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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 MAY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-14057
[MET-COIL SYSTEMS CORPORATION LOGO]
MET-COIL SYSTEMS CORPORATION
DELAWARE
(State of Incorporation)
42-1027215
(I.R.S. ID No.)
5486 SIXTH STREET SW, CEDAR RAPIDS, IA 52404
Registrant's telephone number, including area code: 319/363-6566
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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. [ ]
The aggregate market value of the Common Stock, $.01 par value, held by
non-affiliates of the registrant on August 25, 1997 based upon the average of
the closing bid and asked prices on that date as reported by the Dow Jones
Historical Stock Quote Reporter Service was $9,516,375.
Registrant had 3,140,718 shares of Common Stock, $.01 par value,
outstanding as of August 25, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement to be filed with the commission
on or before September 12, 1997 are incorporated by reference into Part III
hereof.
ANNUAL REPORT NOT INCLUDED
THE COMPANY'S 1997 ANNUAL REPORT TO STOCKHOLDERS, PORTIONS OF WHICH ARE
INCORPORATED HEREIN, IS NOT INCLUDED WITH THIS 10-K BUT HAS BEEN SEPARATELY
DISTRIBUTED, ACCOMPANIES THIS REPORT, OR IS AVAILABLE UPON REQUEST.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Met-Coil Systems Corporation ("Met-Coil"), a holding company, and its
operating units (collectively referred to as the "Company") design, engineer,
manufacture and market metal forming and fabricating machinery and
computer-controlled fabrication systems which produce a wide variety of products
from metal coils and sheets. The Company also manufactures and markets
high-speed automated material handling and press line automation equipment and
systems. MetCoil's operating units include two wholly-owned subsidiaries -- Iowa
Precision Industries, Inc. ("Iowa Precision") and The Lockformer Company
("Lockformer"), and a joint venture -- Met-Coil Ltd. ("MCL"). See "Description
of Operations" below.
Met-Coil was organized under Delaware law in 1973 and its present operating
units were acquired thereafter. Met-Coil's principal assets are the shares of
stock of its subsidiaries and affiliate.
RECENT DEVELOPMENTS
In May 1997, the Company sold the unimproved excess parcel of land adjacent
to its Lockformer operating unit for cash of $250,000 and a note receivable of
$750,000. As a result, the Company recognized a gain of approximately $465,000,
which is reflected in other (income) expense in the Company's Consolidated
Statements of Operations. The proceeds of $1.0 million from this sale were paid
to the mortgage holder of the land to reduce the debt. See "Financial Statement
Schedules" included in Part IV, Item 14 hereof and herein incorporated by
reference thereto. Also see "Item 13, Certain Relationships and Related
Transactions".
Also in fiscal 1997, two of the Company's software suppliers formed an
alliance, which has produced significantly advanced software for the Vulcan
Plasma Cutting machines. This enhanced software differentiates Met-Coils
machines from those of our competitors.
In February 1997, the Company completed the process of dissolving its
European operations. In lieu of incurring the overhead costs of a formal sales
and service facility in Europe, a Licensee Agreement was executed with a former
dealer whereby they will manufacture and sell various Met-Coil products and
remit royalties to the Company. Liquidation of this investment resulted in a
loss of approximately $500,000, most of which is attributable to recognition of
the accumulated effect of foreign currency translation. This amount is reflected
in other (income) expense in the Company's Consolidated Statements of
Operations.
In November 1996, the Company announced that it had fallen below the
minimum requirement for one of the six basic criteria required for inclusion in
the NASDAQ Small Cap Market, but remained well over the threshold for the other
criteria. The Company's stock is currently traded on the OTC Electronic Bulletin
Board, which can be accessed by brokerage firms using the trading symbol
"3METS".
In July 1996, the Company received a settlement of $450,000 related to a
long standing lawsuit. This amount is reflected in other (income) expense in the
Company's Consolidated Statements of Operations.
DESCRIPTION OF OPERATIONS
The Company's sheet metal machinery and fabrication systems are designed to
process parts from metal coils and blanks in thicknesses up to one-quarter inch.
Fabrication systems manufactured by the Company integrate various pieces of
equipment which process coils and blanks into a broad range of finished metal
products, including ductwork for heating, ventilation, and
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air-conditioning systems; metal cabinetry for home appliances; electronic
components and metal furniture and shelving. Generally, the equipment operates
in an automated, computer-controlled environment and includes high speed roll
forming machinery and slitting, shearing and material handling equipment.
Iowa Precision Industries, Inc.
Iowa Precision manufactures integrated systems for producing slit, roll
formed, punched, notched and sheared blanks from sheet metal coils. It is a
major manufacturer of heating, ventilation, and air conditioning ("HVAC")
manufacturing machinery and automated systems. Iowa Precision's Adjustable Elbow
Machine and its Fabriduct system combine Lockformer's roll forming technology
with Iowa Precision's equipment to provide unique systems for converting sheet
metal into finished ductwork with improved sealing characteristics. In addition,
Iowa Precision is one of the few manufacturers of coil processing equipment
which designs and produces its own microprocessor computer numerical controls.
The Lockformer Company
Lockformer designs and manufactures roll forming and cutting machinery and
systems utilized by HVAC contractors as well as other industries such as metal
furniture, appliance, sign and glass. Lockformer's microprocessor -- controlled
cutting systems utilize high precision plasma arc torch heads to cut a wide
range of materials, thicknesses and shapes. The advanced software in
Lockformer's Vulcan Plasma Cutting Machine allows the operator to design,
preview, and produce ductwork fittings. In addition, Lockformer markets its
Transverse Duct Connector ("TDC") System which connects airconditioning ductwork
and provides enhanced sealing. Lockformer also manufactures quick-change
reprogrammable products, such as duplex machines with moveable heads, that fit
into flexible fabrication systems.
Met-Coil Ltd.
MCL was formed as a 50% owned joint venture in September 1986 with a
Japanese capital goods manufacturer. MCL sells and services Met-Coil products in
Japan and the Asia-Pacific markets. MCL receives commissions on its sales of
Met-Coil products that are manufactured by the Company's operating units. MCL
also manufactures a group of Company products in Japan for the Japanese and
Asia-Pacific markets. The Company receives royalty payments on these products.
MARKETING, CUSTOMERS AND SUPPLIERS
The Company markets its machinery and fabrication systems primarily through
a worldwide distributor network. Each of the Company's operating units has
management personnel responsible for sales and marketing. The Company also has
an international department that is responsible for the coordination of overseas
sales and for maintaining and developing the Company's international distributor
network. For information concerning the Company's export sales, see Notes to
Consolidated Financial Statements included in Part IV, Item 14 of this 10-K.
The Company's operating units rely primarily on independent distributors
for their domestic and international sales. Iowa Precision and Lockformer have
approximately 33 and 30 domestic distributors and 30 and 28 international
distributors, respectively. Many of these distributors represent both of the
Company's subsidiaries.
The Company's employees provide installation, training and full service for
its machinery and systems. The Company's products carry standard warranty terms
for one year. The Company services the computer components of the machinery and
systems that it designs and manufactures.
The Company's customers consist primarily of fabricators of heating,
ventilation and air conditioning (HVAC) ductwork; metal service centers, which
serve as intermediate processors of
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coils between the mill and the final manufacturer; as well as a wide range of
manufacturers of sheet metal products in the appliance, metal furniture,
automotive, electronics, electrical, and other industries.
A majority of the Company's revenues are currently generated from domestic
sources, such sales representing 75%, 76%, and 83% of consolidated revenues
during fiscal years 1997, 1996, and 1995, respectively. Several of the Company's
principal product lines (including its TDC, Vulcan systems, tools, bending and
punching machinery) are used for the production of HVAC ductwork for industrial,
commercial and residential buildings and therefore are subject to economic
conditions affecting the construction industry. Domestic sales of these product
lines represented approximately 67%, 56%, and 44% of the Company's sales during
fiscal 1997, 1996, and 1995, respectively. Sales to one customer represented 13%
and 12% of consolidated revenues during fiscal 1997 and 1996, respectively.
The Company's principal raw materials are steel and electronic components,
which it can obtain from a variety of sources. The Company has not experienced,
and does not anticipate, any significant difficulties in obtaining adequate
supplies of raw materials.
PRODUCT DEVELOPMENT
The Company's policy is to develop and manufacture only those products for
which the Company believes it is positioned to obtain and hold a substantial
market share. The Company's product development, which results from individual
subsidiary effort or from the combined effort of its subsidiaries, involves: a)
creation of new products; b) improvements to existing products; and c) design of
specific products or modifications of existing products at the request of a
customer. Such products or modifications are frequently incorporated into the
Company's standard equipment. During fiscal years 1997, 1996 and 1995, the
Company spent approximately $822,000, $1,476,000, and $1,362,000, respectively,
in the aggregate for the three categories described above.
Although the Company is currently emphasizing internal growth and plans to
continue to do so in the foreseeable future, from time to time, it may consider
acquisitions of patents, product lines or companies, or investments in joint
ventures with companies that have compatible product lines, that would
complement the Company's existing capabilities to supply fabrication systems for
sheet metal processing applications. However, the Company is not currently
considering any such acquisitions or investments, and it is uncertain whether
such considerations in the future will result in definitive agreements for, or
the consummation of, any such acquisitions or investments. The Company cannot
predict the impact that any such transactions might have on its stockholders.
PATENTS, TRADEMARKS AND LICENSES
The Company holds a variety of patents and trademarks relating to the
designs, uses and names of its products and to the names of its subsidiaries. It
is the Company's policy to obtain patent protection for as many of its new and
developmental products as possible and to enforce all such patent rights. The
Company does not believe, however, that the loss of any of these patents or
trademarks would have a material adverse effect on the Company's overall
competitive position. As a result of the settlement agreement with Construction
Technology, Inc. ("CTI") in January, 1992, the Company purchased from CTI a
license to manufacture and sell the Vulcan for $2.5 million (see Notes to
Consolidated Financial Statements included in Part IV, Item 14 of this 10-K).
BACKLOG
The Company's backlog of orders at July 31, 1997 was approximately $16.0
million, compared to approximately $12.5 million at July 31, 1996. The change is
primarily attributable to orders for the Vulcan Plasma Cutting Machines and
positive economic factors.
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All orders for machinery and systems not shipped at the end of each period
are included in backlog. The Company estimates that all of the present backlog
will be shipped within the balance of the fiscal year ending May 31, 1998. (See
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Part II, Item 7 of this 10-K).
COMPETITION
The Company's markets are competitive, with the principal competitive
factors being product technology, quality, customer service and price. The
Company competes with a number of manufacturers which produce equipment similar
to some of the Company's products or product lines. While the Company's products
are generally in the higher range of quality and price, it believes that it is a
significant competitive force in most of the market segments of its principal
product lines. To date, the Company has not been subject to significant foreign
competition in its domestic markets.
The Company believes that the Iowa Precision and Lockformer names are well
known in the sheet metal processing and fabricating industry and that the
reputation of the Company for quality products and service provides the Company
with a significant competitive advantage. In addition, the Company's ability to
design systems that perform most, if not all, of the sheet metal processing and
fabricating functions for a given application and the Company's ability to
design, build and service most of the computer needs of the Company's systems
provide the Company with additional advantages over its competition.
ENVIRONMENTAL
In 1994, the Company settled a claim regarding an environmental matter on
the land at an operating unit, which was caused by the other party to the claim.
Under the terms of the settlement, the Company received cash and a letter of
credit to cover potential future expenses if incurred. Based on ongoing
evaluation and site-testing performed by an independent environmental
consultant, management continues to assess the likelihood of any future
liability in excess of the settlement as remote.
