
2.11 "Disability" means permanent and total disability, within the
meaning of Code Section 22(e)(3), as determined by the Committee in
the exercise of good faith and reasonable judgment, upon receipt of
and in reliance on sufficient competent medical advice from one or
more individuals, selected by the Committee, who are qualified to
give professional medical advice, provided, however, that the
Participant must be entitled to disability benefits under the
Company-sponsored disability plans or programs
2.12 "Effective Date" means the date this Plan is approved by the Board,
or such other date as the Board shall designate in its resolution
approving this Plan.
2.13 "Effective Date of Termination" means the date on which a
termination occurs which triggers the payment of Severance Benefits
or Change in Control Severance Benefits hereunder.
2.14 "Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
2.15 "Good Reason" means, without the Participant's express written
consent, the occurrence of any one or more of the following:
(a) Any material reduction in the Participant's Base Salary below
the amount in effect as of the Effective Date (including all
increases following the Effective Date).
(b) Any significant reduction in the Participant's benefits
package, except in the case of a reduction which similarly
applies to all executives on a nondiscriminatory basis.
(c) Any material reduction in the Participant's long-term
incentive opportunity with the Company.
(d) Any assignment of new duties that requires the Participant to
relocate his domicile more than fifty (50) miles from the
Company's current headquarters.
(e) Any dissolution or liquidation of the Company.
(f) Any significant reduction or diminution in the duties,
responsibilities, or position of the Participant from that in
effect as of the Effective Date (including subsequent
increases in duties, responsibilities, or position), provided
that the sale of a Company division will not automatically be
deemed to result in the significant reduction or diminution in
the duties, responsibilities, or position of the Participant
without a specific showing of such reduction or diminution.
4
<PAGE>
The Participant's right to terminate employment for Good
Reason shall not be affected by the Participant's incapacity
due to Disability. The Participant's continued employment
shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason herein.
2.16 "Notice of Termination" shall mean a written notice which shall
indicate the specific termination provision in this Plan relied
upon, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Participant's employment under the provision so indicated.
2.17 "Participant" means the Chief Executive Officer of the Company.
2.18 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
2.19 "Plan" has the meaning ascribed to such term in Section 1.1 hereof.
2.20 "Retention Period" means the period of time beginning on the
Effective Date of this Plan, and ending on the earlier to occur of:
(a) the termination of the Plan; or (b) six (6) months prior to the
effective date of a Change in Control.
2.21 "Retirement" means a voluntary termination of the Participant's
employment other than for Good Reason following the time when: (a)
the Participant has attained age sixty-two (62); or (b) the
Participant has attained age fifty-five (55) and has completed at
least seven (7) full years of continuous service with the Company.
2.22 "Severance Benefits" means the payment of severance compensation as
provided in Article 4 herein.
Article 3. Participation
The Chief Executive Officer of the Company shall be eligible to
participate in the Plan.
Article 4. Severance Benefits Other Than Upon a Change in Control
4.1 Right to Severance Benefits. Subject to the provisions herein, the
Participant shall be entitled to receive from the Company Severance Benefits as
described in Section 4.2 herein, if, during the Retention Period, the
Participant's employment with the Company shall be terminated by the Company
without Cause, or voluntarily by the Executive for Good Reason.
The Participant shall not be entitled to receive Severance Benefits under
Section 4.2 hereof if he is terminated for Cause, or if his employment with the
Company ends due to death, Disability, Retirement, or due to a voluntary
termination of employment by the Participant without Good Reason.
5
<PAGE>
4.2 Description of Severance Benefits. In the event that the Participant
becomes entitled to receive Severance Benefits, as provided in Section 4.1
herein, the Participant shall receive the following Severance Benefits:
(a) Two (2) times the sum of: (i) the Participant's Base Salary;
and (ii) the greater of: (a) the Participant's average annual
bonus earned over the three (3) full fiscal years prior to the
Effective Date of Termination; or (b) the Participant's target
annual bonus established for the bonus plan year in which the
Participant's Effective Date of Termination occurs.
(b) An amount equal to the Participant's unpaid targeted annual
bonus, established for the plan year in which the
Participant's Effective Date of Termination occurs, multiplied
by a fraction, the numerator of which is the number of days
completed in the then-existing fiscal year through the
Effective Date of Termination, and the denominator of which is
three hundred sixty-five (365).
(c) A continuation of the welfare benefits of medical insurance,
dental insurance, and group term life insurance (at a coverage
level elected by the Participant, up to $2,000,000) until the
Participant and his spouse shall either attain age 70 or
become eligible for Medicare, whichever is earlier. These
welfare benefits shall be provided to the Participant at the
Company's premium cost as in effect as of the Participant's
Effective Date of Termination.
However, in the event the premium cost shall hange for all
employees of the Company, the cost, likewise, shall change for
the Participant in a corresponding manner.
(d) A cash payment of vacation earned prior to the Effective Date
of Termination, but not taken by the Participant.
(e) All outstanding long-term incentive awards shall be subject to
the treatment provided under the applicable long-term
incentive plan of the Company.
4.3 Termination Due to Disability. If the Participant's employment is
terminated due to Disability during the term of this Plan, the Participant shall
receive his Base Salary and accrued vacation through the Effective Date of
Termination and continuation of the welfare benefits of medical insurance,
dental insurance, and group term life insurance (at a coverage level elected by
the Participant, up to $2,000,000) until the Participant and his spouse shall
either attain age 70 or become eligible for Medicare, whichever is earlier.
These benefits shall be provided to the Participant at the Company's premium
cost as in effect as of the Participant's Effective Date of Termination. All
other benefits provided to the Participant shall be determined in accordance
with the Company's disability, retirement, insurance, and other applicable plans
and programs then in effect.
6
<PAGE>
4.4 Termination Due to Retirement or Death. If the Participant's
employment is terminated by reason of Retirement or death, the participant or,
where applicable, the Participant's Beneficiaries, shall receive the
Participant's Base Salary and accrued vacation through the Effective date of
Termination, and continuation of the welfare benefits of medical insurance,
dental insurance, and group term life insurance (at a coverage level elected by
the Participant, up to $2,000,000) until the Participant and his spouse shall
either attain age 70 or become entitled to Medicare, whichever is earlier. These
benefits shall be provided to the Participant at the Company's premium cost as
in effect as of the Participant's Effective Date of Termination. All other
benefits provided to the Participant or Participant's Beneficiaries shall be
determined in accordance with the Company's retirement, survivor's benefits,
insurance, and other applicable programs of the Company then in effect;
provided, however, that the Committee, at its sole discretion, shall have the
authority to provide for full or partial payout in connection with a termination
of employment by reason of Retirement or death.
4.5 Termination for Cause or by the Participant Other Than for Good
Reason. If the Participant's employment is terminated either: (a) by the Company
for Cause; or (b) by the Participant other than for Good Reason, the Company
shall pay the Participant his unpaid Base Salary and accrued vacation through
the Effective Date of Termination, at the rate then in effect, plus all other
amounts to which the Participant is entitled under any compensation plans of the
Company, at the time such payments are due, and the Company shall have no
further obligations to the Participant under this Plan.
4.6 Notice of Termination. Any termination by the Company for Cause or by
the Participant for Good Reason shall be communicated by Notice of Termination
at least sixty (60) days prior to the date on which such termination shall be
effective.
4.7 Form and Timing of Severance Benefits. All cash payments set forth in
this Article 4 shall be made in one (1) lump sum, within forty-five (45) days
after the Effective Date of Termination.
Article 5. Severance Benefits upon Change in Control
5.1 Right to Change in Control Severance Benefits. The Participant shall
be entitled to receive from the Company Change in Control Severance Benefits, as
described in Section 5.2 herein, if there has been a Change in Control of the
Company and if, within the six (6) full calendar month period prior to the
effective date of a Change in Control, or within twelve (12) calendar months
following the effective date of a Change in Control, the Participants
employment with the Company shall end as a result of either an involuntary
termination of the Participant's employment by the Company for reasons other
than Cause, or by voluntary termination by the Participant for Good Reason.
The Participant shall not be entitled to receive Change in Control
Severance Benefits if he is terminated for Cause, or if his employment with the
Company ends due to death, Disability, or Retirement, or due to a voluntary
termination of employment by the Participant without Good Reason.
7
<PAGE>
5.2 Description of Change in Control Severance Benefits. In the event
that the Participant becomes entitled to receive Change in Control Severance
Benefits, as provided in Section 5.1 herein, the Company shall pay to the
Participant and provide him with the following:
(a) An amount equal to three (3) times the sum of (i) the
Participant's Base Salary; and (ii) the greater of: (a) the
Participant's average annual bonus earned over the three (3)
full fiscal years prior to the Effective Date of Termination;
or (b) the Participant's target annual bonus established for
the bonus plan year in which the Participant's Effective Date
of Termination occurs.
(b) An amount equal to the Participant's unpaid Base Salary and
accrued vacation pay through the Effective Date of
Termination.
(c) An amount equal to the Participant's unpaid targeted annual
bonus, established for the plan year in which the
Participant's Effective Date of Termination occurs, multiplied
by a fraction, the numerator of which is the number of days
completed in the then-existing fiscal year through the
Effective Date of Termination, and the denominator of which is
three hundred sixty-five (365).
(d) A continuation of the welfare benefits of medical insurance,
dental insurance, and group term life insurance (at a coverage
level elected by the Participant up to $2,000,000) until the
Participant and his spouse shall either attain age 70 or
become entitled to Medicare, whichever is earlier. These
benefits shall be provided to the Participant at the Company's
premium cost as in effect as of the Participant's Effective
Date of Termination.
However, in the event the premium cost shall change for all
employees of the Company, the cost likewise, shall change for
the Participant in a corresponding manner.
(e) All outstanding long-term incentive awards shall be subject to
the treatment provided under the applicable long-term
incentive plan of the Company.
5.3 Termination for Disability. Following a Change in Control of the
Company, if the Participant's employment is terminated due to Disability, the
Participant shall receive his Base Salary and accrued vacation through the
Effective Date of Termination, and continuation of the welfare benefits of
medical insurance, dental insurance, and group term life insurance (at a
coverage level elected by the Participant, up to $2,000,000) until the
Participant and his spouse shall either attain age 70 or become entitled to
Medicare, whichever is earlier. These benefits shall be provided to the
Participant at the Company's premium cost as in effect as of the Participant's
Effective Date of Termination. All other benefits provided to the Participant
shall be determined in accordance with the Company's disability, retirement,
insurance, and other applicable plans and programs then in effect.