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EMPLOYEES
At July 31, 1997, the Company employed approximately 238 persons, of whom
approximately 128 were production employees, 20 were engineering personnel, 29
were sales personnel and the remainder were management and administrative
employees. There are currently two collective bargaining agreements covering the
production employees at the Lockformer and Iowa Precision operating units
(totaling approximately 128 employees). These agreements will expire in January
1998 and May 1998, respectively. The Company believes its relations with its
employees are satisfactory.
EXECUTIVE OFFICERS OF MET-COIL
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY AND FIVE-YEAR BACKGROUND(1)
---- --- -----------------------------------------------------
<S> <C> <C>
Raymond H. Blakeman....................... 73 Chairman of the Board of Met-Coil since July 1986.
Chief Executive Officer of Met-Coil from July 1986 to
December 1988, from June 1990 to May 1994 and from
May 1995 to December 1996.
James D. Heitt............................ 57 Director, President and Chief Operating Officer since
August 1997, Executive Vice President of Lockformer
since October 1996. President of Iowa Precision since
July 1986. Executive Vice President Operations of
Met-Coil, October 1996 to August 1997. Vice President
of Met-Coil June 1990 to October 1996.
Randall J. Stodola........................ 44 Vice President and Corporate Controller of Met-Coil
since October 1996. Controller of Iowa Precision
since June 1985.
C. Steve Ferin............................ 43 Vice President -- MIS of Met-Coil from October 1996
to April 1997. General Manager of Machine Controls
and Electronics of Iowa Precision since 1987.
John J. Toben............................. 47 Vice President International of Met-Coil since
February 1992. International Marketing Manager June
1988 to February 1992.
</TABLE>
- -------------------------
(1) Officers of the Company are elected annually by the Board of Directors and
hold office until their successors are elected. Effective December 1, 1996,
Mr. Blakeman relinquished his title of Chief Executive Officer. Effective
April 1, 1997, Mr. Ferin relinquished his title of Vice President -- MIS.
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ITEM 2. PROPERTIES
The principal corporate and subsidiary facilities of the Company, both
owned and leased are as follows:
<TABLE>
<CAPTION>
APPROX. AREA OWNED/
LOCATION PRIMARY FUNCTION IN SQUARE FEET LEASED
-------- ---------------- -------------- ------
<S> <C> <C> <C>
Lisle, Illinois............. Lockformer manufacturing, warehousing and 85,000 Owned
offices
Cedar Rapids, Iowa.......... Iowa Precision manufacturing, warehousing 74,000 Owned
and offices
Cedar Rapids, Iowa.......... Iowa Precision manufacturing 5,000 Leased(1)
Dallas, Texas............... Manufacturing, warehousing and offices 72,000 Owned(2)
Rockford, Illinois.......... Manufacturing, warehousing and offices 126,000 Leased(3)
</TABLE>
- -------------------------
(1) Leased on a month-to-month basis. Ninety (90) day notice of intent to vacate
premises required.
(2) In conjunction with expiration of the lease agreement between the Company
and the purchaser of the operations of a former subsidiary the property is
classified as held-for-sale (see "Financial Statements and Financial
Statement Schedules" included in Part IV, Item 14 hereof and herein,
incorporated by reference thereto).
(3) In connection with the sale of a former subsidiary, the Company entered into
a sublease with the buyer which generally reflects the rents and terms of
the original building lease, which expires April 1, 1998.
The properties listed above serve as collateral under the Company's senior
notes payable and revolving credit agreements. In the opinion of management, the
Company's properties are maintained in good operating condition and operate at
capacities which range from approximately 85% - 90%.
ITEM 3. LEGAL PROCEEDINGS
The Company has been involved in a long standing legal suit regarding a
license agreement purchased from the Company by a competitor. Under the terms of
the license agreement, the competitor paid royalties to the Company and is now
seeking return of these payments. The suit has been through several appeal
processes in which both parties have been declared valid in various claims. The
licensee seeks $346,127 which includes interest of $118,192 plus interest
thereon from January 1, 1997. The Company intends to continue vigorous defense
of this matter.
The Company is also subject to various other legal actions, governmental
investigations and proceedings relating to various matters incidental to its
business including product liability claims. The Company intends to vigorously
defend these matters. While the outcome of such matters cannot be predicted with
certainty, in the opinion of management, after reviewing such matters and
consulting with the Company's counsel and insurers, any liability which may
ultimately be incurred is not expected to materially affect the consolidated
financial position and results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Met-Coil's common stock is quoted on the OTC Electronic Bulletin Board. The
range of high and low bid prices for the common stock, as reported by the Dow
Jones Historical Stock Quote Reporter Service, is shown below. Prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. The closing price (based upon the
average of the closing bid and asked prices) of Met-Coil Common Stock on August
25, 1997, as reported by the Dow Jones Historical Stock Quote Reporter Service,
was $3.03.
<TABLE>
<CAPTION>
BID PRICES
--------------
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1997
Fourth Quarter............................................ $2.18 $1.75
Third Quarter............................................. 2.43 1.37
Second Quarter............................................ 2.63 1.25
First Quarter............................................. 2.87 1.87
Fiscal 1996
Fourth Quarter............................................ $2.50 $1.37
Third Quarter............................................. 2.00 .75
Second Quarter............................................ 2.00 1.12
First Quarter............................................. 3.12 1.50
</TABLE>
As of August 25, 1997, there were approximately 1,500 stockholders of
record of Met-Coil Common Stock, par value $.01 per share, excluding
approximately 217 employees with vested rights in the Company's ESOP (some of
whom otherwise hold shares in the Company).
No cash dividends were declared on the Company's Common Stock during the
last two fiscal years. See Notes to the Consolidated Financial Statements
included in Part IV, Item 14 of the 10-K and Management's Discussion and
Analysis of Financial Condition and Results of Operations in Part II, Item 7 of
this 10-K for discussions regarding dividend restrictions.
ITEM 6. SELECTED FINANCIAL DATA
See "Financial Statements and Financial Statement Schedules" included in
Part IV, Item 14 hereof and herein incorporated by reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See "Financial Statements and Financial Statement Schedules" included in
Part IV, Item 14 hereof and herein incorporated by reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Financial Statements and Financial Statement Schedules" included in
Part IV, Item 14 hereof and herein incorporated by reference thereto.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) Changes:
None
(b) Disagreements:
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item as to executive officers of Met-Coil
is contained in Part I, Item 1 hereof under the caption "Executive Officers of
Met-Coil". The information required by this item as to directors is included
under the caption "Election of Directors" in Met-Coil's definitive proxy
statement for its 1997 Annual Meeting, and is incorporated herein by reference
thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the captions
"Report on Executive Compensation" and "Summary Compensation Table" and "Options
Granted" in Met-Coil's definite proxy statement for its 1997 Annual Meeting, and
is incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption
"Security Ownership of Directors and Management" in Met-Coil's definitive proxy
statement for its 1997 Annual Meeting, and is incorporated herein by reference
thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As previously discussed under "Recent Developments", in fiscal 1997 the
Company sold the unimproved land adjacent to the Lockformer facility for cash of
$250,000 and a note receivable of $750,000 to Mr. Roy J. Carver, a Director of
the Company. The land had previously been held under a first mortgage by the
John A. Carver Trust, of which Mr. Roy J. Carver is a Trustee. Proceeds from the
cash downpayment and the note receivable were paid to the Trust in June and
August, 1997, respectively. In August 1997 the Company executed an unsecured
promissory note to the Trust for the remaining $300,000. The promissory note
calls for interest only payments through February 28, 1998 at 15%, after such
time the rate increases to 20%. (See "Financial Statements and Financial
Statement Schedules" included in Part IV, Item 14 hereof and herein incorporated
by reference thereto.)
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Financial Statements and Financial Statement Schedules:
(1)&(2) See the Index to Financial Statements included elsewhere
herein for a list of financial statements and financial
statement schedules included or incorporated herein by
reference.
(3) List of Exhibits required by Item 601 of Regulation S-K:
See Index to Exhibits included elsewhere herein.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during
the fourth quarter of fiscal 1997.
(c) Exhibits required by Item 601 of Regulation S-K:
See Index to Exhibits included elsewhere herein.
(d) Financial Statement Schedules:
See the Index to Financial Statements included elsewhere
herein for a list of financial statements and financial
statement schedules included or incorporated herein by
reference.
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MET-COIL SYSTEMS CORPORATION
By: /s/ RANDALL J. STODOLA
-----------------------------------
Randall J. Stodola
Vice President, Controller
and Chief Accounting Officer
Date: August 29, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RAYMOND H. BLAKEMAN Director, Chairman of the Board August 29, 1997
- ------------------------------------------
Raymond H. Blakeman
/s/ JAMES D. HEITT Director, President and Chief August 29, 1997
- ------------------------------------------ Operating Officer
James D. Heitt
/s/ RANDALL J. STODOLA Vice President, Controller and Chief August 29, 1997
- ------------------------------------------ Accounting Officer
Randall J. Stodola
/s/ E. KEITH MOORE Director August 29, 1997
- ------------------------------------------
E. Keith Moore
/s/ GARY M. NEAL Director August 29, 1997
- ------------------------------------------
Gary M. Neal
/s/ ROY J. CARVER JR. Director August 29, 1997
- ------------------------------------------
Roy J. Carver Jr.
/s/ MICHAEL J. NONNENMANN Director August 29, 1997
- ------------------------------------------
Michael J. Nonnenmann
</TABLE>
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INDEX TO FINANCIAL STATEMENTS
PART IV, ITEM 14
(CONTINUED)
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Five Year Summary........................................... F-1
Management's Discussion and Analysis of Financial Condition
and
Results of Operations..................................... F-2
Independent Auditors' Reports............................... F-5
Consolidated Balance Sheets, May 31, 1997 and 1996.......... F-7
Consolidated Statements of Operations, Three Years Ended May
31, 1997.................................................. F-8
Consolidated Statements of Stockholders' Equity (Deficit),
Three Years Ended May 31, 1997............................ F-9
Consolidated Statements of Cash Flows, Three Years Ended May
31, 1997.................................................. F-10
Notes to Consolidated Financial Statements.................. F-11
</TABLE>
FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Individual financial statements for equity method investees have been
omitted because they are not significant subsidiaries.
12
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FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues....................... $36,844 $41,554 $43,775 $42,594 $48,026
Cost of goods sold................. 28,523 34,140 35,732 33,832 40,406
Operating expenses................. 5,953 7,640 9,495 9,382 9,311
Interest expense, net.............. 1,748 2,340 2,532 2,435 2,595
Other non-operating (income)
expense, net.................... 42(a) (1,962)(a) 336 672 850
------- ------- ------- ------- -------
Income (loss) before income taxes
and effect of accounting
change.......................... 578 (604) (4,320) (3,727) (5,136)
Income tax credits................. -- 300 -- 565 1,350
------- ------- ------- ------- -------
Income (loss) before effect of
accounting change............... 578 (304) (4,320) (3,162) (3,786)
Effect of accounting change........ -- -- -- -- (262)(b)
------- ------- ------- ------- -------
Net income (loss).................. $ 578 $ (304) $(4,320) $(3,162) $(4,048)
Income (loss) per common share
before effect of accounting
change.......................... $ 0.01 $ (0.26) $ (1.61) $ (1.16) $ (1.41)
Effect of accounting change........ -- -- -- -- (0.10)
------- ------- ------- ------- -------
Net income (loss) per common
share........................... $ 0.01 $ (0.26) $ (1.61) $ (1.16) $ (1.51)
------- ------- ------- ------- -------
Weighted average common shares and
common share equivalents........ 3,132 3,031 2,871 2,719 2,688
======= ======= ======= ======= =======
FINANCIAL DATA:
Working capital (deficiency)....... $ 1,971 $ 1,754 $(6,686) $ 5,892 $ 8,090
Property and equipment, net........ 3,093 5,507 7,953 8,751 11,056
Total assets....................... 23,525 24,663 37,319 37,099 41,019
------- ------- ------- ------- -------
Debt:
Debt Outstanding................ $13,608 $15,515 $22,283 $23,816 $26,266
Less: Cash restricted for debt
repayment..................... -- -- (986) (1,959) --
------- ------- ------- ------- -------
Net debt outstanding............ 13,608 15,515 21,297 21,857 26,266
Preferred stock, convertible and
redeemable...................... 4,036 3,709 3,457 1,472 --
Stockholders' equity (deficit)..... (1,598) (1,912) (1,020) 2,841 4,887
======= ======= ======= ======= =======
SHARE DATA:
Dividend per common share.......... $ -- $ -- $ -- $ -- $ --
Book value per common share........ (0.51) (0.61) (0.35) 1.02 1.85
======= ======= ======= ======= =======
</TABLE>
- -------------------------
(a) Note 4 -- Subsidiaries and Affiliates
(b) Postretirement Benefits
F-1
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Consolidated
Financial Statements and Notes thereto, to which references are made elsewhere
herein.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
which certain items bear to net revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF NET
REVENUES
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Revenues................................................ 100% 100% 100%
Cost of goods sold.......................................... 77 82 81
Operating expenses.......................................... 16 18 22
Interest expense, net....................................... 5 6 6
Other (income) expense items, net........................... -- (4) 1
--- --- ---
Loss before income taxes.................................... 2 (2) (10)
Income tax credits.......................................... -- 1 --
--- --- ---
Net income (loss)........................................... 2 (1) (10)
--- --- ---
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Met-Coil reported fiscal 1997 earnings of $578,000 which, after deducting
preferred stock dividends and accretion, results in net income applicable to the
Common Shareholders of $34,000 or $.01 income per common share compared to a net
loss of $304,000 in fiscal 1996 (net loss of $773,000 applicable to the Common
Shareholders or $.26 net loss per common share). Total fiscal 1997 revenues were
$36.8 million compared to fiscal 1996 revenues of $41.6 million, which included
$5.8 million attributable to a former subsidiary, Rowe Manufacturing, whose
primary product lines were sold in fiscal 1996.
Excluding Rowe when comparing fiscal 1997 to fiscal 1996, sales increased
$1.0 million, cost of goods decreased by $600,000, operating expenses decreased
$500,000 and interest decreased nearly $600,000. In fiscal 1996, the Rowe
facility also contributed $5.0 million to cost of goods sold and $1.1 million to
operating expenses. The sale of Rowe resulted in a gain in fiscal 1996 of $2.1
million.
The increase in sales is due primarily to Iowa Precision which had
increases in both domestic and export sales. The reduction in cost of goods sold
and operating expenses is due to tighter cost controls at Lockformer and
consolidation of responsibility functions between the two operating units.
Interest expense reduced due to the lower level of borrowings on the revolving
credit line and the reduction in term debt by the Company throughout 1997.
Other income and expense includes a lawsuit settlement received in the
first quarter of $450,000, charges in the third quarter of $900,000 primarily
attributable to liquidation of European operations, a gain on the sale of excess
land of $465,000 and a write-down of property held for sale of $242,000 in the
fourth quarter.
The Company's backlog was nearly $16.0 million at July 31, 1997 due
primarily to increased demand for the Company's Vulcan Plasma Cutting Machines
and Fabrication Systems and positive economic factors.
F-2
<PAGE> 15
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues of $41.6 million decreased from $43.8 million in 1995. The reason
for the decrease is due to the sale of two significant product lines at Rowe on
February 5, 1996. Sales of products related to these two product lines amounted
to $4 million for the period from February 5, 1995 to May 31, 1995. Therefore on
a comparable basis revenues increased $1.8 million or 4%, reflecting a continued
strong sales market. Included in fiscal 1996 revenues are sales of $5.8 million
related to the product lines that were sold. International sales were
particularly strong and increased from $7.2 million in 1995 to $10.3 million in
1996.
Fiscal 1996 cost of goods sold as a percentage of revenues were generally
consistent with fiscal 1995 with the slight increase attributable to the
companies buying in small quantities due to cash constraints throughout much of
1996. The Company considers its buying practice and cash constraint conditions
to be temporary.
Operating expenses decreased $1.9 million from 1995 to 1996 which
represented a 4% decrease as a percentage of net revenues. The large decrease
was attributable to the significant reduction in operations at Rowe during the
fourth quarter and to cost cutting measures put in place in early 1996 and
related to cuts in selling and general and administrative employees due in part
to the consolidation of certain functions at Lockformer and Iowa Precision.
Interest expense decreased slightly from $2.5 million in 1995 to $2.3
million in 1996. The decrease was due to the lower level of borrowing which
occurred primarily in the fourth quarter of 1996.
Other income and expense as noted above includes a $2.1 million gain on the
sale of the product lines at Rowe.
MARKETS AND TRENDS
The Company is engaged in highly competitive markets with a significant
portion of its business related to the HVAC and construction industries. Fiscal
1997 proved to be a strong year for metal cutting and metal forming purchases.
Low unemployment, in conjunction with low inflation and interest rates is
largely responsible for the growth in U.S. purchases. In addition, the Company
continues to expand its market and geographic diversity, thereby reducing
dependencies on the U.S. economy and enhancing its scope of business
opportunities.
The Company's portion of operating results from MCL, an equity investee,
provided income in fiscal 1997 due primarily to non-operating gains. This
investee has historically provided the Company with nominal income or loss and
has projected a net loss for fiscal 1998 as well. However, the affiliate sells
and manufactures various Met-Coil products which generate revenues for the
Company's operating units in the Asia-Pacific markets in excess of affiliate
losses incurred.
During fiscal 1997, two of the Company's software suppliers, the supplier
of Computer Numerical Controlled plasma software and the supplier of CAD and
estimating software, formed an alliance together, which has produced
significantly advanced software for the Company's Vulcan Plasma Cutting
machines. The integration of this new software technology with Met-Coil's Vulcan
Plasma Cutting Systems has further differentiated Met-Coil's machines from those
of our competitors.
The Company has two collective bargaining agreements covering production
employees at its main operating units which expire in fiscal 1998. The Company
expects to negotiate with the unions and to enter into new collective bargaining
agreements. There can be no assurance that such agreements will be reached
without a work stoppage. However, management has historically negotiated the
bargaining agreements successfully.
Management believes that the demand for metal cutting and forming machinery
worldwide should remain at respectable levels for the foreseeable future. Due to
tight controls over costs at
F-3
<PAGE> 16
Lockformer, gross margin improved in fiscal 1997 and management expects the
margins to remain consistent in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Financial Review:
At the end of fiscal 1997, current assets exceeded current liabilities by
$2.0 million. The Company has reduced total liabilities, including accounts
payable and term debt by $1.8 million. At May 31, 1997 the Company had $1.1
million available under its revolving credit agreement.
Cash Flows and Commitments:
Cash flows from operations have improved each of the past three years.
Fiscal 1997 cash flow has been adequate to cover all debt service in fiscal
1997, including a required principal payment of $1.2 million paid after year end
in August 1997.
In fiscal 1997 the Company sold the excess land adjacent to one operating
unit and used the proceeds to apply toward the mortgage on the land. A
promissory note was executed for the remaining $300,000 which is expected to be
paid in fiscal 1998.
The Company funds its capital expenditures from the cash flow it generates
from operations. In 1997, the Company spent $634,000 for capital expenditures.
The Company believes capital spending in recent years has been sufficient for
maintenance purposes. The Company expects capital expenditures in fiscal 1998 to
approximate the fiscal 1997 spending level.
In September 1996 and March 1997 the Company paid dividends of 6% on the
cumulative preferred stock except with respect to two directors who have elected
to defer receipt of certain dividend payments. The Company continues to omit
quarterly common stock dividends due to loan covenants, which prohibit the
payment of common stock dividends. It is uncertain when, and if, the Company
will pay common stock dividends in the future.
The Company believes that amounts available from operating cash flows and
funds available under its revolving credit agreement will be sufficient to meet
its expected cash needs and planned capital expenditures for fiscal 1998.
CONTINGENCIES AND OTHER MATTERS
The Company is engaged in various legal and other proceedings incident to
its business (see Note 12).
The statements under Management's Discussion and Analysis of Financial
Condition and Results of Operations and the other statements in this Annual
report which are not historical facts are forward-looking statements. These
forward-looking statements involve risks and uncertainties that could render
them materially different, including but not limited to, the effect of economic
conditions, the impact of competition, availability and costs of inventory, the
rate of technology change, the availability of capital, supply constraints or
difficulties, the effect of the Company's accounting policies, the effect of
regulatory and legal developments, and other risks.
F-4
<PAGE> 17
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Met-Coil Systems Corporation
Cedar Rapids, Iowa
We have audited the accompanying consolidated balance sheets of Met-Coil
Systems Corporation and Subsidiaries as of May 31, 1997 and 1996, and the
related consolidated statements of operations and stockholders' equity (deficit)
and cash flows for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, the evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such 1997 and 1996 consolidated financial statements
present fairly, in all material respects, the financial position of Met-Coil
Systems Corporation and Subsidiaries at May 31, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Deloitte and Touche LLP
Cedar Rapids, Iowa
August 27, 1997
F-5
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Met-Coil Systems Corporation
Cedar Rapids, Iowa
We have audited the consolidated statements of operations, stockholders'
equity (deficit) and cash flows of Met-Coil Systems Corporation and
Subsidiaries for the year ended May 31, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Met-Coil Systems Corporation and Subsidiaries for the year ended May 31,
1995, in conformity with general accepted accounting principles.