8
<PAGE>
5.4 Termination for Retirement or Death. Following a Change in Control of
the Company, if the Participant's employment is terminated by reason of his
Retirement or death, the Participant, or where applicable, the Participant's
Beneficiaries, shall receive the Participant's Base Salary and accrued vacation
through the Effective Date of Termination, and continuation of the welfare
benefits of medical insurance, dental insurance, and group term life insurance
(at a coverage level elected by the Participant, up to $2,000,000) until the
Participant and his spouse shall either attain age 70 or become entitled to
Medicare, whichever is earlier. These benefits shall be provided to the
Participant at the Company's premium cost as in effect as of the Participant's
Effective Date of Termination. All other benefits provided to the Participant or
the Participant's Beneficiaries shall be determined in accordance with the
Company's retirement, survivor's benefits, insurance, and other applicable
programs of the Company then in effect.
5.5 Termination for Cause or by the Participant Other Than for Good Reason
or Retirement. Following a Change in Control of the Company, if the
Participant's employment is terminated either: (i) by the Company for Cause; or
(ii) by the Participant (other than for Retirement) and other than for Good
Reason, the Company shall pay the Participant his full Base Salary and accrued
vacation through the Effective Date of Termination, at the rate then in effect,
plus all other amounts to which the Participant is entitled under any
compensation plans of the Company, at the time such payments are due, and the
Company shall have no further obligations to the Participant under this Plan.
5.6 Notice of Termination. Any termination by the Company for Cause or by
the Participant for Good Reason shall be communicated by Notice of Termination
at least sixty (60) days prior to the date on which such termination shall be
effective.
5.7 Form and Timing of Change in Control Severance Benefits. The Change in
Control Severance Benefits described in Sections 5.2(a), (b), and (c) herein
shall be paid in cash to the Participant in a single lump sum as soon as
practicable following the Effective Date of Termination, but in no event beyond
thirty (30) days from such date.
Article 6. Excise Tax
6.1 Excise Tax Equalization Payment. In the event that the Participant
becomes entitled to severance benefits or any other payment or benefit under
this Plan, or under any other agreement with or plan of the Company (in the
aggregate, the "Total Payments"), if any of the Total Payments will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any
similar tax that may hereafter be imposed), the Company shall pay to the
Participant in cash an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Participant after deduction of any Excise Tax upon
the Total Payments and any federal, state and local income tax and Excise Tax
upon the Gross-Up Payment provided for by this Section 6.1 (including FICA and
FUTA), shall be equal to the Total Payments. Such payment shall be made by the
Company to the Participant as soon as practical following the effective date of
termination, but in no event beyond thirty (30) days from such date.
9
<PAGE>
6.2 Tax Computation. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by
the Participant in connection with a Change in Control of the
Company or the Participant's termination of employment
(whether pursuant to the terms of this Plan or any other plan,
arrangement, or agreement with the Company, or with any person
(which shall have the meaning set forth in Section 3(a)(9) of
the Securities Exchange Act of 1934, including a "group" as
defined in Section 13(d) therein) whose actions result in a
Change in Control of the Company or any person affiliated with
the Company or such persons) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel as supported
by the Company's independent auditors and acceptable to the
Participant, such other payments or benefits (in whole or in
part) do not constitute parachute payments, or unless such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the
Code, or are otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of: (i)
the total amount of the Total Payments; or (ii) the amount of
excess parachute payments within the meaning of Section
280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or
benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Participant shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Participant's residence on the
effective date of termination, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
6.3 Subsequent Recalculation. In the event the Internal Revenue Service
adjusts the computation of the Company under Section 6.2 herein so that the
Participant did not receive the greatest net benefit, the Company shall
reimburse the Participant for the full amount necessary to make the Participant
whole, plus a market rate of interest, as determined by the Committee.
10
<PAGE>
Article 7. Outplacement Assistance
Following a termination of employment in which Severance Benefits or
Change in Control Severance Benefits are payable hereunder, the Participant
shall be reimbursed by the Company for the costs of all outplacement services
obtained by the Participant within the two (2) year period after the Effective
Date of Termination; provided, however, that the total reimbursement shall be
limited to an amount equal to fifteen percent (15%) of the Participant's Base
Salary as of the effective date of termination.
Article 8. The Company's Payment Obligation
8.1 Payment Obligations Absolute. The Company's obligation to make the
payments and the arrangements provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Participant or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
Each and every payment made hereunder by the Company
The Participant shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Plan, and the obtaining of any such other employment shall in no event
effect any reduction of the Company's obligations to make the payments and
arrangements required to be made under this Plan, except to the extent provided
in Sections 4.2(c) and 5.2(d) herein.
8.2 Contractual Rights to Benefits. This Plan establishes and vests in the
Participant a contractual right to the benefits to which he is entitled
hereunder. However, nothing herein contained shall require or be deemed to
require, or prohibit or be deemed to prohibit, the Company to segregate,
earmark, or otherwise set aside any funds or other assets, in trust or
otherwise, to provide for any payments to be made or required hereunder.
Article 9. Legal Remedies
9.1 Payment of Legal Fees. To the extent permitted by law, the Company
shall pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Participant as a result of the Company's
refusal to provide the Severance Benefits or Change in Control Severance
Benefits to which the Participant becomes entitled under this Plan, or as a
result of the Company's contesting the validity, enforceability, or
interpretation of this Plan, or as a result of any conflict between the parties
pertaining to this Plan; provided, however, that the Company shall be reimbursed
by the Participant for all such fees and expenses in the event the Participant
fails to prevail with respect to any one (1) material issue of dispute in
connection with such legal action.
9.2 Arbitration. Subject to the following sentences, the Participant shall
have the right and option to elect (in lieu of litigation) to have any dispute
or controversy arising under or in connection with this Plan settled by
arbitration, conducted before a panel of three (3) arbitrators sitting in a
location selected by the Participant within fifty (50) miles from the location
of his job with the Company, in accordance with the rules of the American
Arbitration Association then in effect. The
11
<PAGE>
Participant shall not have the right to elect to have any dispute which arises
under Article 11 of this Plan settled by arbitration, but rather, the Company or
the Participant shall have the right to institute judicial proceedings in any
court of competent jurisdiction with respect to such dispute or claim. If such
judicial proceedings are instituted, the parties agree that such proceedings
shall not be stayed or delayed pending the outcome of any arbitration proceeding
hereunder.
Except as provided above for claims or disputes under Article 11, judgment
may be entered on the award of the arbitrator in any court having proper
jurisdiction. All expenses of such arbitration, including the fees and expenses
of the counsel for the Participant, shall be borne by the Company; provided,
however, that the Company shall be reimbursed by the Participant for all such
fees and expenses in the event the Participant fails to prevail with respect to
any one (1) material issue of dispute in connection with such legal action.
Article 10. Withholding
The Company shall be entitled to withhold from any amounts payable under
this Plan all taxes as legally shall be required (including, without limitation,
any United States federal taxes, and any other state, city, or local taxes).
Article 11. Noncompetition
11.1 Prohibition on Competition. Without the prior written consent of the
Company, during the term of this Plan, and for a period of two (2) years
following the payment of Severance Benefits or Change in Control Severance
Benefits under this Plan, the Participant shall not, as an employee or an
officer, engage directly or indirectly in any business or enterprise which is
in competition with the Company or its successors or assigns. For purposes of
this Plan, a business or enterprise will be deemed to be in competition if it
is engaged in any significant business activity of the Company or its
subsidiaries within the United States of America.
However, the Participant shall be allowed to purchase and hold for
investment less than two percent (2%) of the shares of any corporation whose
shares are regularly traded on a national securities exchange or in the
over-the-counter market.
11.2 Disclosure of Information. The Participant recognizes that he has
access to and knowledge of certain confidential and proprietary information of
the Company which is essential to the performance of his duties as an employee
of the Company. The Participant will not, during or after the term of their
employment by the Company, in whole or in part, disclose such information to any
person, firm, corporation, association, or other entity for any reason or
purpose whatsoever, nor shall he make use of any such information for his own
purposes.
11.3 Covenants Regarding Other Employees. During the term of this Plan,
and during the period ending two (2) years following the payment of Severance
Benefits or Change in Control Severance Benefits under this Plan, the
Participant agrees not to attempt to induce any employee of the Company to
terminate his employment with the Company, accept employment with any competitor
of the Company, or to interfere in a similar manner with the business of the
Company.
12
<PAGE>
Article 12. Successors and Assignment
12.1 Successors to the Company. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
of all or substantially all of the business and/or assets of the Company or of
any division or subsidiary thereof to expressly assume and agree to perform the
Company's obligations under this Plan in the same manner and to the same extent
that the Company would be required to perform them if no such succession had
taken place. Failure of the Company to obtain such assumption and agreement
prior to the effective date of any such succession shall be a breach of this
Plan and shall entitle the Participant to compensation from the Company in the
same amount and on the same terms as he would be entitled to hereunder if he had
terminated his employment with the Company voluntarily for Good Reason. Except
for the purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Effective Date of Termination.
12.2 Assignment by the Participant. This Plan shall inure to the benefit
of and be enforceable by the Participant's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If the Participant dies while any amount would still be payable to him
hereunder had he continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Plan, to the
Participant's Beneficiary. If the Participant ha not named a Beneficiary, then
such amounts shall be paid to the Participant's devisee, legatee, or other
designee, or if there is no such designee, to the Participant's estate.
Article 13. Miscellaneous
13.1 Beneficiaries. The Participant may designate one or more persons or
entities as the primary and/or contingent Beneficiaries of any Severance
Benefits or Change in Control Severance Benefits owing to the Participant under
this Plan. Such designation must be in the form of a signed writing acceptable
to the Committee. The Participant may make or change such designations at any
time.
13.2 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the feminine
shall include the masculine; the plural shall include the singular, and the
singular shall include the plural.
13.3 Severability. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included. Further, the captions
of this Plan are not part of the provisions hereof and shall have no force and
effect.
13.4 Modification. No provision of this Plan may be modified, waived, or
discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by the Participant and by an authorized member of the
Committee, or by the respective parties' legal representatives and successors.
13.5 Applicable Law. To the extent not preempted by the laws of the United
States, the laws of the state of Illinois, shall be the controlling law in all
matters relating to this Plan.
13
LEASE AGREEMENT
THIS LEASE AGREEMENT is made this 15 day of April, 1997, between Security
Capital Industrial Trust ("Landlord") and the Tenant named below:
Tenant: Morgan Products Ltd., a Delaware corporation
Tenant's representative,
address and phone no.:
Premises: That portion of the building, containing
approximately 39.970 rentable square feet, as
determined by Landlord, as shown on Exhibit A.
Project: Denver Business Center, No's 1, 2 and 3
Building: Denver Business Center #1, 11101-A East 53rd
Avenue, Denver, Colorado 60239
Tenant's Proportionate 13.85%
Share of Project:
Tenant's Proportionate 59.58%
Share of Building:
Lease Term: Beginning on the Commencement Date and ending on
the last day of the 60th full calendar month
thereafter.
Commencement Date: August 1, 1997
Initial Monthly Base Rent: $11,058.00
1. Utilities: $N/A
Initial Estimated Monthly
Operating Expense Payments: 2. Common Area Charges: $633.00
(estimates only and
subject to adjustment to 3. Taxes $1,765.00
actual costs and expenses
according to the 4. Insurance $133.00
provisions of this Lease)
5. Others $406.00
Initial Estimated Monthly $2,937.00
Operating Expense Payments:
<PAGE>
Initial Monthly Base Rent $13,995.00
and Operating Expense
Payments:
Security Deposit: $0.00
Broker: SCI Client Services of Colorado, LLC
Addenda: Addendum 1 (Construction), Addendum 2
(Indemnification), Addendum 3 (Non-Disturbance);
Exhibit A
1. Granting Clause. In consideration of the obligation of Tenant to pay
rent as herein provided and in consideration of the other terms, covenants, and
conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord,
the Premises, to have and to hold for the Lease Term, subject to the terms,
covenants and conditions of this Lease.
2. Acceptance of Premises. Tenant shall accept the Premises in its
condition as of the Commencement Date, subject to all applicable laws,
ordinances, regulations, covenants and restrictions. Landlord has made no
representation or warranty as to the suitability of the Premises for the conduct
of Tenant's business, and Tenant waives any implied warranty that the Premises
are suitable for Tenant's intended purposes. Except as provided in Paragraph 10,
in no event shall Landlord have any obligation for any defects on the Premises
or any limitation on its use. The taking of possession of the Premises shall be
conclusive evidence that Tenant accepts the Premises and that the Premises were
in good condition at the time possession was taken except for items that are
Landlord's responsibility under Paragraph 10 and any punchlist items agreed to
in writing by Landlord and Tenant.
3. Use. The Premises shall be used only for the purpose of receiving,
storing, shipping and selling (but limited to contractor sales) products,
materials and merchandise made and/or distributed by Tenant and for such other
lawful purposes as may be incidental thereto; provided, however, with Landlord's
prior written consent. Tenant may also use the Premises for light manufacturing.
Tenant shall not conduct or give notice of any auction, liquidation, or going
out of business sale on the Premises. Tenant will use the Premises in a careful,
safe and proper manner and will not commit waste, overload the floor or
structure of the Premises or subject the Premises to use that would damage the
Premises. Tenant shall not permit any objectionable or unpleasant odors, smoke,
dust, gas, noise, or vibrations to emanate from the Premises, or take any other
action that would constitute a nuisance or would disturb, unreasonably interfere
with, or endanger Landlord or any tenants of the project. Outside storage,
including without limitation, storage of trucks and other vehicles, is
prohibited without Landlord's prior written consent. Tenant, at its sole
expense, shall use and occupy the Premises in compliance with all laws,
including, without limitation, the Americans With Disabilities Act, orders,
judgments, ordinances, regulations, codes, directives, permits, licenses,
covenants and restrictions now or hereafter applicable to the Premises
(collectively, "Legal Requirements"). The Premises shall not be used as a place
of public accommodation under the Americans With Disabilities Act or similar
state statutes or local ordinances or any regulations promulgated thereunder,
all as may be amended from time to time. Tenant shall, at its expense, make any
alterations or modifications, within or without the Premises, that are required
by Legal Requirements related to
2
<PAGE>
Tenant's use or occupation of the Premises. Tenant will not use or permit the
Premises to be used for any purpose or in any manner that would void Tenant's or
Landlord's insurance, increase the insurance risk, or cause the disallowance of
any sprinkler credits. If any increase in the cost of any insurance on the
Premises or the Project is caused by Tenant's use or occupation of the Premises,
or because Tenant vacates the Premises, then Tenant shall pay the amount of such
increase to Landlord. Any occupation of the Premises by Tenant prior to the
commencement Date shall be subject to all obligations of Tenant under Tenant's
prior lease, dated June 11, 1992.
Landlord shall make such modifications as may be required by order or
directive of applicable governmental authority in order to bring the Building
(but not the Premises' interior) into compliance with applicable laws as of the
Commencement Date without cost or expense to Tenant and without including such
cost or expense as an Operating Expense. Any modifications made by Landlord that
are required by applicable laws or regulations that become effective after the
Commencement Date or that are required as a result of the Tenant's use of the
Premises shall be chargeable to Tenant, except for structural modifications
under Paragraph 10 of the Lease.
4. Base Rent. Tenant shall pay Base Rent in the amount set forth above.
The first month's Base Rent, the Security Deposit, and the first monthly
installment of estimated Operating Expenses (as hereafter defined) shall be due
and payable on the date hereof, and Tenant promises to pay to Landlord in
advance, without demand, deduction or set-off, monthly installments of Base Rent
on or before the first day of each calendar month succeeding the Commencement
Date. Payments of Base Rent for any fractional calendar month shall be prorated.
All payments required to be made by Tenant to Landlord hereunder shall be
payable at such address as Landlord may specify from time to time by written
notice delivered in accordance herewith. The obligation of Tenant to pay Base
Rent and other sums to Landlord and the obligations of Landlord under this Lease
are independent obligations. Tenant shall have no right at any time to abate,
reduce, or set-off any rent due hereunder except as may be expressly provided in
this Lease.
5. Security Deposit. The Security Deposit shall be held by Landlord as
security for the performance of Tenant's obligations under this Lease. The
Security Deposit is not an advance rental deposit or a measure of Landlord's
damages in case of Tenant's default. Upon each occurrence of an Event of Default
(hereinafter defined), Landlord may use all or part of the Security Deposit to
pay delinquent payments due under this Lease, and the cost of any damage,
injury, expense or liability caused by such Event of Default, without prejudice
to any other remedy provided herein or provided by law. Tenant shall pay
Landlord on demand the amount that will restore the Security Deposit to its
original amount. Landlord's obligation respecting the Security Deposit is that
of a debtor, not a trustee; no interest shall accrue thereon. The Security
Deposit shall be the property of Landlord, but shall be paid to Tenant when
Tenant's obligations under this Lease have been completely fulfilled. Landlord
shall be released from any obligation with respect to the Security Deposit upon
transfer of this Lease and the Premises to a person or entity assuming
Landlord's obligations under this Paragraph 5.
6. Operating Expense Payments. During each month of the Lease Term,
on the same date that Base Rent is due, Tenant shall pay Landlord an amount
equal to 1/12 of the annual cost, as estimated by Landlord from time to time, of
Tenant's Proportionate Share
3
<PAGE>
(hereinafter defined) of Operating Expenses for the Project. Payments thereof
for any fractional calendar month shall be prorated. The term "Operating
Expenses" means all costs and expenses incurred by Landlord with respect to the
ownership, maintenance , and operation of the Project including, but not limited
to cost of: Taxes (hereinafter defined) and fees payable to tax consultants and
attorneys for consultation and contesting taxes; insurance; utilities;
maintenance, repair and replacement of all portions of the Project, including
without limitation, paving and parking areas, roads, roofs, alleys, and
driveways, mowing, landscaping, exterior painting, utility lines, heating,
ventilation and air conditioning systems, lighting, electrical systems and other
mechanical and building systems; amounts paid to contractors and subcontractors
for work or services performed in connection with any of the foregoing; charges
or assessments of any association to which the Project is subject; property
management fees payable to a property manager, including any affiliate of
Landlord, or if there is no property manager, an administrative fee of 15
percent of Operating Expenses payable to Landlord; security services, if any;
trash collection, sweeping and removal; and additions or alterations made by
Landlord to the Projects or the Building in order to comply with Legal
Requirements (other than those expressly required herein to be made by Tenant)
or that are appropriate to the continued operation of the Project or the
building as a bulk warehouse facility in the market area, provided that the cost
of additions or alterations that are required to be capitalized for federal
income tax purposes shall be amortized on a straight line basis over a period
equal to the lesser of the useful life thereof for federal income tax purposes
or 10 years. Operating Expenses do not include costs, expenses, depreciation or
amortization for capital repairs and capital replacements required to be made by
Landlord under Paragraph 10 of this Lease, debt service under mortgages or
ground rent under ground leases, costs of restoration to the extent of net
insurance proceeds received by Landlord with respect thereto, leasing
commissions, or the costs of renovating space for tenants.
If Tenant's total payments of Operating Expenses for any year are less
than Tenant's Proportionate Share of actual Operating Expenses for such year,
then Tenant shall pay the difference to Landlord within 30 days after demand,
and if more, then Landlord shall retain such excess and credit it against
Tenant's next payments. For purposes of calculating Tenant's Proportionate Share
of Operating Expenses, a year shall mean a calendar year except the first year,
which shall begin on the Commencement Date, and the last year, which shall end
on the expiration of this Lease. With respect to Operating Expenses which
Landlord allocates to the entire Project, Tenant's "Proportionate Share" shall
be the percentage set forth on the first page of this Lease as Tenant's
Proportionate Share of the Project as reasonably adjusted by Landlord in the
future for changes in the physical size of the Premises or the Project; and,
with respect to Operating Expenses which Landlord allocates only to the
Building, Tenant's "Proportionate Share" shall be the percentage set forth on
the first page of this Lease as Tenant's Proportionate Share of the Building as
reasonably adjusted by Landlord in the future for changes in the physical size
of the Premises or the Building. Landlord may equitably increase Tenant's
Proportionate Share for any item of expense or cost reimbursable by Tenant that
relates to a repair, replacement, or service that benefits only the Premises or
only a portion of the Project or Building that includes the Premises or that
varies with occupancy or use. The estimated Operating Expenses for the Premises
set forth on the first page of this Lease are only estimates, and Landlord makes
no guaranty or warranty that such estimates will be accurate.
4
<PAGE>
7. Utilities. Tenant shall pay for all water, gas, electricity, heat,
light, power, telephone, sewer, sprinkler services, refuse and trash collection,
and other utilities and services used on the Premises, all maintenance charges
for utilities, and any storm sewer charges or other similar charges for
utilities imposed by any governmental entity or utility provider, together with
any taxes, penalties, surcharges or the like pertaining to Tenant's use of the
Premises. Landlord may cause at Tenant's expense any utilities to be separately
metered or charged directly to Tenant by the provider. Tenant shall pay its
share of all charges for jointly metered utilities based upon consumption, as
reasonably determined by Landlord. No interruption or failure of utilities shall
result in the termination of this Lease or the abatement of rent. Tenant agrees
to limit use of water and sewer for normal restroom use.
Notwithstanding anything to the contrary contained herein, if an
interruption or cessation of utilities results from a cause within the
Landlord's reasonable control and the Premises are not usable by Tenant for the
conduct of Tenant's business as a result thereof, Base Rent and applicable
Operating Expenses not actually incurred by Tenant shall be abated for the
period which commences two (2) business days after the date Tenant gives to
Landlord notice of such interruption until such utilities are restored.