The Company's recurring operating losses, working capital deficiency and
debt covenant violations raised substantial doubt about the Company's ability
to continue as a going concern. The 1995 financial statements do not include
any adjustment that might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Des Moines, Iowa
July 31, 1995
F-6
<PAGE> 19
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
-------------------
1997 1996
---- ----
(IN THOUSANDS,
EXCEPT SHARES)
<S> <C> <C>
Current Assets
Cash...................................................... $ 594 $ 890
Trade receivables, net (Note 3)........................... 4,926 4,585
Note receivable-related party (Notes 2 and 5)............. 750 --
Notes and other receivables............................... 50 303
Inventories (Note 3)...................................... 8,793 8,007
Prepaid expenses and other................................ 905 1,048
-------- --------
Total current assets...................................... 16,018 14,833
Property and equipment
Land...................................................... 520 1,535
Buildings and building improvements....................... 4,073 5,199
Machinery and equipment................................... 8,825 8,901
Furniture and equipment................................... 3,018 3,188
-------- --------
16,436 18,823
Less accumulated depreciation............................. 13,343 13,316
-------- --------
Property and equipment, net............................... 3,093 5,507
Property held for sale...................................... 1,000 --
Investments and other assets (Note 4)....................... 998 1,574
License fee (Notes 3 and 12)................................ 1,269 1,500
Intangibles, net (Note 3)................................... 1,147 1,249
-------- --------
TOTAL ASSETS (NOTE 5)....................................... $ 23,525 $ 24,663
======== ========
Current liabilities
Revolving line of credit (Note 5)......................... $ 2,371 $ 2,715
Current maturities of long-term debt (Note 5)............. 4,620 3,556
Accounts payable.......................................... 1,876 2,958
Accrued liabilities....................................... 2,349 1,891
Customer deposits......................................... 2,831 1,959
-------- --------
Total current liabilities................................. 14,047 13,079
Long-term debt (Note 5)..................................... 6,617 9,244
Deferred income tax credits, net (Note 6)................... 140 140
Other (Note 8).............................................. 283 403
Commitments and contingencies (Notes 12 and 13)
Preferred stock, convertible and redeemable (Note 10)....... 4,036 3,709
Stockholders' Equity (Deficit) (Notes 5 and 9):
Common stock, $.01 par value, authorized 10,000,000, 1997
issued 3,171,824; 1996 issued 3,146,521................ 31 31
Additional paid-in capital................................ 16,248 16,205
Accumulated deficit....................................... (17,725) (17,759)
Foreign currency translation adjustment (Note 14)......... (50) (260)
Cost of common stock reacquired for treasury.............. (102) (129)
-------- --------
Stockholders' equity (deficit).............................. (1,598) (1,912)
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT).............. $ 23,525 $ 24,663
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE> 20
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net sales (Notes 4 and 11).................................. $36,776 $41,654 $43,693
Equity in affiliate (Note 4)................................ 68 (100) 82
------- ------- -------
Net revenues................................................ 36,844 41,554 43,775
Cost of goods sold.......................................... 28,523 34,140 35,732
Operating expenses.......................................... 5,953 7,640 9,495
Interest expense, net....................................... 1,748 2,340 2,532
(Gain) on businesses sold, net (Note 4)..................... -- (2,148) --
Other expense, net.......................................... 42 186 336
------- ------- -------
Income (loss) before income taxes........................... 578 (604) (4,320)
Income tax credits (Note 6)................................. -- 300 --
------- ------- -------
Net income (loss) (Note 1).................................. 578 (304) (4,320)
Preferred stock dividends and accretion (Notes 1 and 10).... 544 469 288
------- ------- -------
Net income (loss) applicable to common stock................ $ 34 $ (773) $(4,608)
======= ======= =======
Weighted average common shares and
common share equivalents.................................. 3,132 3,031 2,871
------- ------- -------
Net income (loss) per common share.......................... $ 0.01 $ (0.26) $ (1.61)
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE> 21
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY ESOP
COMMON PAID-IN ACCUMULATED TRANSLATION TREASURY DEBT
STOCK CAPITAL DEFICIT ADJUSTMENT STOCK GUARANTEE TOTAL
------ ---------- ----------- ----------- -------- --------- -----
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1994... $ 28 $15,472 $(12,378) $ 33 $(147) $(167) $ 2,841
Net loss.............. -- -- (4,320) -- -- -- (4,320)
Issuance of 111,125
shares (Note 9).... 1 337 -- -- -- -- 338
Reissuance of
shares............. -- -- -- -- 18 -- 18
Payments on ESOP
debt............... -- -- -- -- -- 167 167
Preferred stock
dividends and
accretion.......... -- -- (288) -- -- -- (288)
Adjustment from
foreign currency
translation........ -- -- -- 224 -- -- 224
---- ------- -------- ----- ----- ----- -------
Balance, May 31, 1995... $ 29 $15,809 $(16,986) $ 257 $(129) $ -- $(1,020)
Net loss.............. -- -- (304) -- -- -- (304)
Issuance of 213,948
shares (Note 9).... 2 396 -- -- -- -- 398
Preferred stock
dividends and
accretion.......... -- -- (469) -- -- -- (469)
Adjustment from
foreign currency
translation........ -- -- -- (517) -- -- (517)
---- ------- -------- ----- ----- ----- -------
Balance, May 31, 1996... $ 31 $16,205 $(17,759) $(260) $(129) $ -- $(1,912)
Net income............ -- -- 578 -- -- -- 578
Issuance of 21,443
shares (Note 9).... -- 43 -- -- -- -- 43
Reissuance of
shares............. -- -- -- -- 27 -- 27
Preferred stock
dividends and
accretion.......... -- -- (544) -- -- -- (544)
Write-off of foreign
currency
translation (Note
4)................. -- -- -- 384 -- -- 384
Adjustment from
foreign currency
translation........ -- -- -- (174) -- -- (174)
---- ------- -------- ----- ----- ----- -------
Balance, May 31, 1997... $ 31 $16,248 $(17,725) $ (50) $(102) $ -- $(1,598)
</TABLE>
See Notes to Consolidated Financial Statements
F-9
<PAGE> 22
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ 578 $ (304) $(4,320)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities
Depreciation........................................... 1,154 1,498 1,569
Amortization of intangibles and deferred finance
charges.............................................. 413 441 442
Accretion of discount on debt.......................... 424 544 465
Gain on sale of assets................................. (496) (2,148) --
Write-off of intangibles............................... 273 -- --
Write-down of property held for sale................... 242 -- --
Write-off of foreign currency translation adjustment... 384 -- --
Deferred income taxes.................................. -- (300) --
Undistributed earnings of affiliate.................... (68) 100 (82)
======= ======= =======
2,904 (169) (1,926)
Changes in assets and liabilities:
Trade receivables.................................... (341) 3,064 (1,936)
Notes and other receivables.......................... 253 245 115
Note receivable-related party........................ (750) -- --
Inventories.......................................... (786) 1,506 (1,441)
Income taxes receivable.............................. -- -- 176
Accounts payable and accrued liabilities............. (744) (3,334) 2,710
Customer deposits.................................... 872 253 809
Prepaid expenses and other........................... 613 200 133
------- ------- -------
Net cash flows from operating activities.......... 2,021 1,765 (1,360)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received from affiliate......................... -- 11 34
Purchases of property and equipment....................... (634) (251) (769)
Proceeds from the sale of investments and other assets.... 1,148 -- --
Other, net................................................ -- 52 (44)
------- ------- -------
Net cash flows from investing activities.......... 514 (188) (779)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments under revolving credit agreement........... (344) (340) (19)
Repayments of long-term debt.............................. (2,390) (1,381) (2,180)
Proceeds from issuance of long-term debt.................. 403 -- --
Deferred loan costs....................................... (353) (292) --
Decrease in cash restricted for debt repayment............ -- 986 973
Issuance of preferred stock............................... -- -- 1,827
Dividends on preferred stock.............................. (217) (217) (130)
Issuance of common stock.................................. 70 398 356
Reduction of ESOP debt guarantee.......................... -- -- 167
------- ------- -------
Net cash flows from financing activities.......... (2,831) (846) 994
------- ------- -------
CASH
Increase (decrease)....................................... (296) 731 (1,145)
Beginning balance......................................... 890 159 1,304
------- ------- -------
Ending balance............................................ $ 594 $ 890 $ 159
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-10
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company designs, engineers and manufactures metal processing machinery
and computer-controlled fabrication systems and sells primarily to customers
that manufacture products from sheet metal coils and blanks throughout the
world. For the years ended May 31, 1997 and 1996, sales to one customer
represented 13% and 12% of net revenues, respectively.
SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of Met-Coil
Systems Corporation and its subsidiaries, all of which are wholly-owned. All
material intercompany transactions have been eliminated.
Revenue Recognition:
Revenues are recognized upon shipment. The Company's products carry
standard warranty terms for one year for which a warranty accrual is recorded.
Risks and Uncertainties:
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for uncollectible
accounts receivable, recoverability of long-term assets, environmental and
product liability accruals and income tax accruals including valuation
allowances for deferred income tax assets.
The Company has two collective bargaining agreements covering production
employees at its main operating units which expire in fiscal 1998. The Company
expects to negotiate with the unions and to enter into new collective bargaining
agreements. There can be no assurance that such agreements will be reached
without a work stoppage. However, management has historically negotiated the
bargaining agreements successfully.
Cash and Cash Equivalents:
For purposes of reporting cash flows, the Company considers all cash
accounts, which are not subject to withdrawal restrictions or penalties, and all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Inventories:
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method.
Investment in Affiliate:
The Company has a 50% equity interest in Met-Coil Limited (Japan) ("MCL")
for which it uses the equity method of accounting. MCL sells and services the
Company's products. MCL also manufactures a group of Company products in Japan
for the Japanese and Asia-Pacific markets.
F-11
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment:
Property and equipment is carried at cost less accumulated depreciation.
Depreciation is computed primarily by the straight-line method over the
following estimated useful lives.
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and building improvements......................... 10-25
Machinery and equipment..................................... 3-10
Furniture and equipment..................................... 4-10
</TABLE>
The Company has classified the land and building which contained the
operations of a former subsidiary as property held for sale and reported the
assets at the lower of cost or estimated realizable value at May 31, 1997.
Intangibles:
Intangibles, which consist primarily of a license agreement (see Note 12)
and the excess of purchase price over fair value of net assets acquired, are
being amortized by the straight-line method over periods ranging from 10 to 40
years. The Company evaluates intangibles continually to determine whether any
impairment has occurred. This review takes into consideration the recoverability
of the unamortized amount based on the estimated undiscounted cash flows of the
related product lines. Deferred finance charges are amortized over the life of
the related note agreement using the interest method. The Company includes
amortization of finance charges with interest expense.
Product Development Expenses:
The Company's policy is to develop and produce only those products for
which the Company believes it is positioned to obtain and hold a substantial
market share. The Company's product development involves: a) creation of new
products; b) improvements to existing products; and c) design of specific
products or modifications of existing products at the request of a customer.
Such products or modifications are frequently incorporated into the Company's
standard equipment. Product development expenses for Company-sponsored projects
are expensed as incurred. From time to time, costs are deferred, to be amortized
over the anticipated benefit period, if the future benefits are certain due to a
contractual arrangement for a customer-requested product prototype. During the
fiscal years 1997, 1996, and 1995, the Company spent approximately $822,000,
$1,476,000, and $1,362,000, respectively, in the aggregate for the three
categories of product development described above.
Pension Plans:
The Company's funding policy is to make the minimum annual contributions
that are required by applicable regulations.
Environmental:
Expenditures that relate to current operations are expensed or capitalized
as appropriate. Expenditures that relate to an existing condition caused by past
operations, and which do not contribute to current or future revenue generation,
are expensed. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the costs can be reasonably estimated.
Generally, the timing of these accruals coincides with completion of a
feasibility study or the Company's commitment to a formal plan of action.
F-12
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income Taxes:
Deferred income taxes, for financial statement and income tax reporting
purposes, are recorded to reflect the tax consequences on future years of
differences between the basis of assets and liabilities. In addition, the
amounts of any future tax benefits are reduced by a valuation allowance until it
is more likely than not that such benefits will be realized.
Stock Based Compensation:
Stock based compensation is recognized using the intrinsic value method.
Pro forma net income (loss) and net income (loss) per share are provided for
disclosure purposes as if the fair value method had been applied (see Note 9).
Foreign Currency Translation:
Asset and liability accounts of the foreign equity-method investee are
translated to U.S. dollars using rates of exchange in effect at the balance
sheet date. Income statements are translated at average exchange rates during
the year. Adjustments arising from translation of the balance sheets to U.S.
dollars are included in stockholders' equity (deficit).
Income (Loss) Per Share:
Income (loss) per common share during each of the periods presented is
based on the weighted average number of shares outstanding. Common stock
equivalents do not have a significant dilutive effect.
Reclassifications:
Certain amounts for prior years have been reclassified to conform with the
current year presentation.
Preferred stock accretion, which is included in preferred stock dividends,
had previously been reported as interest expense. Such reclassifications
decreased net loss to $304,000 from $556,000 and to $4,320,000 from $4,478,000
in fiscal 1996 and 1995, respectively. The reclassification did not impact net
loss applicable to common stock.
NOTE 2. GAIN ON SALE OF PROPERTY
In fiscal 1997 the Company sold the unimproved land adjacent to the
Lockformer facility for cash of $250,000 and a note receivable of $750,000 which
resulted in a gain of $465,000 (included in other expense, net). The land, which
had previously been held under a first mortgage by a trust, of which the trustee
is a director of the Company, was sold to that director (see Note 5).