8. Taxes. Landlord shall pay all taxes, assessments and governmental
charges (collectively referred to as "Taxes") that accrue against the Project
during the Lease Term, which shall be included as part of the Operating Expenses
charged to Tenant. Landlord may contest by appropriate legal proceedings the
amount, validity, or application of any Taxes or liens thereof. All capital
levies or other taxes assessed or imposed on Landlord upon the rents payable to
Landlord under this Lease and any franchise tax, any excise, transaction, sales
or privilege tax, assessment, levy or charge measured by or based, in whole or
in part, upon such rents from the Premises and/or the Project or any portion
thereof shall be paid by Tenant to Landlord monthly in estimated installments or
upon demand, at the option of Landlord, as additional rent; provided, however,
in no event shall Tenant be liable for any net income taxes imposed on Landlord
unless such net income taxes are in substitution for any Taxes payable
hereunder. If any such tax or excise is levied or assessed directly against
Tenant, then Tenant shall be responsible for and shall pay the same at such
times and in such manner as the taxing authority shall require. Tenant shall be
liable for all taxes levied or assessed against any personal property or
fixtures placed in the Premises, whether levied or assessed against Landlord or
Tenant.
9. Insurance. Landlord shall maintain all risk property insurance
covering the full replacement cost of the building. Landlord may, but is not
obligated to, maintain such other insurance and additional coverages as it may
deem necessary, including, but not limited to, commercial liability insurance
and rent loss insurance. All such insurance shall be included as part of the
Operating Expenses charged to tenant. The Project or building may be included in
a blanket policy (in which case the cost of such insurance allocable to the
Project or Building will be determined by Landlord based upon the insurer's cost
calculations). Tenant shall also reimburse Landlord for any increased premiums
or additional insurance which Landlord reasonably deems necessary as a result of
Tenant's use of the Premises.
Tenant, at its expense, shall maintain during the Lease Term: all risk
property insurance covering the full replacement cost of all property and
improvements installed or placed in the Premises by Tenant at Tenant's expense;
worker's compensation insurance with no less than the
5
<PAGE>
minimum limits required by law; employer's liability insurance with such limits
as required by law; and commercial liability insurance, with a minimum limit of
$1,000,000 per occurrence and a minimum umbrella limit of $1,000,000, for a
total minimum combined general liability and umbrella limit of $2,000,000
(together with such additional umbrella coverage as Landlord may reasonably
require) for property damage, personal injuries, or deaths of persons occurring
in or about the Premises. Landlord may from time to time require reasonable
increases in any such limits. The commercial liability policies shall name
Landlord as an additional insured, insure on an occurrence and not a claims-made
basis, be issued by insurance companies which are reasonably acceptable to
Landlord, not be cancelable unless 30 days prior written notice shall have been
given to Landlord, contain a hostile fire endorsement and a contractual
liability endorsement and provide primary coverage to Landlord (any policy
issued to Landlord providing duplicate or similar coverage shall be deemed
excess over Tenant's policies). Such policies or certificates thereof shall be
delivered to Landlord by Tenant upon commencement of the Lease Term and upon
each renewal of said insurance.
The all risk property insurance obtained by Landlord and Tenant shall
include a waiver of subrogation by the insurers and all rights based upon an
assignment from its insured, against Landlord or Tenant, their officers,
directors, employees, managers, agents, invitees and contractors, in connection
with any loss or damage thereby insured against. Neither party nor its officers,
directors, employees, managers, agents, invitees or contractors shall be liable
to the other for loss or damage caused by any risk coverable by all risk
property insurance, and each party waives any claims against the other party,
and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver. Landlord and its agents, employees and
contractors shall not be liable for, and Tenant hereby waives all claims against
such parties for, business interruption and losses occasioned thereby sustained
by Tenant or any person claiming through Tenant resulting from any accident or
occurrence in or upon the Premises or the Project from any cause whatsoever,
including without limitation, damage caused in whole or in part, directly or
indirectly, by the negligence of Landlord or its agents, employees or
contractors.
10. Landlord's Repairs. Landlord shall maintain, at its expense, the
structural soundness of the roof, foundation, and exterior walls of the Building
in good repair, reasonable wear and tear and uninsured losses and damages caused
by Tenant, its agents and contractors excluded. The term "walls" as used in this
Paragraph 10 shall not include windows, glass or plate glass, doors or overhead
doors, special store fronts, dock bumpers, dock plates or levelers, or office
entries. Tenant shall promptly give Landlord written notice of any repair
required by Landlord pursuant to this Paragraph 10, after which Landlord shall
have a reasonable opportunity to repair.
11. Tenant's Repairs. Landlord, at Tenant's expense as provided in
Paragraph 6, shall maintain in good repair and condition the parking areas and
other common areas of the building, including, but not limited to driveways,
alleys, landscape and grounds surrounding the Premises. Subject to Landlord's
obligation in paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at its
expense, shall repair, replace and maintain in good condition all portions of
the Premises and all areas, improvements and systems exclusively serving the
Premises including, without limitation, dock and loading areas, truck doors,
plumbing, water and sewer lines up to points of common connection, fire
sprinklers and fire protection systems, entries, doors, ceilings
6
<PAGE>
and roof membrane, windows, interior walls, and the interior side of demising
walls, and heating, ventilation and air condition systems. Such repair and
replacements include capital expenditures and repairs whose benefit may extend
beyond the Term. Heating, ventilation and air conditioning systems and other
mechanical and building systems serving the Premises shall be maintained at
Tenant's expense pursuant to maintenance service contracts entered into by
Tenant or, at Landlord's election, by Landlord. The scope of services and
contractors under such maintenance contracts shall be reasonably approved by
Landlord. At Landlord's request, Tenant shall enter into a joint maintenance
agreement with any railroad that services the Premises. If Tenant fails to
perform any repair or replacement for which it is responsible, Landlord may
perform such work and be reimbursed by Tenant within 10 days after demand
therefor. Subject to Paragraphs 9 and 15, Tenant shall bear the full cost of any
repair or replacement to any part of the building or Project that results from
damage caused by Tenant, its agents, contractors, or invitees and any repair
that benefits only the Premises.
In the event that any items of fixtures or equipment forming a part of
the HVAC for the Premises, which is otherwise the obligation of the Tenant to
repair become irreparable, they shall be replaced by Landlord, and Tenant shall
be obligated to pay a portion of the replacement cost, which portion shall be an
amount equal to the original cost of the fixtures or equipment to be replaced
multiplied by a fraction, the numerator of which is the number of months in the
initial term during which Tenant has enjoyed the benefits of the original
fixtures or equipment and the denominator of which is the estimated useful life
of the fixtures or equipment. In the event an item of fixtures or equipment so
replaced during the term needs again to be replaced during the term (including
renewal), so that Tenant has enjoyed the full use thereof, Tenant shall be
responsible for the full replacement cost of the fixture or equipment so
replaced.
12. Tenant-Made Alterations and Trade Fixtures. Any alterations,
additions, or improvements made by or on behalf of Tenant to the Premises
("Tenant-Made Alterations") shall be subject to Landlord's prior written
consent. Tenant shall cause, at its expense, all Tenant-Made Alterations to
comply with insurance requirements and with Legal Requirements and shall
construct at its expense any alteration or modification required by Legal
Requirements as a result of any Tenant-Made Alterations. All Tenant-Made
Alterations shall be constructed in a good and workmanlike manner by contractors
reasonably acceptable to Landlord and only good grades of materials shall be
used. All plans and specifications for any Tenant-Made Alterations shall be
submitted to Landlord for its approval. Landlord may monitor construction of the
Tenant-Made Alterations. Tenant shall reimburse Landlord for its costs in
reviewing plans and specifications and in monitoring construction. Landlord's
right to review plans and specifications and to monitor construction shall be
solely for its own benefit, and Landlord shall have no duty to see that such
plans and specifications or construction comply with applicable laws, codes,
rules and regulations. Tenant shall provide Landlord with the identifies and
mailing addresses of all persons performing work or supplying materials, prior
to beginning such construction, and Landlord may post on and about the Premises
notices of non-responsibility pursuant to applicable law. Tenant shall furnish
security or make other arrangements satisfactory to Landlord to assure payment
for the completion of all work free and clear of liens and shall provide
certificates of insurance for worker's compensation and other coverage in
amounts and from an insurance company satisfactory to Landlord protecting
Landlord against liability for personal injury or property damage during
construction. Upon completion of any Tenant-Made Alterations, Tenant shall
deliver to Landlord sworn statements setting forth the names of all
7
<PAGE>
contractors and subcontractors who did work on the Tenant-Made Alterations and
final lien waivers from all such contractors and subcontractors. Upon surrender
of the Premises, all Tenant-Made Alterations and any leasehold improvements
constructed by Landlord or Tenant shall remain on the Premises as Landlord's
property, except to the extent Landlord requires removal at Tenant's expense of
any such items or Landlord and Tenant have otherwise agreed in writing in
connection with Landlord's consent to any Tenant-Made Alterations. Tenant shall
repair any damage caused by such removal.
Tenant, at its own cost and expense and without Landlord's prior
approval, may erect such shelves, bins, machinery and trade fixtures
(collectively "Trade Fixtures") in the ordinary course of its business provided
that such items do not alter the basic character of the Premises, do not
overload or damage the Premises, and may be removed without injury to the
Premises, and the construction, erection, and installation thereof complies with
all Legal Requirements and with Landlord's requirements set forth above. Tenant
shall remove its Trade Fixtures and shall repair any damage caused by such
removal.
13. Signs. Tenant shall not make any changes to the exterior of the
Premises, install any exterior lights, decorations, balloons, flags, pennants,
banners, or painting, or erect or install any signs, windows or door lettering,
placards, decorations, or advertising media of any type which can be viewed from
the exterior of the Premises, without Landlord's prior written consent. Upon
surrender or vacation of the Premises, Tenant shall have removed all signs and
repair, paint, and/or replace the building faci surface to which its signs are
attached. Tenant shall obtain all applicable governmental permits and approvals
for sign and exterior treatments. All signs, decorations, advertising media,
blinds, draperies and other window treatment or bars or other security
installations visible from outside the Premises shall be subject to Landlord's
approval and conform in all respects to Landlord's requirements.
14. Parking. Tenant shall be entitled to park in common with other tenants
of the Project in those areas designated for nonreserved parking. Landlord may
allocate parking spaces among Tenant and other tenants in the Project if
Landlord determines that such parking facilities are becoming crowded. Landlord
shall not be responsible for enforcing Tenant's parking rights against any third
parties.
15. Restoration. If at any time during the Lease Term the Premises are
damaged by a fire or other casualty, Landlord shall notify Tenant within 60 days
after such damage as to the amount of time Landlord reasonably estimates it will
take to restore the Premises. If the restoration time is estimated to exceed 6
months, either Landlord or Tenant may elect to terminate this Lease upon notice
to the other party given no later than 30 days after Landlord's notice. If
neither party elects to terminate this Lease or if Landlord estimates that
restoration will take 6 months or less, then, subject to receipt of sufficient
insurance proceeds, Landlord shall promptly restore the Premises excluding the
improvements installed by Tenant or by Landlord and paid by Tenant, subject to
delays arising from the collection of insurance proceeds or from Force Majeure
events. Tenant at Tenant's expense shall promptly perform, subject to delays
arising from the collection of insurance proceeds, or from Force Majeure events,
all repairs or restoration not required to be done by Landlord and shall
promptly re-enter the Premises and commence doing business in accordance with
this Lease. Notwithstanding the foregoing, either party may terminate this Lease
if the Premises are damaged during the last year of the Lease
8
<PAGE>
Term and Landlord reasonably estimates that it will take more than one month to
repair such damage. Tenant shall pay to Landlord with respect to any damage to
the Premises the amount of the commercially reasonably deductible under
Landlord's insurance policy (currently $10,000) within 10 days after presentment
of Landlord's invoice. If the damage involves the Premises of other tenants,
Tenant shall pay the portion of the deductible that the cost of the restoration
of the Premises bears to the total cost of restoration, as determined by
Landlord. Base Rent and Operating Expenses shall be abated for the period of
repair and restoration in the proportion which the area of the Premises, if any,
which is not usable by Tenant bears to the total area of the Premises. Such
abatement shall be the sole remedy of Tenant, and except as provided herein,
Tenant waives any right to terminate the Lease by reason of damage or casualty
loss.
16. Condemnation. If any part of the Premises or the Project should be
taken for any public or quasi-public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof (a "Taking" or "Taken"), and the Taking would prevent or materially
interfere with Tenant's use of the Premises or in Landlord's judgment would
materially interfere with or impair its ownership or operation of the Project,
then upon written notice by Landlord this Lease shall terminate and Base Rent
shall be apportioned as of said date. If part of the Premises shall be Taken,
and this Lease is not terminated as provided above, the Base Rent payable
hereunder during the unexpired Lease Term shall be reduced to such extent as may
be fair and reasonable under the circumstances. In the event of any such Taking,
Landlord shall be entitled to receive the entire price or award from any such
Taking without any payment to Tenant, and Tenant hereby assigns to Landlord
Tenant's interest, if any, in such award. Tenant shall have the right, to the
extent that same shall not diminish Landlord's award, to make a separate claim
against the condemning authority (but not Landlord) for such compensation as may
be separately awarded or recoverable by Tenant for moving expenses and damage to
Tenant's Trade Fixtures, if a separate award for such items is made to Tenant.
17. Assignment and Subletting. Without Landlord's prior written consent,
Tenant shall not assign this Lease or sublease the Premises or any part thereof
or mortgage, pledge, or hypothecate its leasehold interest or grant any
concession or license within the Premises and any attempt to do any of the
foregoing shall be void and of no effect. For purposes of this paragraph, a
transfer of the ownership interests controlling Tenant shall be deemed an
assignment of this Lease unless such ownership interests are publicly traded.
Notwithstanding the above, Tenant may assign or sublet the Premises, or any part
thereof, to any entity controlling Tenant, controlled by Tenant or under common
control with Tenant (a "Tenant Affiliate"), without the prior written consent of
Landlord. Tenant shall reimburse Landlord for all of Landlord's reasonable
out-of-pocket expenses in connection with any assignment or sublease. Upon
Landlord's receipt of Tenant's written notice of a desire to assign or sublet
the Premises, or any part thereof (other than to a Tenant Affiliate), Landlord
may, by giving written notice to Tenant within 30 days after receipt of Tenant's
notice, terminate this Lease with respect to the space described in Tenant's
notice, as of the date specified in Tenant's notice for the commencement of the
proposed assignment or sublease.
Notwithstanding any assignment or subletting, Tenant and any
guarantor or surety of Tenant's obligations under this Lease
9
<PAGE>
shall at all times remain fully responsible and liable for the payment of the
rent and for compliance with all of Tenant's other obligations under this Lease
(regardless of whether Landlord's approval has been obtained for any such
assignments or sublettings). In the event that the rent due and payable by a
sublessee or assignee (or a combination of the rental payable under such
sublease or assignment plus any bonus or other consideration therefor or
incident thereto) exceeds the rental payable under this Lease, then Tenant shall
be bound and obligated to pay Landlord as additional rent hereunder all such
excess rental and other excess consideration within 10 days following receipt
thereof by Tenant.
If this Lease be assigned or if the Premises be subleased (whether in
whole or in part) or in the event of the mortgage, pledge, or hypothecation of
Tenant's leasehold interest or grant of any concession or license within the
Premises or if the Premises be occupied in whole or in part by anyone other than
Tenant, then upon a default by Tenant hereunder Landlord may collect rent from
the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold
interest was hypothecated, concessionee or licensee or other occupant and,
except to the extent set forth in the preceding paragraph, apply the amount
collected to the next rent payable hereunder; and all such rentals collected by
Tenant shall be held in trust for Landlord and immediately forwarded to
Landlord. No such transaction or collection of rent or application thereof by
Landlord, however, shall be deemed a waiver of these provisions or a release of
Tenant from the further performance by Tenant of its covenants, duties, or
obligations hereunder.
18. Indemnification. Except for the negligence of Landlord, its agents,
employees or contractors, and to the extent permitted by law, Tenant agrees to
indemnify, defend and hold harmless Landlord, and Landlord's agents, employees
and contractors, from and against any and all losses, liabilities, damages,
costs and expenses (including attorneys' fees) resulting from claims by third
parties for injuries to any person and damage to or theft or misappropriate or
loss of property occurring in or about the Project and arising from the use and
occupancy of the Premises or from any activity, work, or thing done, permitted
or suffered by Tenant in or about the Premises or due to any other act or
omission of Tenant, its subtenants, assignees, invitees, employees, contractors
and agents. The furnishing of insurance required hereunder shall not be deemed
to limit Tenant's obligations under this Paragraph 18.
19. Inspection and Access. Landlord and its agents, representatives, and
contractors may enter the Premises at any reasonable time to inspect the
Premises and to make such repairs as may be required or permitted pursuant to
this Lease and for any other business purpose. Landlord and Landlord's
representatives may enter the Premises during business hours for the purpose of
showing the Premises to prospective purchasers and, during the last year of the
Lease Term, to prospective tenants. Landlord may erect a suitable sign on the
Premises stating the Premises are available to let or that the Project is
available for sale. Landlord may grant easements, make public dedications,
designate common areas and create restrictions on or about the Premises,
provided that no such easement, dedication, designation or restriction
materially interferes with Tenant's use or occupancy of the Premises. At
Landlord's request, Tenant shall execute such instruments as may be necessary
for such easements, dedications or restrictions.
20. Quiet Enjoyment. If Tenant shall perform all of the covenants and
agreements herein required to be performed by Tenant, Tenant shall, subject to
the terms of this Lease, at all times during the Lease Term, have peaceful and
quiet enjoyment of the Premises against any person claiming by, through or under
Landlord.
10
<PAGE>
21. Surrender. Upon termination of the Lease Term or earlier termination
of Tenant's right of possession, Tenant shall surrender the Premises to Landlord
in the same condition as received, broom clean, ordinary wear and tear and
casualty loss and condemnation covered by Paragraphs 15 and 16 excepted. Any
Trade Fixtures, Tenant-Made Alterations and property not so removed by Tenant as
permitted or required herein shall be deemed abandoned and may be stored,
removed, and disposed of by Landlord at Tenant's expense, and Tenant waives all
claims against Landlord for any damages resulting from Landlord's retention and
disposition of such property. All obligations of Tenant hereunder not fully
performed as of the termination of the Lease Term shall survive the termination
of the Lease Term, including without limitation, indemnity obligations, payment
obligations with respect to Operating Expenses and obligations concerning the
condition and repair of the Premises.
22. Holding Over. If Tenant retains possession of the Premises after
termination of the Lease Term, unless otherwise agreed in writing, such
possession shall be subject to immediate termination by Landlord at any time,
and all of the other terms and provisions of this Lease (excluding any expansion
or renewal option or other similar right or option) shall be applicable during
such holdover period, except that Tenant shall pay Landlord from time to time,
upon demand, as Base Rent for the holdover period, an amount equal to 150% of
the Base Rent in effect on the termination date, computed on a monthly basis for
each month or part thereof during such holding over. All other payments shall
continue under the terms of this Lease. In addition, Tenant shall be liable for
all damages incurred by Landlord as a result of such holding over. No holding
over by Tenant, whether with or without consent of Landlord, shall operate to
extend this Lease except as otherwise expressly provided, and this Paragraph 22
shall not be construed as consent for Tenant to retain possession of the
Premises.
23. Events of Default. Each of the following events shall be an event of
default ("Event of Default") by Tenant under this Lease:
(i) Tenant shall fail to pay any installment of Base Rent or any other
payment required herein when due, and such failure shall continue for a period
of 5 days from the date of Landlord's written notice to Tenant of such failure
to pay; provided, however, that Landlord shall not be obligated to provide
written notice of such failure more than 2 times in any consecutive 12-month
period, and the failure of Tenant to pay any third or subsequent installment of
Base Rent or any other payment required herein when due in any consecutive
12-month period shall constitute an Event of Default by Tenant under this Lease
without the requirement of notice or opportunity to cure.
(ii) Tenant or any guarantor or surety of Tenant's obligations
hereunder shall (A) make a general assignment for the benefit of creditors; (B)
commence any case, proceeding or other action seeking to have an order for
relief entered on its behalf as a debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or of
any substantial part of its property (collectively a "proceeding for relief");
(C) become the subject of any proceeding for relief which is not dismissed
within 60 days of its filing or entry; or (D) die or suffer a legal disability
(if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise
fail to maintain its legal existence (if Tenant, guarantor or surety is a
corporation, partnership or other entity).
11
<PAGE>
(iii) Any insurance required to be maintained by Tenant pursuant to
this Lease shall be cancelled or terminated or shall expire or shall be reduced
or materially changed, except, in each case, as permitted in this Lease.
(iv) Tenant shall not occupy or shall vacate the Premises or shall
fail to continuously operate its business at the Premises for the permitted use
set forth herein, whether or not Tenant is in monetary or other default under
this Lease.
(v) Tenant shall attempt or there shall occur any assignment,
subleasing or other transfer of Tenant's interest in or with respect to this
Lease except as otherwise permitted in this Lease.
(vi) Tenant shall fail to discharge any lien placed upon the
Premises in violation of this Lease within 30 days after any such lien or
encumbrance is filed against the Premises.