NOTE 3. SUPPLEMENTAL ASSET DATA
Accounts Receivable:
Amounts shown for trade receivables are net of allowances of $50,000 and
$210,000 for 1997 and 1996, respectively.
F-13
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Inventories:
The composition of the inventories at May 31, using the first-in, first-out
(FIFO) method, which approximates replacement cost, is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials and parts..................................... $6,779 $7,241
Work in process............................................. 2,425 1,375
Finished goods and supplies................................. 292 580
------ ------
9,496 9,196
Reduction to LIFO basis..................................... 703 1,189
------ ------
$8,793 $8,007
====== ======
</TABLE>
License fee and intangibles:
Amounts shown for the license fee are net of accumulated amortization of
$1,230,772 and $1,000,000 for 1997 and 1996, respectively, and the amounts shown
for intangibles are net of accumulated amortization of $1,351,000 and $1,186,000
for 1997 and 1996, respectively.
NOTE 4. SUBSIDIARIES AND AFFILIATE
Wholly-Owned Subsidiaries:
The Company has two wholly-owned subsidiaries at May 31, 1997: Iowa
Precision Industries, Inc. and The Lockformer Company.
Sale of Subsidiary:
On February 5, 1996, the Company sold certain assets related to two product
lines manufactured at the Rowe Machinery and Automation subsidiary to Mestex,
Inc. The sale included the "Rowe" name, the technical know-how to produce the
"Press Feed" and "Cut-to-Length" product lines, and certain working capital
accounts related to these product lines. The Company received $3,000,000 in cash
at closing and a note receivable for $600,000. This note was collected at May
31, 1996. The Company recognized a gain from this transaction of $2,148,000.
Affiliate:
A summary of financial information of MCL is set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets.............................................. $4,220 $4,316 $6,755
Noncurrent assets........................................... 375 351 370
------ ------ ------
Total assets........................................... $4,595 $4,667 $7,125
====== ====== ======
Current liabilities......................................... $3,204 $3,148 $4,758
Stockholders' equity........................................ 1,391 1,519 2,367
------ ------ ------
Total liabilities and stockholders' equity............. $4,595 $4,667 $7,125
====== ====== ======
Net sales................................................... $7,155 $9,839 $9,270
Gross profit................................................ 2,045 2,599 3,192
Net income (loss)........................................... $ 137 $ (200) $ 164
</TABLE>
F-14
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1997 the Company did not receive dividends from MCL. During 1996 the
Company received dividends from MCL of $11,000. The Company's accumulated
deficit includes approximately $713,000, $645,000, and $745,000 of equity in net
income of MCL at May 31, 1997, 1996, and 1995, respectively.
European Operations:
In February 1997, the Company completed the process of dissolving its
European operations. In lieu of incurring the overhead costs of a formal sales
and service facility in Europe, a Licensee Agreement was executed with a former
dealer whereby the dealer will manufacture and sell various Met-Coil products
and remit royalties to the Company. Liquidation of this investment resulted in a
loss of approximately $500,000, $384,000 of which is attributable to recognition
of the accumulated effect of foreign currency translation. This amount is
reflected in other (income) expense in the Company's Consolidated Statements of
Operations.
NOTE 5. DEBT
Revolving Line of Credit:
At May 31, 1997 the Company had a revolving credit agreement with two
insurance companies under which it could borrow up to $3,500,000. Borrowings are
limited to a borrowing base formula (certain percentages of eligible trade
receivables and inventories), bear interest at 11.5% and require the payment of
certain fees. As of May 31, 1997 there was $2,371,000 in borrowings outstanding
under this line which expires on April 30, 1999.
Long-Term Debt:
Long-term debt as of May 31, consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Senior notes (A).......................................... $ 5,970 $ 7,290
Litigation settlement (Note 12)........................... 3,598 4,170
First mortgage on unimproved land (B)..................... 1,300 1,300
Real estate contract, installments through May, 1997 with
interest rate of 9%..................................... -- 40
Note payable, installments through January, 2000 with
interest rate of 11%.................................... 369 --
======= =======
Less current maturities................................... $11,237 $12,800
4,620 3,556
------- -------
$ 6,617 $ 9,244
======= =======
</TABLE>
- -------------------------
(A) The Company has $5,970,000 of senior notes with two insurance companies due
in December, 2000. Interest is at 11.5% payable monthly. The notes are due
in monthly total principal payments of $110,000 plus interest. In addition,
a principal payment of $1,200,000 which was due on August 31, 1997, has been
repaid to the lenders. See "Senior Debt (terms and conditions)" below.
(B) The Company has a first mortgage on unimproved land adjacent to the
Lockformer plant. The mortgage is held by a trust of which the trustee is a
director of the Company. In fiscal 1997 the Company sold the land to this
director for $250,000 cash and a note receivable of $750,000. Proceeds from
the downpayment and the note receivable were paid to the trust in June and
August 1997, respectively. In August 1997, the Company executed a promissory
note to the
F-15
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
trust for the remaining $300,000. The note calls for monthly payments of
interest only at 15% through February 28, 1997, when such rate shall become
20%. The note can be repaid at any time.
The aggregate maturities of the long-term debt for years ending May 31, are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1998.................................................. $ 4,620
1999.................................................. 2,053
2000.................................................. 1,987
2001.................................................. 1,304
2002.................................................. 445
Thereafter............................................ 828
-------
$11,237
=======
</TABLE>
Senior Debt (terms and conditions):
The covenants and other provisions of both the senior notes payable
agreement and revolving credit agreement (described above) are the same.
Borrowings are collateralized by substantially all of the Company's assets.
The agreements contain various restrictive covenants, which among other things,
prohibit the payment of dividends, specify the application of proceeds from
significant asset sales (primarily to the reduction of senior debt), and require
the maintenance of certain financial ratios and amounts. The Company was in
compliance with all debt covenants at May 31, 1997.
Fair Values:
The fair value of the Company's debt instruments was estimated based on
current rates offered to the Company for similar debt and approximates the
carrying values.
NOTE 6. INCOME TAXES
The provision for income tax credits is made up of the following components
for the years ended May 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense (credit):
Federal................................................... $ -- $ -- $ --
State..................................................... -- -- --
Foreign................................................... -- -- --
---- ----- ----
Deferred tax expense (credit) -- Federal.................... -- (300) --
---- ----- ----
$ -- $(300) $ --
==== ===== ====
</TABLE>
F-16
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax expense (credit) results from temporary differences in the
recognition of revenue and expense for income tax and financial statement
purposes. The sources of these differences and the tax effect of each are as
follows for the years ended May 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Excess of tax over book depreciation........................ $ 46 $(109) $ (189)
Change in basis difference of inventory..................... -- 154 128
Accruals not currently deductible........................... (71) (40) 72
Investment in affiliate..................................... 24 (83) 348
Settlement expense not deductible until paid................ 187 (64) 207
Net operating loss carryforwards............................ 363 (111) (1,984)
Tax credit carryforwards.................................... -- -- (320)
Deferred tax asset valuation allowance...................... (508) -- 1,561
Other....................................................... (41) (47) 177
----- ----- -------
$ -- $(300) $ --
===== ===== =======
</TABLE>
Deferred tax (liabilities) assets are composed of the following as of May
31:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Liabilities:
Basis difference of property and equipment.................. $(1,800) $(1,754)
Basis difference of inventory............................... (532) (532)
Undistributed earnings of affiliate......................... (267) (243)
Other....................................................... -- (22)
------- -------
Gross deferred tax liabilities.............................. (2,599) (2,551)
------- -------
Assets:
Net operating loss carryforwards............................ 3,947 4,310
Settlement loss............................................. 750 937
Various accruals not presently deductible................... 511 440
Tax credit carryforwards.................................... 724 724
Other....................................................... 19 --
------- -------
Gross deferred tax assets................................... 5,951 6,411
Deferred tax assets valuation allowance..................... (3,492) (4,000)
------- -------
Net deferred tax assets..................................... 2,459 2,411
======= =======
Net deferred tax liabilities................................ $ (140) $ (140)
======= =======
</TABLE>
Total reported income tax (credits) applicable to the Company's operations
varies from the amount that would have resulted by applying the federal income
tax rate of 34% to income (loss) before income tax credits for the following
reasons for the years ended May 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax credit at statutory federal income tax rate...... $ 197 $(205) $(1,469)
State tax credit, net of federal tax........................ -- -- (31)
Deferred tax asset valuation allowance...................... (508) -- 1,546
Nondeductible amortization of intangibles................... 25 31 34
Other....................................................... 286 (126) (80)
----- ----- -------
$ -- $(300) $ --
===== ===== =======
</TABLE>
F-17
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At May 31, 1997 the Company has tax net operating loss carryforwards of
$11,300,000 available under provisions of the Internal Revenue Code to be
applied against future federal taxable income. These carryforwards expire
through May 31, 2011. At May 31, 1997 the Company also has approximately $76,000
of alternative minimum tax (AMT) credit carryforwards available to offset
regular tax in future years to the extent that the regular tax exceeds AMT. The
credits do not have expiration dates. The Company also has approximately
$480,000 of general business credit carryovers which expire through May 31,
2000.
NOTE 7. RETIREMENT PLANS
Employee Stock Ownership Plan:
The Company has an Employee Stock Ownership Plan ("Plan") for the benefit
of employees who meet the eligibility requirements. The Plan holds 179,616
shares of common stock at May 31, 1997. The Company makes cash payments to the
Plan, consisting of contributions, in an amount sufficient for it to satisfy
ongoing Plan requirements.
Cash contributions to the Plan were $1,348, $2,000, and $167,000 for the
years ended May 31, 1997, 1996, and 1995 respectively. For financial statement
purposes, expense for the Plan is determined based on the percentage of shares
allocated to participants each period. The amount charged to expense was
$54,000, $295,000, and $301,000 for the years ended May 31, 1997, 1996, and
1995, respectively.
Profit-Sharing 401(k) Plan:
The Company has a qualified profit-sharing plan under Internal Revenue Code
Section 401(k) for those employees who meet certain eligibility requirements set
forth in the plan. The Company makes contributions to the plan based upon
predetermined percentages of the employees' compensation. Additional amounts may
be contributed at the option of the Company's Board of Directors. The retirement
expense for the fiscal years ended May 31, 1997, 1996, and 1995 was $332,000,
$335,000, and $367,000, respectively.
Defined Benefit Plans:
The Company's Lockformer subsidiary has two defined benefit pension plans
covering substantially all of its employees. The following table includes
aggregate amounts for the plans' funded status and amounts recognized in the
accompanying financial statements as of May 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested benefits
1997 $(2,437); 1996 $(2,369).............................. $(2,494) $(2,394)
------- -------
Projected benefit obligation................................ (2,494) (2,394)
------- -------
Plan assets at fair value (consisting primarily of fixed
income obligations)....................................... 3,061 2,864
------- -------
Plan assets in excess of projected benefit obligation....... 567 470
Unrecognized net gain....................................... (287) (267)
Unrecognized prior service cost............................. 45 49
Unrecognized transition asset............................... (120) (75)
------- -------
Prepaid expense included on balance sheet................... $ 205 $ 177
======= =======
</TABLE>
F-18
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net pension cost (credit) includes the following components for the years
ended May 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 52 $ 39 $ 155
Interest cost on projected benefit obligation............... 200 181 45
Actual return on plan assets................................ (275) (344) (119)
Net amortization and deferral............................... (5) 96 (118)
Unrecognized net loss....................................... (8) 0 0
----- ------- -------
$ (36) $ (28) $ (37)
===== ======= =======
</TABLE>
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of May 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Discount rate............................................... 8.0% 8.0% 8.0%
Expected long-term rate of return........................... 9.0 9.0 9.0
Long-term inflation rate.................................... 5.5 5.5 5.5
</TABLE>
NOTE 8. POSTRETIREMENT BENEFITS
The Company has been providing postretirement health insurance for a
limited group of current retirees. Effective May 31, 1993, the Company provided
benefits pursuant to a fixed payment schedule per participant which is immune to
inflationary pressures. Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits" (SFAS No. 106) requires the
cost of providing such postretirement benefits over the retirees' average
remaining life expectancy to be accrued, rather than charged to expense as
incurred. In applying SFAS No. 106, the Company immediately recognized the
Accumulated Postretirement Benefit Obligation (APBO). A discount rate of 8% was
used to determine the APBO. The APBO was $158,912 and $182,000 at May 31, 1997
and 1996, respectively.
NOTE 9. CAPITAL STOCK
Options:
Effective June 4, 1993, the Company adopted the 1993 Employee Stock Option
Plan due to the expiration of the 1983 Incentive Stock Option Plan. Under the
terms of the plan options to purchase 300,000 shares of the Company's common
stock at fair market value at the date of grant may be
F-19
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
granted to employees of the Company. Stock options have a ten year life and vest
over a four year period. The number of shares outstanding and exercisable is
shown in the following table.
STOCK OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
SHARE SUBJECT OPTION PRICE RANGE WEIGHTED AVERAGE EXERCISE
TO OPTION PER SHARE PRICE OF OPTIONS
------------- ------------------ -------------------------
<S> <C> <C> <C>
Outstanding 5/31/94.................. 141,300 $1.625 - 6.75 $4.71
Granted............................ 173,200 3.33 3.33
Exercised.......................... (12,000) 1.625 1.63
Canceled or expired................ (9,500) 1.625 - 6.75 3.04
Outstanding 5/31/95.................. 293,000 1.625 - 6.75 3.16
Granted............................ 10,000 2.00 2.00
Exercised.......................... -- -- --
Canceled or expired................ (151,400) 1.625 - 6.75 2.59
Outstanding 5/31/96.................. 151,600 1.625 - 6.75 3.65
Granted............................ 195,000 2.06 2.06
Exercised.......................... -- -- --
Canceled or expired................ (58,600) 3.00 - 6.25 3.98
Outstanding 5/31/97.................. 288,000 1.625 - 6.75 2.52
</TABLE>
At May 31, 1997 and 1996 options exercisable were 54,000 and 88,450 at
weighted average exercise prices of $3.76 and $4.05, respectively. The weighted
average, as of May 31, 1997, for the contractual life of options outstanding was
8.7 years. Shares available for future grant were 12,000 at May 31, 1997.
Stock Based Compensation:
The Company accounts for stock option grants and awards under its stock
based compensation plans using the intrinsic value method. If compensation cost
for stock option grants and awards had been determined based on fair value at
the grant dates for fiscal 1997 and fiscal 1996 options consistent with the
method prescribed by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS No. 123), the Company's net
income (loss) and net income (loss) per share would have been adjusted to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss)........................... As reported $ 578 $(304)
293 (318)
Pro forma
Net income (loss) per common share.......... As reported $ .01 $(.26)
(.08) (.27)
Pro forma
</TABLE>
The weighted average fair values at date of grant for options granted
during fiscal 1997 and 1996 were estimated to be $1.46 and $1.42, respectively.
The Company's calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions: five years expected life
to vesting; stock volatility of 86% in 1997 and 89% in 1996; risk-free interest
rate of 7.0% in 1997 and 1996; and no dividends during the expected term. During
the initial phase-in period, as required by SFAS No. 123, the pro forma amounts
were determined based on stock option grants and awards in fiscal 1997 and 1996
only. The pro forma amounts for compensation
F-20
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
cost may not be indicative of the effects on net income (loss) and net income
(loss) per share for future years.
Employee Stock Trust:
The Company has a grantor trust, established May 31, 1993, to which it is
authorized to contribute up to 400,000 common shares. In January 1996, the
Company issued an additional 50,000 shares to the Trust. The proceeds from the
market sale of the shares over time, at expected appreciated values, will be
used to fund various employee benefits. As of May 31, 1997 the Company held
4,529 shares in the trust. During the year ended May 31, 1997, 1,194 common
shares were issued to fund other benefits. During the year ended May 31, 1996,
189,020 common shares were issued to the Company's 401(k) plan and 24,928 common
shares were issued to fund other benefits.
NOTE 10. PREFERRED STOCK -- REDEEMABLE, CONVERTIBLE
The Company has authorized 1,000,000 shares of $1 par value preferred
stock. During the years ended May 31, 1995 and 1994 the Company issued 200,000
and 162,000 shares of preferred stock respectively, at $10 per share ($10
liquidation value per share). The preferred stock provides for cumulative annual
dividends of 6% payable semi-annually. The preferred stock is convertible into
three shares of common stock at anytime at the option of the holder. After
December 31, 1998 either the Company or the holder may redeem the preferred
stock at a redemption price of $13 per share, plus accumulated unpaid dividends.
The Company is increasing the carrying amount of the preferred stock, using
the interest method, so that the carrying amount will equal the redemption
amount of $4,706,000 at December 31, 1998. The Company includes accretion of
preferred stock with preferred stock dividends.
NOTE 11. EXPORT SALES
Export sales by geographical area for the years ended May 31 are:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ----------------- ----------------
AMOUNT %* AMOUNT %* AMOUNT %*
------ -- ------ -- ------ --
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Canada................................. $ 847 2% $ 392 1% $1,180 3%
Europe................................. 3,707 10 1,960 5 3,592 8
Far East............................... 1,531 4 3,792 9 1,477 3
Australia.............................. 1,066 3 584 1 319 1
Central/South America.................. 1,414 3 2,097 5 316 1
Other.................................. 553 3 1,433 3 347 1
------ -- ------- -- ------ --
$9,118 25% $10,258 24% $7,231 17%
====== == ======= == ====== ==
</TABLE>
- -------------------------
* Percent to net sales
NOTE 12. LITIGATION AND CONTINGENT LIABILITIES
Settlement Agreement:
In January, 1992 the Company and its Lockformer subsidiary reached a
Settlement Agreement to settle lawsuits filed against the companies by
Construction Technologies, Inc. ("CTI"). The suits alleged patent infringement,
among other things, against Lockformer's Vulcan cutting system. Under the terms
of the Settlement Agreement, CTI granted Lockformer a royalty bearing license.
In return, Lockformer agreed to pay CTI, in addition to royalties due under the
license, $7.3 million (discounted
F-21
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
at 11%) over a 15 year period. As of May 31, 1997, the Company is required to
pay CTI $675,000 annually through January, 2005 with a final payment of $175,000
due January 27, 2006.
The agreement also provides for prepayments equal to (i) 25% of
Lockformer's pre-tax profits exceeding $600,000 up to $1.0 million in any single
fiscal year; (ii) 35% of its pre-tax profits exceeding $1.0 million in any
single fiscal year; (iii) 50% of the profits of any sale of its capital assets
other than trade-ins of capital assets for upgrades or replacements; and (iv)
30% of any non-recurring gains of Lockformer other than those resulting from
trade-ins of capital assets for upgrades or replacements. To collateralize these
obligations, Lockformer has granted CTI a second lien on all of its assets.
Management has assessed the likelihood of prepayments as remote.
Under the terms of the Settlement Agreement, an unrelated supplier also
agreed to pay CTI $50,000 each year through January, 2007.
The Company guaranteed Lockformer's and the unrelated supplier's
obligations under the Settlement Agreement and issued CTI 200,000 unregistered
shares of common stock pursuant to a Shareholders Agreement which restricts
CTI's resale of these shares, grants CTI limited registration and preemptive
rights with respect to newly issued common stock, restricts the Company's
payment of cash dividends or other distributions above $.12 per share per year
and restricts the creation of new liens on the Company's assets without CTI's
approval. The Shareholders Agreement terminates upon the payment of all
obligations under the Settlement Agreement.
The cost of the license was determined by CTI in conjunction with the
Settlement Agreement. The Company is amortizing the license fee on a straight
line basis over the life of CTI's patent, and believes it is properly reflecting
its value.
General:
The Company is subject to various other legal actions, governmental
investigations, and proceedings relating to various matters incidental to its
business including product liability and environmental claims. The Company
intends to vigorously defend these matters. While the outcome of such matters
cannot be predicted with certainty, in the opinion of management, after
reviewing such matters and consulting with the Company's counsel and insurers,
any liability which may ultimately be incurred, is not expected to materially
affect the consolidated financial position and results of operations of the
Company.
Other:
The Company has been involved in a long standing legal suit regarding a
license agreement purchased from the Company by a competitor. Under the terms of
the license agreement, the competitor paid royalties to the Company and is now
seeking return of these payments. The suit has been through several appeal
processes in which both parties have been declared valid in various claims. The
licensee seeks $346,127, which includes interest of $118,192, plus accrued
interest thereon from January 1, 1997. The Company intends to continue vigorous
defense of this matter.
NOTE 13. LEASES
The Company leases a building under a noncancelable agreement expiring on
April 1, 1998 and requiring noncancellable rentals of $283,000 plus payment of
property taxes, maintenance and insurance. In connection with the sale of a
former subsidiary, the Company entered into a sublease with the buyer which
generally reflects the rents and terms of the original building lease. The
minimum rental commitments and amounts due under sublease for this operating
lease is $283,000 for 1998.
F-22
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company also leases other facilities and equipment on short-term
leases. At May 31, 1997, future minimum lease payments on noncancelable
operating leases were as follows:
<TABLE>
<S> <C>
1998..................................................... $125,656
1999..................................................... 27,624
2000..................................................... 27,624
2001..................................................... 27,624
2002..................................................... 26,289
--------
......................................................... $234,817
========
</TABLE>
Rental expense for fiscal years 1997, 1996, and 1995 was $131,120, $147,000
and $56,000 respectively.
NOTE 14. SUPPLEMENTAL CASH FLOW DATA
Supplemental data for the year ended May 31 are:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash payments (receipts) for:
Interest.................................................. $1,667 $1,913 $2,101
Income tax refunds........................................ $ -- $ -- $ (176)
</TABLE>
Supplemental data of noncash operating, investing and financing activities:
During fiscal 1997 the Company reduced the carrying value of land and
buildings being held for sale by $242,000 to approximate estimated market value
at May 31, 1997.
During the years ended May 31, 1997, 1996 and 1995 the Company's foreign
currency translation adjustments increased (decreased) stockholders' equity
(deficit) by ($174,000), ($517,000), and $224,000, respectively.
During the years ended May 31, 1997, 1996 and 1995 the Company accreted its
preferred stock by $327,000, $252,000 and $158,000, respectively.
During the year ended May 31, 1996 the Company sold certain assets and
liabilities of Rowe and recognized a gain on the sale of $2,148,000. The assets
sold were: inventories $2,230,000, accounts receivable $761,000, plant and
equipment, net $236,000 and other assets of $16,000. Liabilities assumed by the
buyer were: accounts payable $1,080,000, customer deposits $662,000 and accrued
liabilities of $101,000. The proceeds of $3.6 million from this sale were paid
directly to the Company's lenders to retire debt.
Additionally, during the year ended May 31, 1996 the Company restructured
its debt and in connection therewith received a discount of $516,000 from its
prior lenders. However, the Company also collected a note receivable for
$709,000 in advance of its maturity and recognized a discount of $179,000 and
sold non-operating assets with a net book value of $493,000 for $400,000. The
Company also received insurance proceeds of $485,000 related to a fire at the
Rowe facility and these funds were paid directly to the Company's lenders to
reduce debt.
F-23
<PAGE> 36
INDEX TO EXHIBITS
FORM 10-K FOR YEAR ENDED MAY 31, 1997
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
</TABLE>
3.1 Restated Certificate of Incorporation of the Registrant, as
amended -- incorporated by reference to Exhibit 3.2 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1987.