(vii) Tenant shall fail to comply with any provision of this Lease
other than those specifically referred to in this Paragraph 23, and except as
otherwise expressly provided herein, such default shall continue for more than
30 days after Landlord shall have given Tenant written notice of such default.
24. Landlord's Remedies. Upon each occurrence of an Event of Default and
so long as such Event of Default shall be continuing, Landlord may at any time
thereafter at its election: terminate this Lease or Tenant's right of
possession, (but Tenant shall remain liable as hereinafter provided) and/or
pursue any other remedies at law or in equity. Upon the termination of this
Lease or termination of Tenant's right of possession, it shall be lawful for
Landlord, without formal demand or notice of any kind, to re-enter the Premises
by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom.
If Landlord re-enters the Premises, Landlord shall have the right to keep in
place and use, or remove and store, all of the furniture, fixtures and equipment
at the Premises.
If Landlord terminates this Lease, Landlord may recover from tenant
the sum of: all Base Rent and all other amounts accrued hereunder to the date of
such termination; the cost of reletting the whole or any part of the Premises,
including without limitation brokerage fees and/or leasing commissions incurred
by Landlord, and costs of removing and storing Tenant's or any other occupant's
property, repairing, altering, remodeling, or otherwise putting the Premises
into condition acceptable to a new tenant or tenants, and all reasonable
expenses incurred by Landlord in pursuing its remedies, including reasonable
attorneys' fees and court costs; and the excess of the then present value of the
Base Rent and other amounts payable by Tenant under this Lease as would
otherwise have been required to be paid by Tenant to Landlord during the period
following the termination of this Lease measured from the date of such
termination to the expiration date stated in this Lease, over the present value
of any net amounts which Tenant establishes Landlord can reasonably expect to
recover by reletting the Premises for such period, taking into consideration the
availability of acceptable tenants and other market conditions affecting
leasing. Such present values shall be calculated at a discount rate equal to the
90-day U.S. Treasury bill rate at the date of such termination.
12
<PAGE>
If Landlord terminates Tenant's right of possession (but not this
Lease), Landlord may, but shall be under no obligation to, relet the Premises
for the account of Tenant for such rent and upon such terms as shall be
satisfactory to Landlord without thereby releasing Tenant from any liability
hereunder and without demand or notice of any kind to Tenant. For the purpose of
such reletting Landlord is authorized to make any repairs, changes, alterations,
or additions in or to the Premises as Landlord deems reasonably necessary or
desirable. If the Premises are not relet, then Tenant shall pay to Landlord as
damages a sum equal to the amount of the rental reserved in this Lease for such
period or periods, plus the cost of recovering possession of the Premises
(including attorneys' fees and costs of suit), the unpaid Base Rent and other
amounts accrued hereunder at the time of repossession, and the costs incurred in
any attempt by Landlord to relet the Premises. If the Premises are relet and a
sufficient sum shall not be realized from such reletting (after first deducting
therefrom, for retention by Landlord, the unpaid Base Rent and other amounts
accrued hereunder at the time of reletting, the cost of recovering possession
(including attorneys' fees and costs of suit), all of the costs and expense of
repairs, changes, alterations, and additions, the expense of such reletting
(including without limitation brokerage fees and leasing commissions) and the
cost of collection of the rent accruing therefrom) to satisfy the rent provided
for in this Lease to be paid, then Tenant shall immediately satisfy and pay any
such deficiency. Any such payments due Landlord shall be made upon demand
therefor from time to time and Tenant agrees that Landlord may file suit to
recover any sums falling due from time to time. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect in
writing to terminate this Lease for such previous breach.
Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises and/or a termination of this Lease by Landlord, whether by agreement or
by operation of law, it being understood that such surrender and/or termination
can be effected only by the written agreement of Landlord and Tenant. Any law,
usage, or custom to the contrary notwithstanding, Landlord shall have the right
at all times to enforce the provisions of this Lease in strict accordance with
the terms hereof; and the failure of Landlord at any time to enforce its rights
under this Lease strictly in accordance with same shall not be construed as
having created a custom in any way or manner contrary to the specific terms,
provisions, and covenants of this Lease or as having modified the same. Tenant
and Landlord further agree that forbearance or waiver by Landlord to enforce its
rights pursuant to this Lease or at law or in equity shall not be a waiver of
Landlord's right to enforce one or more of its rights in connection with any
subsequent default. A receipt by Landlord of rent or other payment with
knowledge of the breach of any covenant hereof shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord. To
the greatest extent permitted by law, Tenant waives the service of notice of
Landlord's intention to re-enter as provided for in any statute, or to institute
legal proceedings to that end, and also waives all right of redemption in case
Tenant shall be dispossessed by a judgment or by warrant of any court or judge.
The terms "enter," "re-enter," "entry" or "re-entry," as used in this Lease, are
not restricted to their technical legal meanings. Any reletting of the Premises
shall be on such terms and conditions as Landlord in its sole discretion may
determine (including without limitation a term different than the remaining
Lease Term, rental concessions, alterations and repair of the Premises, lease of
less than the entire Premises to any tenant and leasing any or all other
portions of the Project before reletting the Premises). Landlord shall not be
liable, nor shall
13
<PAGE>
Tenant's obligations hereunder be diminished because of, Landlord's failure to
relet the Premises or collect rent due in respect of such reletting.
25. Tenant's Remedies/Limitation of Liability. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). All obligations of Landlord hereunder shall be
construed as covenants, not conditions; and, except as may be otherwise
expressly provided in this Lease, Tenant may not terminate this Lease for breach
of Landlord's obligations hereunder. All obligations of Landlord under this
Lease will be binding upon Landlord only during the period of its ownership of
the Premises and not thereafter. The term "Landlord" in this Lease shall mean
only the owner, for the time being of the Premises, and in the event of the
transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all obligations of Landlord thereafter
accruing, but such obligations shall be binding during the Lease Term upon each
new owner for the duration of such owner's ownership. Any liability of Landlord
under this Lease shall be limited solely to its interest in the Project, and in
no event shall any personal liability be asserted against Landlord in connection
with this Lease nor shall any recourse be had to any other property or assets of
Landlord.
26. Waiver of Jury Trial. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY
JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS
LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.
27. Subordination. This Lease and Tenant's interest and rights hereunder
are and shall be subject and subordinate at all times to the lien of any first
mortgage, now existing or hereafter created on or against the Project or the
Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignment and extensions thereof, without the
necessity of any further instrument of act on the part of Tenant. Tenant agrees,
at the election of the holder of any such mortgage, to attorn to any such
holder. Tenant agrees upon demand to execute, acknowledge and deliver such
instruments, confirming such subordination and such instruments of attornment as
shall be requested by any such holder. Tenant hereby appoints Landlord attorney
in fact for Tenant irrevocably (such power of attorney being coupled with an
interest) to execute, acknowledge and deliver any such instrument and
instruments for and in the name of the Tenant and to cause any such instrument
to be recorded. Notwithstanding the foregoing, any such holder may at any time
subordinate its mortgage to this Lease, without Tenant's consent, by notice in
writing to Tenant, and thereupon this Lease shall be deemed prior to such
mortgage without regard to their respective dates of execution, delivery or
recording and in that event such holder shall have the same rights with respect
to this Lease as though this Lease had been executed prior to the execution,
delivery and recording of such mortgage and had been assigned to such holder.
The term "mortgage" whenever used in this Lease shall be deemed to include deeds
of trust, security assignments and any other encumbrances, and any reference to
the "holder" of a mortgage shall be deemed to include the beneficiary under a
deed of trust.
14
<PAGE>
28. Mechanic's Liens. Tenant has no express or implied authority to create
or place any lien or encumbrance of any kind upon, or in any manner to bind the
interest of Landlord or Tenant in, the Premises or to charge the rentals payable
hereunder for any claim in favor of any person dealing with Tenant, including
those who may furnish materials or perform labor for any construction or
repairs. Tenant covenants and agrees that it will pay or cause to be paid all
sums legally due and payable by it on account of any labor performed or
materials furnished in connection with any work performed on the Premises and
that it will save and hold Landlord harmless from all loss, cost or expense
based on or arising out of asserted claims or liens against the leaseholder
estate or against the interest of Landlord in the Premises or under this Lease.
Tenant shall give Landlord immediate written notice of the placing of any lien
or encumbrance against the Premises and cause such lien or encumbrance to be
discharged within 30 days of the filing or recording thereof; provided; however,
Tenant may contest such liens or encumbrances as long as such contest prevents
foreclosure of the lien or encumbrance and Tenant causes such lien or
encumbrance to be bonded or insured over in a manner satisfactory to Landlord
within such 30 day period.
29. Estoppel Certificates. Tenant agrees, from time to time, within 10
days after request of Landlord, to execute and deliver to Landlord, or
Landlord's designee, any estoppel certificate requested by Landlord, stating
that this Lease is in full force and effect, the date to which rent has been
paid, that Landlord is not in default hereunder (or specifying in detail the
nature of Landlord's default), the termination date of this Lease and such other
matters pertaining to this Lease as may be requested by Landlord. Tenant's
obligation to furnish each estoppel certificate in a timely fashion is a
material inducement for Landlord's execution of this Lease. No cure or grace
period provided in this Lease shall apply to Tenant's obligations to timely
deliver an estoppel certificate.
30. Environmental Requirements. Except for Hazardous Material contained in
products used by Tenant in de minimis quantities for ordinary cleaning and
office purposes, Tenant shall not permit or cause any party to bring any
Hazardous Materials upon the Premises or transport, store, use, generate,
manufacture or release any Hazardous Materials in or about the Premises without
Landlord's prior written consent. Tenant, at its sole cost and expense, shall
operate its business in the Premises in strict compliance with all Environmental
Requirements and shall remediate in a manner satisfactory to Landlord and
Hazardous Materials released on or from the Project by Tenant, its agents,
employees, contractors, subtenants or invitees. Tenant shall complete and
certify to disclosure statement as requested by Landlord from time to time
relating to Tenant's transportation, storage, use, generation, manufacture or
release of Hazardous Materials on the Premises. The term "Environmental
Requirements" means all applicable present and future statues, regulations,
ordinances, rules, codes, judgment, orders or other similar enactments of any
governmental authority or agency regulating or relating to health, safety, or
environmental conditions on, under, or about the Premises or the environment,
including without limitation, the following: the Comprehensive Environmental
Response, Compensation and Liability Act; the Resource Conservation and Recovery
Act; and all state and local counterparts thereto, and any regulations or
policies promulgated or issued thereunder. The term "Hazardous Materials" means
and includes any substance, material, waste, pollutant, or contaminant listed or
defined as hazardous or toxic, under any Environmental Requirements, asbestos
and petroleum, including crude oil or any fraction thereof, natural gas liquids,
liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural
gas and such synthetic gas). As defined in
15
<PAGE>
Environmental Requirements. Tenant is and shall be deemed to be the "operator"
of Tenant's "facility" and the "owner" of all Hazardous Materials bought on the
Premises by Tenant, its agents, employees, contractors or invitees, and the
wastes, by-products, or residues generated, resulting, or produced therefrom.