3.2 Amended and Restated Bylaws of the Registrant --
incorporated by reference to Exhibit 3.4 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended November
30, 1987.
4.1 Article IV of the Registrant's Restated Certificate of
Incorporation (included in Exhibit 3.2 above).
4.2 The Registrant's $15 million Senior Notes due 2001, dated
October 1, 1989 -- incorporated by reference to Exhibit 4.2
of the Registrant's Annual Report of Form 10-K for the
fiscal year ended May 31, 1990.
10.3 The Lockformer Company Employees Retirement Plan (as amended
and restated effective as of August 1, 1989).(1)
10.4 Met-Coil Systems Corporation Employee Stock Ownership Plan
and Trust -- incorporated by reference to Exhibit 10.9 of
Amendment No. 1 to the Registrant's Registration Statement
on Form S-1 filed with the Commission on October 21, 1985
(Registration No. 2-99971).
10.7 Agreement, dated January 29, 1995, between The Lockformer
Company and District Lodge No. 8, International Association
of Machinists and Aerospace Workers.(2)
10.8 Agreement, dated June 1, 1995, between Iowa Precision
Industries, Inc. and Local Union 263, Sheet Metal Workers
International Association.(2)
10.9 Building Lease Agreement, dated April 11, 1988, by and
between Roper Whitney Corporation and Industrial Machinery,
Systems and Supply, Inc. -- incorporated by reference to
Exhibit 2 of the Registrant's Current Report on Form 8-K,
dated May 1, 1989 (as filed with the Commission on May 16,
1989).
10.27 Settlement Agreement among Construction Technology, Inc.,
Met-Coil Systems Corporation, the Lockformer Company, Inc.,
and Mechanical Data, Inc., dated as of January 27, 1992 --
incorporated by reference to similarly numbered exhibit of
the Registrant's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993.
10.31 Met-Coil Systems Corporation Retirement Plan as amended and
restated effective September 16, 1992 -- incorporated by
reference to similarly numbered exhibit of the Registrant's
Annual Report on Form 10-K for the fiscal year ended May 31,
1994.
10.32 The Registrant's 1993 Employee Stock Option Plan.(1)
10.33 Mortgage Note Agreement dated February 28, 1994 between
Registrant and the John A. Carver 1983 Trust.(1)
10.39 The Lockformer Company Employees Pension Plan as amended and
restated effective June 28, 1987.(2)
10.40 Amended and Restated Note Agreement dated April 18, 1996 by
and between Met-Coil Systems Corporation, Iowa Precision
Industries, The Lockformer Company, Principal Mutual Life
Insurance Company, and Modern Woodmen of America --
incorporated by reference to Registrant's current report on
Form 8-K dated April 18, 1996 (as filed with the Commission
on April 29, 1996).
10.41 Met-Coil Systems Corporation Non-Employee Directors Deferred
Compensation and Performance Unit Plan -- Effective January
1, 1997.
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.42 Met-Coil Systems 1997 Non-Employee Directors Stock Option
Plan.
11 Statement of Computation of Per Share Earnings (Loss)
21 Subsidiaries of the Registrant
23 Consents of Experts
27 Financial Data Schedule
</TABLE>
- -------------------------
(1) Exhibit is incorporated by reference to similarly numbered exhibit of the
Registrant's Annual Report on Form 10-K for the fiscal year ended May 31,
1995.
(2) Exhibit is incorporated by reference to similarly numbered exhibit of the
Registrant's Annual Report on Form 10-K for the fiscal year ended May 31,
1996.
<PAGE> 1
EXHIBIT 10.41
MET-COIL SYSTEMS CORPORATION
NON-EMPLOYEE DIRECTORS
DEFERRED COMPENSATION AND PERFORMANCE UNIT PLAN
(EFFECTIVE JANUARY 1, 1997)
<PAGE> 2
MET-COIL SYSTEMS CORPORATION
NON-EMPLOYEE DIRECTORS
DEFERRED COMPENSATION AND PERFORMANCE UNIT PLAN
(EFFECTIVE JANUARY 1, 1997)
INTRODUCTION. Met-Coil Systems Corporation (the "Company") hereby
establishes the Met-Coil Systems Corporation Non-Employee Directors Deferred
Compensation and Performance Unit Plan, effective January 1, 1997 (the "Plan"),
as set forth herein. The Plan is established to further the Company's long
term growth and to provide the Company's non-employee directors with the
opportunity to elect to defer all or a portion of their retainer fees otherwise
payable by the Company and to receive deferred compensation for the Company.
Compensation deferred under the Plan shall be credited in awards of Performance
Units, the value of which is related to the value of whole shares of common
stock, par value $.01, of the Company.
1. DEFINITIONS.
(a) "Account" shall mean the record maintained by the Company of a
Participant's interest under the Plan credited in Performance
Units and their value.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Change in Control" shall mean any individual, corporation,
partnership, group, association or other "person" (as such
term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of the 1934 (the "Exchange Act")) becoming a
"beneficial owner" (as defined in Rule 13d-3 of the Exchange
Act) of securities of the Company representing forty percent
(40%) or more of combined voting power of the Company's then
outstanding voting securities, unless such person has filed
Schedule 13G and all required amendments thereto for its
holdings and continues to hold such securities for investment
in a manner qualifying such person to use Schedule 13G for
ownership reporting.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and Department of Treasury regulations issued and
effective thereunder.
(e) "Committee" shall mean the committee established under Section
8 of the Plan.
(f) "Company" shall mean Met-Coil Systems Corporation, a Delaware
corporation and any successor in interest by merger,
acquisition or reorganization.
(g) "Director" shall mean an individual (who is not an employee of
the Company) serving as a member of the Board.
(h) "Director's Fee" shall mean a Director's annual retainer or
Board or committee meeting fee (excluding per diem allowances,
expenses and such other grants under the Non-Employee
Directors Stock Option Plan) that becomes payable to a
Participant under the Company's plan, policy or arrangement
providing for the payment of such fees.
(i) "Effective Date" shall mean January 1, 1997.
(j) "Eligible Director" shall mean any Director who on the
Effective Date or thereafter is not and has never been an
employee of the Company or any subsidiary, parent or affiliate
of the Company, and who is not prohibited from holding common
stock of the Company by any policy or request of any outside
employer or affiliate of the Director or by any professional
ethical
<PAGE> 3
standard applicable to the Director.
(k) "Notice" shall mean a written election by a Participant to
defer Director's Fees under the Plan on the form prescribed by
the Committee.
(l) "Participant" shall mean an Eligible Director who has made the
election described in Section 2 of the Plan to defer the
receipt of Director's Fees under the Plan. Such an Eligible
Director shall remain a Participant until no election to defer
Director's Fees under the Plan remains effective for him or
her and all amounts contributed to the Plan on his or her
behalf have been distributed.
(m) "Plan" shall mean the Met-Coil systems Corporation
Non-Employee Directors Deferred Compensation and Performance
Unit Plan, effective January 1, 1997, as set forth herein and
as it may be amended from time to time.
(n) "Plan Year" shall mean the initial Plan Year beginning January
1, 1997 and ending September 30, 1997. Thereafter Plan Year
shall mean each twelve month period thereafter beginning with
October 1, 1997.
(o) "Unforeseeable Emergency" shall mean a severe financial
hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or of his or
her dependant (as defined in Section 152(a) of the Code), loss
of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstance arising
as a result of events beyond the Participant's control. The
circumstances that will constitute an Unforeseeable Emergency
will depend upon the facts of each case, but in any case
payment shall not be made to the extent that the hardship is
or may be relieved:
(i) through reimbursement or compensation by insurance or
otherwise;
(ii) by liquidation of the Participant's assets, to the
extent the liquidation of such assets would not
itself cause severe financial hardship; or
(iii) by cessation of deferrals under the Plan.
For purposes of the Plan, an "Unforeseeable Emergency" shall not
include a Participant's need to send his or her child to college or a
Participant's desire to purchase a home.
2. PARTICIPANT CONTRIBUTIONS.
(a) An Eligible Director who is entitled to receive Director's
Fees may elect to defer all or any portion of a Director's Fee
otherwise payable to him or her under the Plan. A deferral
election hereunder shall be made by filing a Notice with the
Committee no later than September 30 of the Plan Year
preceding the Plan Year in which the Director's Fees to be
deferred are otherwise payable to the Director. The amount of
Director's Fee to be deferred shall be specified in the
Notice. Each Notice shall be effective only for the
Director's Fees for the Plan Year for which it is filed.
(b) An Account shall be established on behalf of each Participant
for contributions made under subparagraph (a) above. The
Account shall be a bookkeeping record credited with
Performance Units (as described in Section 3) and charged for
distributions. Contributions will be credited to each
Participant's Account as of the date the Director's Fee
becomes payable to the Director. A Participant shall always
have a fully vested interest in the adjusted balance of his or
her Account.
<PAGE> 4
3. PERFORMANCE UNITS.
(a) Director's Fees deferred under the Plan shall be credited to a
Participant's Account as Performance Units. The number of
whole Performance Units credited shall be equal to the dollar
amount deferred by the Participant divided by the value of one
share of the Company's common stock, as determined under
Section 6. The Committee shall notify the Participant in
writing of the number and value of the Performance Units
credited to his or her Account.
(b) As of each record date of the Company's common stock, the
Account of each Participant credited with Performance Units
shall be credited with additional whole Performance Units
equal to the dividend paid on a share of common stock
multiplied by the number of Performance Units credited to the
Participant's Account and divided by the value of one share of
the company's common stock as of the record date, as
determined under Section 6. The Committee shall notify the
Participant in writing of the number and value of the
Performance Units credited to his or her account.
4. ACCOUNT DISTRIBUTIONS
(a) A Participant's Account shall be distributed to the
Participant as of the last day of the calendar month following
the month in which the earliest of the following occurs: (I)
the participant's services as a Director of the Company cease,
(ii) a Change in Control occurs or (iii) the Plan is
terminated. Notwithstanding the foregoing, a Participant may
select another distribution date for all or any portion of a
deferred amount by specifying the distribution date on the
Notice filed with the Committee for the deferral; provided,
that such distribution date shall not be before the second
Plan Year following the Plan Year in which the deferred amount
is otherwise payable. Upon the approval of the Committee, a
Participant who has specified a distribution date may amend
the Notice to elect a later distribution date; provided, that
the subsequent election is made before October 1 of the Plan
Year immediately preceding the Plan Year that includes the
original distribution date.
(b) Account distributions will be made no later than thirty (30)
days after the distribution date specified in this Section 4
in the form elected by the Participant. Account distributions
shall be made either (i) in a single sum cash payment in an
amount equal to the number of Performance Units to be
distributed multiplied by the value of one share of the
Company's common stock, or (ii) in whole shares of the
Company's common stock equal to the number of full Performance
Units to be distributed.
(c) Notwithstanding anything in the Plan to the contrary, if a
Participant incurs an Unforeseeable Emergency, he or she may
elect to make a withdrawal from his or her Account, but only
to the extent reasonably needed to satisfy the Unforeseeable
Emergency. A Participant who wishes to receive such a
withdrawal shall apply for the distribution on a form
prescribed by the Committee and shall provide information to
the Committee reasonably necessary to permit the Committee to
determine whether an Unforeseeable Emergency exists and the
amount of the distribution reasonably needed to satisfy the
Unforeseeable Emergency.
(d) If a Participant dies before distribution has been made under
the Plan, distribution of his or her Account shall be made to
the beneficiary or beneficiaries designated in the
Participant's Notice or on such other form prescribed by the
Company. If no beneficiary designation has been made, payment
shall be made to the Participant's estate. Payment shall be
made in either a single sum cash payment or whole shares of
common stock of the Company, as elected by the beneficiary of
the executor of the Participant's estate, as applicable.
<PAGE> 5
5. COMMON STOCK SUBJECT TO PLAN. Shares of stock distributable
under the Plan shall be shares of par value $.01 common stock of the Company.
Subject to adjustment as provided in Section 9, the aggregate number of shares
of common stock that may be delivered under the plan shall not exceed 160,000.
Either authorized and unissued shares or treasury shares may be delivered under
the Plan.
6. PERFORMANCE UNIT VALUATION. One Performance Unit shall at all
times have a value equal to the value of one share of the Company's common
stock, which shall be the average of the bid and asked prices of the Company's
common stock for the most recent twenty (20) consecutive trading days
immediately preceding the valuation date. Performance Units shall be valued as
of the date of credit to a Participant's Account and as of the date all or any
portion of a Participant's Account is distributable under the Plan.
7. NOTICES IRREVOCABLE. Except to the extent specifically
provided in Section 4, a Participant's election to defer Director's Fees under
the Plan for a Plan Year shall be irrevocable. Notwithstanding the foregoing,
if a Participant incurs an Unforeseeable Emergency, her or she may elect to
amend or revoke his or her Notice (but only to the extent reasonably needed to
relieve the Unforeseeable Emergency) by filing such form as is prescribed by
the Committee. A Notice to amend or revoke the deferral of Director's Fees
shall be effective for the remainder of the Plan year in which the Notice is
filed; provided, that if the Notice was amended the participant may further
amend or revoke the Notice if the Participant incurs an Unforeseeable
Emergency.
8. ADMINISTRATION. The Plan shall be administered by a
Committee, which may be the Board, who shall have all powers necessary to carry
out the provisions of the Plan. The Committee shall have the sole, final and
discretionary authority to interpret the Plan, and its determinations as to
eligibility, status and the rights of Eligible Directors and Participants shall
be conclusive and binding on all persons; provided, that if the Committee or
one of its members is a Participant, then determinations regarding the
Participant's benefits under the Plan shall be made by the Board. The expenses
of administering the Plan will be paid by the Company.
9. CHANGES IN CAPITAL AND CORPORATE STRUCTURE. In the event of
any change in the outstanding shares of common stock of the Company by reason
of an issuance of additional shares, recapitalization, reclassification,
reorganization, stock split, reverse stock split, combination of shares, stock
dividend or similar transaction, the Committee shall proportionately adjust, in
an equitable manner, the number of Performance Units held by Participants under
the Plan to reflect such change.
10. NONTRANSFERABILITY. Performance Units credited under the
Plan, and any rights and privileges pertaining thereto, may not be transferred,
assigned, pledged or hypothecated in any manner, by operation of law or
otherwise, other than by will or the laws of descent and distribution, and any
attempt to do so shall be void. No interest of any person or entity in the
Plan, nor any right to receive a benefit hereunder, shall be subject in any
manner to sale, attachment, garnishment or other alienation or encumbrance of
any kind, nor may such interest or right be taken, voluntarily, for the
satisfaction of the debts, obligations or claims against such person or entity,
including claims for alimony, support, separate maintenance and claims in
bankruptcy proceedings.
11. WITHHOLDING. The Company shall have the right to deduct from
all amounts paid under the Plan any taxes required by law to be withheld with
respect to such payments.
12. NO VOTING RIGHTS. Participants shall not have any voting
rights with respect to Performance Units held in Participant Accounts and are
not shareholders of the Company with respect to such Performance Units until
shares of common stock are actually issued under the Plan.
<PAGE> 6
13. COMPLIANCE WITH APPLICABLE LAWS. Shares of common stock
delivered under the Plan shall be subject to such conditions, limitations or
restrictions as the Board may deem advisable or necessary to comply with any
applicable federal, state and foreign laws, rules or regulations, including
those of any stock exchange upon which the common stock is then listed.
14. PLAN ACCOUNTS UNFUNDED. The Plan and the Accounts hereunder
shall at all times be unfunded, and no provision shall at any time be made with
respect to segregating assets of the Company for payment of benefits hereunder.
No Participant or other person shall have any interest in any particular assets
of the Company by reason of the right to receive a benefit under the Plan and
any such Participant or other person shall have only the rights of a general
unsecured creditor of the Company with respect to any rights under the Plan.
15. NO PARTICIPANT RIGHTS. Participation in the Plan does not
give a Participant the right to be retained as a Director or any right or claim
to any benefit under the Plan, unless the right or claim has specifically
accrued under the Plan.
16. PLAN AMENDMENT. The Committee may amend the Plan at any time,
without the consent of Participants or their beneficiaries; provided, that no
amendment shall divest any Participant or beneficiary of the credits to his or
her Account, or of any rights to which he or she would have been entitled if
the Plan had been terminated immediately before the effective date of such
amendment.
17. PLAN TERMINATION. The committee may terminate the Plan at any
time. Upon termination of the Plan, distribution of Participants' Accounts
shall be made in the manner and at the time prescribed herein; provided, that
no additional amounts shall be credited to the Account of a Participant after
termination of the Plan.
18. NOTICES. Any notice or election required or permitted to be
given to the Committee hereunder shall be in writing and shall be deemed to be
filed (i) on the date it is personally delivered to the Committee, or (ii)
three (3) business days after it is sent by registered or certified mail,
addressed to the Committee at the principal offices of the Company.
19. GOVERNING LAW. Except to the extent preempted by federal law,
the Plan and all matters related thereto shall be governed by the laws of the
State of Iowa.
20. INCAPACITY. If a person entitled to a payment under the Plan
is deemed by the Committee to be incapable of personally receiving and giving a
valid receipt for the payment , the Company may make the payment or any part
thereof to a duly appointed guardian or legal representative, or to any other
person or institution then contributing toward or providing for the care and
maintenance of such person. The payment shall be for the account of such
person and a complete discharge of any liability of the Company, the Committee
and the Plan.
21. LIABILITY LIMITED. Notwithstanding anything in the Plan to
the contrary, neither the Company, the Committee nor any individual acting as
an employee or agent of the Company or the Committee shall be liable to any
Participant, former participant, beneficiary or other person for any claim,
loss, liability or expense incurred in connection with the Plan.
<PAGE> 7
22. SEVERABILITY. If any part of this Plan is declared by a court
or other governmental authority to be invalid, the invalidity shall not affect
any portion not declared to be invalid. A portion declared to be invalid shall
be construed in a manner to give it valid effect to the extent possible.
23. CLAIMS PROCEDURE.
(a) A person claiming a benefit, requesting an
interpretation or ruling under the Plan, or
requesting information under the Plan shall present
the request in writing to the Committee, which shall
respond to the claimant in writing within thirty (30)
days.
(b) If the claim or request is denied, the written notice
of denial shall state:
(i) the reason for denial, with specific
reference to the Plan provision on which the denial
is based;
(ii) a description of any additional material or
information required and an explanation of why it is
necessary; and
(iii) an explanation of the Plan's claim review
procedure.
(c) A person whose claim or request is denied or who has
not received a response within thirty (30) days may
request review by notice given in writing to the
Committee. The claim or request shall be reviewed by
the Committee who may, but shall not be required to,
grant the claimant a hearing. On review, the
claimant or his or her legal representative may
examine pertinent documents and submit issues and
comments in writing.
(d) The decision on review shall normally be made within
sixty (60) days. If an extension of time is required
for a hearing or other special circumstances, the
claimant shall be notified and the time limit shall
be one hundred twenty (120) days. The decision shall
be in writing and shall state the reason for the
decision and the relevant Plan provisions. All
decisions on review shall be final and binding on all
parties concerned.
* * *
IN WITNESS WHEREOF, The Company has caused this document to be
executed by its duly authorized officer as of the 1st day of January ,1997.
------ ----------
MET-COIL SYSTEMS CORPORATION
By Randall J. Stodola/s/
-----------------------------
Its Vice President
-----------------------------
<PAGE> 1
EXHIBIT 10.42
MET-COIL SYSTEMS
CORPORATION
1997 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
<PAGE> 2
MET-COIL SYSTEMS CORPORATION
1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM # ITEM DESCRIPTION PAGE NUMBER
- ------ ---------------- -----------
<S> <C> <C>
1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5 Grant of Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
6 Terms and Conditions of Stock Options . . . . . . . . . . . . . . . . . . . . . 2
6.1 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6.2 Term of Option and Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6.3 Exercise of Stock Option and Payment for Shares . . . . . . . . . . . . . . . . 2
6.4 Non-Transferability of Options . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.5 Termination of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.6 Death of Optionee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7 Adjustment in Event of Changes in Capitalization . . . . . . . . . . . . . . . . 3
8 Rights of Stockholder, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
9 Term of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
10 Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
11 Termination and Amendment of the Plan . . . . . . . . . . . . . . . . . . . . . 4
12 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
13 Indemnification of Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
14 Application of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
15 No Obligation to Exercise Option . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
<PAGE> 3
1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. PURPOSE. The purpose of the 1997 Non-Employees Directors Stock
Option Plan (the "Plan") of Met-Coil Systems Corporation (the "Company") is to
advance the interest of the Company and its stockholders by providing
Non-Employee Directors of the Company and its subsidiaries, upon whose
judgment, initiative and efforts the success of the Company's business largely
depends, with an additional incentive to continue their efforts on behalf of
the Company by providing them with an opportunity to acquire a stake in the
future of the Company. Options issued under the Plan ("Options") will entitle
the holders thereof to purchase Common Stock of the Company, par value $.01
("Common Stock").
2. PARTICIPATION. Participants in the Plan ("Optionees") will be
Non-Employee Directors of the Board (the "Board"). An Optionee may hold more
than one Option, but only on the terms and subject to the restrictions
hereinafter set forth.
3. NUMBER OF SHARES. The total number of shares of Common Stock
reserved for distribution under the Plan will be 100,000 shares, subject to
adjustment pursuant to Section 7 of the Plan. Shares of Common Stock issued
under the Plan may be either authorized but unissued shares or shares
previously issued and reacquired by the Company. If and to the extent that
Options are granted under the Plan, the maximum number of shares available for
future grants shall be reduced by the number of shares with respect to which
Options have been granted; if and to the extent Options granted under the Plan
terminate, expire or are canceled without such Options having been exercised,
such terminated, expired or canceled Options shall be added back to the maximum
number of shares then available for the granting of future Options under this
Plan.
4. ADMINISTRATION. The Plan shall be administered by the Company's
Board of Directors. A majority of such members of the Board acting at a
meeting at which a quorum is present, or acts reduced to or approved in writing
by a majority of such members of the Board, shall be valid acts of the Board.
The Board is authorized, subject to provisions of the Plan, to establish such
other rules and regulations as it deems necessary to the proper administration
of the Plan and to make such determinations and interpretations and to take
such action in connection with the Plan and any Options as it deems necessary
or advisable. All determinations and interpretations made by the Board shall
be binding and conclusive on all Optionees and on the legal representatives and
beneficiaries. No member of the Board shall be liable for any action or
determination made in good faith in respect to the Plan or any option granted
under it.
5. GRANT OF STOCK OPTIONS. Options may be granted to eligible
persons in such number and at such times during the term of this Plan as the
Board shall determine.
6. TERMS AND CONDITIONS OF STOCK OPTIONS. All Options granted under
the Plan shall be evidenced by a written agreement executed by the Company and
the Optionee and shall be in such form as the Board may from time to time
determine and shall be subject to the following terms and conditions:
<PAGE> 4
6.1 EXERCISE PRICE. The exercise price per share with respect
to each Option shall be determined by the Board at the time of grant, but may
not be less than the then Fair Market Value. If the Board does not establish
an exercise price, at the time of grant, an Option shall have an exercise price
equal to such Fair Market