Tenant shall indemnify, defend, and hold Landlord harmless from and
against any and all losses (including, without limitation, diminution in value
of the Premises or the Project and loss of rental income from the Project),
claims, demands, actions, suits, damages (including, without limitation,
punitive damages), expenses (including, without limitation, remediation,
removal, repair, corrective action, or cleanup expenses), and costs (including,
without limitation, actual attorneys' fees, consultant fees or expert fees and
including, without limitation, removal or management of any asbestos brought
into the property or disturbed in breach of the requirements of this Paragraph
30, regardless of whether such removal or management is required by law) which
are brought or recoverable against, or suffered or incurred by Landlord as a
result of any release of Hazardous Materials for which Tenant is obligated to
remediate as provided above or any other breach of the requirements under this
Paragraph 30 by Tenant, its agents, employees, contractors, subtenants,
assignees or invitees, regardless of whether Tenant had knowledge of such
noncompliance. The obligations of Tenant under this Paragraph 30 shall survive
any termination of the Lease.
Landlord shall have access to, and a right to perform inspections and
tests of, the Premises to determine Tenant's compliance with Environmental
Requirements, its obligations under this Paragraph 30, or the environmental
condition of the Premises. Access shall be granted to Landlord upon Landlord's
prior notice to Tenant and at such times so as to minimize, so far as may be
reasonable under the circumstances, any disturbance to Tenant's operations. Such
inspections and tests shall be conducted at Landlord's expense, unless such
inspections or tests reveal that Tenant has not complied with any Environmental
Requirement, in which case Tenant shall reimburse Landlord for the reasonable
cost of such inspection and tests. Landlord's receipt of or satisfaction with
any environmental assessment in no way waives any rights that Landlord holds
against Tenant.
Tenant shall have no liability of any kind to Landlord as to any
pre-existing condition on the Premises or Hazardous Materials on the Premises
caused or permitted by: (i) Landlord, its agents, employees, contractors or
invitees; or (ii) any other tenants in the Project or their agents, employees,
contractors, subtenants, assignees or invitees; or (iii) any other person or
entity located outside of the Premises or the Project.
31. Rules and Regulations. Tenant shall, at all times during the Lease
Term and any extension thereof, comply with all reasonable rules and regulations
at any time or from time to time established by Landlord covering use of the
Premises and the Project. The current rules and regulations are attached hereto.
In the event of any conflict between said rules and regulations and other
provisions of this Lease, the other terms and provisions of this Lease shall
control. Landlord shall not have any liability or obligation for the breach of
any rules or regulations by other tenants in the Project.
32. Security Services. Tenant acknowledges and agrees that, while Landlord
may parole the Project, Landlord is not providing any security services with
respect to the Premises
16
<PAGE>
and that Landlord shall not be liable to Tenant for and Tenant waives any claim
against Landlord with respect to, any loss by theft or any other damage suffered
or incurred by Tenant in connection with any unauthorized entry into the
Premises or any other breach of security with respect to the Premises.
33. Force Majeure. Landlord shall not be held responsible for delays in
the performance of its obligations hereunder when caused by strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, delay in issuance of permits, enemy or
hostile governmental action, civil commotion, fire or other casualty, and other
causes beyond the reasonable control of Landlord ("Force Majeure").
34. Entire Agreement. This Lease constitutes the complete agreement of
Landlord and Tenant with respect to the subject matter hereof. No
representations, inducements, promises or agreements, oral or written, have been
made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant,
which are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease. This Lease may
not be amended except by an instrument in writing signed by both parties hereto.
35. Severability. If any clause or provision of the Lease is illegal,
invalid or unenforceable under present or future laws, then and in that event,
it is the intention of the parties hereto that the remainder of this Lease shall
not be affected thereby. It is also the intention of the parties to this Lease
that in lieu of each clause or provision of this Lease that is illegal, invalid
or unenforceable, there be added, as a part of this Lease, a clause or provision
as similar in terms to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and enforceable.
36. Brokers. Landlord and Tenant represent and warrant that each party has
dealt with no broker, agent or other person in connection with this transaction
and that no broker, agent or other person brought about this transaction, other
than the broker, if any, set forth on the first page of this Lease, and Tenant
and Landlord agree to indemnify and hold the other harmless from and against any
claims by any other broker, agent or other person claiming a commission or other
form of compensation by virtue of having dealt with Tenant or Landlord with
regard to this leasing transaction. Landlord shall be responsible for payment of
any commissions due to the broker set forth on the first page of this Lease.
37. Miscellaneous.
(a) Any payments or charges due from Tenant to Landlord hereunder
shall be considered rent for all purposes of this Lease.
(b) If and when included within the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, each shall be
jointly and severally liable for the obligations of Tenant.
(c) All notices required or permitted to be given under this
Landlord shall be in writing and shall be sent by registered or certified mail,
return receipt requested, or by a reputable national overnight courier service,
postage prepaid, or by hand delivery addressed to
17
<PAGE>
the parties at their addresses below, and with a copy sent to Landlord at 14100
East 35th Place, Aurors, Colorado 80011. Either party may by notice given
aforesaid change is address for all subsequent notices. Except where otherwise
expressly provided to the contrary, notice shall be deemed given upon delivery.
(d) Except as otherwise expressly provided in this Lease or as
otherwise required by law. Landlord retains the absolute right to withhold any
consent or approval.
(e) At Landlord's request from time to time Tenant shall furnish
Landlord with true and complete copies of its most recent annual and quarterly
financial statements prepared by Tenant or Tenant's accountants and any other
financial information or summaries that Tenant typically provides to its lenders
or shareholders.
(f) Neither this Lease nor a memorandum of lease shall be filed by or
on behalf of Tenant in any public record. Landlord may prepare and file, and
upon request by Landlord Tenant will execute, a memorandum of lease.
(g) The normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Lease or any exhibits or amendments hereto.
(h) The submission by Landlord to Tenant of this Lease shall have no
binding force or effect, shall not constitute an option for the leasing of the
Premises, nor confer any right or impose any obligations upon either party until
execution of this Lease by both parties.
(i) Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise required. The captions
inserted in this Lease are for convenience only and in no way define, limit or
otherwise describe the scope or intent of this Lease, or any provision hereof,
or in any way affect the interpretation of this Lease.
(j) Any amount not paid by Tenant within 5 days after its due date in
accordance with the terms of this Lease shall bear interest from such due date
until paid in full at the lesser of the highest rate permitted by applicable law
or 15 percent per year. It is expressly the intent of Landlord and Tenant at all
times to comply with applicable law governing the maximum rate or amount of any
interest payable on or in connection with this Lease. If applicable law is ever
judicially interpreted so as to render usurious any interest called for under
this Lease, or contracted for, charged, taken, reserved, or received with
respect to this Lease, then it is Landlord's and Tenant's express intent that
all excess amounts theretofore collected by Landlord be credited on the
applicable obligation (or, if the obligation has been or would thereby be paid
in full, refunded to Tenant), and the provisions of this Lease immediately shall
be deemed reformed and the amounts thereafter collectible hereunder reduced,
without the necessity of the execution of any new document, so as to comply with
the applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder.
(k) Construction and interpretation of this Lease shall be governed
by the laws of the state in which the Project is located, excluding any
principles of conflicts of laws.
18
<PAGE>
(l) Time is of the essence as to the performance of Tenant's
obligations under this Lease.
(m) All exhibits and addenda attached hereto are hereby incorporated
into this Lease and made a part hereof. In the event of any conflict between
such exhibits or addenda and the terms of this Lease, such exhibits or addenda
shall control.
38. Landlord's Lien/Security Interest. Intentionally deleted.
39. Limitation of Liability of Trustees, Shareholders, and Officers of
Security Capital Industrial Trust. Any obligation or liability whatsoever of
Security Capital Industrial Trust, a Maryland real estate investment trust,
which may arise at any time under this Lease or any obligation or liability
which may be incurred by it pursuant to any other instrument, transaction, or
undertaking contemplated hereby shall not be personally binding upon, nor shall
resort for the enforcement thereof be had to the property of, its trustees,
directors, shareholders, officers, employees or agents, regardless of whether
such obligation or liability is in the nature of contract, tort, or otherwise.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
TENANT: LANDLORD:
MORGAN PRODUCTS, LTD, a Delaware SECURITY CAPITAL INDUSTRIAL TRUST
corporation
By: /s/ David A. Braun By: /s/ Donald E. Myers
---------------------- -------------------------------
Name: David A. Braun Name: Donald E. Myers
Title: President Title: Senior Vice President
Address: Address:
11101 East 53rd Avenue 14100 E. 35th Place
Denver, Colorado 80239 Aurora, Colorado 80011
19
<PAGE>
Rules and Regulations
1. The sidewalk, entries, and driveways of the Project shall not be
obstructed by Tenant, or its agents, or used by them for any purpose other
than ingress and egress to and from the Premises.
2. Tenant shall not place any objects, including antennas, outdoor furniture,
etc. in the parking areas, landscaped areas or other areas outside of its
Premises, or on the roof of the Project.
3. Except for seeing-eye dogs, no animals shall be allowed in the offices,
halls, or corridors in the Project.
4. Tenant shall not disturb the occupants of the Project or adjoining
buildings by the use of any radio or musical instrument or by the making
of loud or improper noises.
5. If Tenant desires telegraphic, telephonic or other electric connections in
the Premises, Landlord or its agent will direct the electrician as to
where and how the wires may be introduced; and, without such directon, no
boring or cutting of wires will be permitted. Any such installation or
connection shall be made at Tenant's expense.
6. Tenant shall not install or operate any steam or gas engine or boiler, or
other mechanical apparatus in the Premises, except as specifically
approved in the Lease. The use of oil, gas or inflammable liquids for
heating, lighting or any other purpose is expressly prohibited. Explosives
or other articles deemed extra hazardous shall not be brought into the
Project.
7. Parking any type of recreation vehicles is specifically prohibited on
or about the Project. Except for the overnight parking of operative
vehicles, no vehicle of any type shall be stored in the parking areas
at any time. In the event that a vehicle is disabled, it shall be
removed within 48 hours. There shall be no "For Sale" or other
advertising signs on or about any parked vehicle. All vehicles shall
be parked in the designated parking areas in conformity with all signs
and other markings. All parking will be open parking, and no reserved
parking, numbering or lettering of individual spaces will be permitted
except as specified by Landlord.
8. Tenant shall maintain the Premises free from rodents, insects and other
pests.
9. Landlord reserves the right to exclude or expel from the Project any
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs or who shall in any manner do any act in
violation of the Rules and Regulations of the Project.
10. Tenant shall not cause any unnecessary labor by reason of Tenant's
carelessness or indifference in the preservation of good order and
cleanliness. Landlord shall not be responsible to Tenant for any loss of
property on the Premises, however occurring, or for any damage done to the
effects of Tenant by the janitors or any other employee or person.
<PAGE>
11. Tenant shall give Landlord prompt notice of any defects in the water, lawn
sprinkler, sewage, gas pipes, electrical lights and fixtures, heating
apparatus, or any other service equipment affecting the Premises.
12. Tenant shall not permit storage outside the Premises, including without
limitation, outside storage or trucks and other vehicles, or dumping of
waste or refuse or permit any harmful materials to be placed in any
drainage system or sanitary system in or about the Premises.
13. All moveable trash receptacles provided by the trash disposal firm for the
Premises must be kept in the trash enclosure areas, if any, provided for
that purpose.
14. No auction, public or private, will be permitted on the Premises or the
Project.
15. No awnings shall be placed over the windows in the Premises except with
the prior written consent of Landlord.
16. The Premises shall not be used for lodging, sleeping or cooking or for any
immoral or illegal purposes or for any purpose other than that specified
in the Lease. No gaming devices shall be operated in the Premises.
17. Tenant shall ascertain from Landlord the maximum amount of electrical
current which can safely be used in the Premises, taking into account the
capacity of the electrical wiring in the Project and the Premises and the
needs of other tenants, and shall not use more than such safe capacity.
Landlord's consent to the installation of electric equipment shall not
relieve Tenant from the obligation not to use more electricity that such
safe capacity.
18. Tenant assumes full responsibility for protecting the Premises from theft,
robbery and pilferage.
19. Tenant shall not install or operate on the Premises any machinery or
mechanical devices of a nature not directly related to Tenant's ordinary
use of the Premises and shall keep all such machinery free of vibration,
noise and air waves which may be transmitted beyond the Premises.
21
<PAGE>
ADDENDUM 1
CONSTRUCTION
(TURNKEY)
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED ____________________, 1997, BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
MORGAN PRODUCTS, LTD., A DELAWARE CORPORATION
(a) Landlord agrees to furnish or perform at Landlord's sole
cost and expense those items of construction and those improvements (the "Tenant
Improvements") specified below:
Repaint and recarpet existing office space as listed below:
Carpet: Shaw or equal direct glue-down 26 oz. Face weight
level loop carpet without pad.
Paint: Standard light color interior flat latex, except in
the toilet rooms which shall receive latex semi-gloss
enamel.
Rubber Base: Four (4) inch high topset rubber base as
manufactured by Burke. Roppe, or Tarkett, installed in all
areas receiving floor covering except the toilet rooms.
(b) If Tenant shall desire any changes. Tenant shall so advise
Landlord in writing and Landlord shall determine whether such changes can be
made in a reasonable and feasible manner. Any and all costs of reviewing any
requested changes, and any and all costs of making any changes to the Tenant
Improvements which Tenant may request and which Landlord may agree to shall be
at Tenant's sole cost and expense and shall be paid to Landlord upon demand and
before execution of the change order.
(c) Landlord shall diligently proceed with and complete
the construction of the Tenant Improvements upon execution of the Lease
Agreement, and shall perform such construction in a manner so as not to
materially interfere with Tenant's use or Tenant's business operations. As soon
as such improvements have been Substantially Completed, Landlord shall notify
Tenant in writing of the date that the Tenant Improvements were Substantially
Completed. After the Tenant Improvements are Substantially completed, Tenant
shall, upon demand, execute and deliver to Landlord's letter of acceptance of
delivery of the Premises.
(d) The failure of Tenant to take possession of or to occupy
the Premises shall not serve to relieve Tenant of obligations arising on the
Commencement Date or delay the payment of rent by Tenant. Subject to applicable
ordinances and building codes governing
<PAGE>
Tenant's right to occupy or perform in the Premises, Tenant shall be allowed to
install its tenant improvements, machinery, equipment, fixtures, or other
property on the Premises during the final stages of completion of construction
provided that Tenant does not thereby interfere with the completion of
construction or cause any labor dispute as a result of such installations, and
provided further that except for the negligence of Landlord, Tenant does hereby
agree to indemnify, defend, and hold Landlord harmless from any loss or damage
to such property, and all liability, loss, or damage arising from any injury to
the Project or the property of Landlord, its contractors, subcontractors, or
materialmen, and any death or personal injury to any person or persons arising
out of such installations. Any such occupancy or performance in the Premises
shall be in accordance with the provisions governing Tenant-Made Alterations and
Trade Fixtures in the Lease, and shall be subject to Tenant providing to
Landlord satisfactory evidence of insurance for personal injury and property
damage related to such installations and satisfactory payment arrangements with
respect to installations permitted hereunder. Delay in putting Tenant in
possession of the Premises shall not serve to extend the term of this Lease or
to make Landlord liable for any damages arising therefrom.
(e) Except for incomplete punch list items. Tenant upon the
Commencement Date shall have and hold the Premises as the same shall then be
without any liability or obligation on the part of Landlord for making any
further alterations or improvements of any kind in or about the Premises.
23
<PAGE>
ADDENDUM 2
INDEMNIFICATION BY LANDLORD
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED ____________________, 1997, BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
MORGAN PRODUCTS, LTD., A DELAWARE CORPORATION
Landlord covenants and agrees to indemnify and save Tenant, its employees
and agents harmless of and from any and all claims, costs, expenses and
liabilities, including, without limitation, attorneys' fees, arising on account
of or by reason of claims by third parties for injuries or death to persons or
damages to property resulting from the negligence or willful misconduct of
Landlord or its agents, employees, or contractors, to the extent not
attributable to any negligence of Tenant, any assignee or subtenant of Tenant,
or their respective employees, agents, or contractors. If a claim under the
foregoing indemnity is made against the indemnitee which the indemnitee believes
to be covered by an indemnitor's indemnification obligations hereunder, the
indemnitee shall promptly notify the indemnitor of the claim and, in such notice
shall offer to the indemnitor the opportunity to assume the defense of the claim
within 10 business days after receipt of the notice (with counsel reasonably
acceptable to the indemnitee). If the indemnitor timely elects to assume the
defense of the claim, the indemnitor shall have the right to settle the claim on
any terms it considers reasonable and without the indemnitee's prior written
consent, as long as the settlement shall not require the indemnitee to render
any performance or pay any consideration, and the indemnitee shall not have the
right to settle any such claim. If the indemnitor fails timely to elect to
assume the defense of the claim or fails to defend the claim with diligence,
then the indemnitee shall have the right to take over the defense of the claim
and to settle the claim on any terms the indemnitee considers reasonable. Any
such settlement shall be valid as against the indemnitor. If the indemnitor
assumes the defense of a claim, the indemnitee may employ its own counsel but
such employment shall be at the sole expense of the indemnitee . If any such
claim arises out of the negligence of both Landlord and Tenant, responsibility
for such claim shall be allocated between Landlord and Tenant based on their
respective degrees of negligence. This indemnity does not cover claims arising
from the presence or release of Hazardous Materials.
<PAGE>
ADDENDUM 3
INDEMNIFICATION BY LANDLORD
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED ____________________, 1997, BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
MORGAN PRODUCTS, LTD., A DELAWARE CORPORATION
Tenant shall not be obligated to subordinate the Lease or its interest
therein to any future mortgage, deed of trust or ground lease on the Project
unless concurrently with such subordination the holder of such mortgage or deed
of trust or the ground lessor under such ground lease agrees not to disturb
Tenant's possession of the Premises under the terms of the Lease in the event
such holder or ground lessor acquires title to the Premises through foreclosure,
deed in lieu of foreclosure or otherwise.
[Letterhead] Morgan Products Ltd.
November 3, 1997 CONFIDENTIAL
Mr. Duane Greenly
960 Woodside Terrace
Freeport, IL 61032
Dear Duane:
This is to formally confirm certain understandings between you and Morgan
Products Ltd. regarding relocation related topics, and the impact of the
potential sale of the assets of Morgan Manufacturing on those understandings.
Morgan Products Ltd. agrees that, in the event that the sale of the assets of
Morgan Manufacturing result in your loss of employment we will:
1. Pay the cost of relocating your household goods back to your permanent
residence in Freeport.
2. Pay any lease break charge involved with early departure from your
residential lease in Oshkosh.
3. Make up any difference between your cost basis in the residential building
lot, which you have purchased in Oshkosh and the eventual selling price
should you decide to sell it. The terms and conditions of the sale of the
lot are subject to review by Morgan Products Ltd. prior to acceptance of
an offer on the lot.
4. Should, in the subsequent job search which would follow a termination from
Morgan Products Ltd., or from the new owner (Jeld wen)-as long as that
termination should occur within twelve months of the closing date of the
asset acquisition- a new employer requiring you to relocate not be willing
to provide you with market value protection on the sale of your Freeport
home, Morgan Products Ltd. will provide you with the Prudential type
buyout opportunity on your Freeport home.
Should we be able to retain you within Morgan Products Ltd. and relocation to
another locale becomes necessary, all elements of your original relocation
agreement with us including point three above, would continue to be available to
you.
Sincerely,
/s/ Larry R. Robinette /s/ Darrell Olson
- ---------------------- -----------------
Larry Robinette Darrell Olson
President and CEO Vice President, Human Resources
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-32264 and No. 33-23882) and the Registration
Statements on Form S-8 (No. 33-62148 and 333-13025) of Morgan Products Ltd. of
our report dated February 4, 1998, appearing in this Form 10-K.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains anual summary information extracted from Morgan Products
1997 Annual Form 10-K and is qualified in its entirety by reference to such Form
10-K filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,197
<SECURITIES> 0
<RECEIVABLES> 29,664
<ALLOWANCES> 921
<INVENTORY> 40,553
<CURRENT-ASSETS> 106,316
<PP&E> 24,181
<DEPRECIATION> 13,905
<TOTAL-ASSETS> 128,776
<CURRENT-LIABILITIES> 29,992
<BONDS> 57,353
0
0
<COMMON> 44,401
<OTHER-SE> (1,970)
<TOTAL-LIABILITY-AND-EQUITY> 128,776
<SALES> 412,249
<TOTAL-REVENUES> 412,249
<CGS> 353,909
<TOTAL-COSTS> 428,879
<OTHER-EXPENSES> (332)
<LOSS-PROVISION> 248
<INTEREST-EXPENSE> 4,999
<INCOME-PRETAX> (20,897)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,897)
<EPS-PRIMARY> (2.03)
<EPS-DILUTED> (2.03)
</TABLE>
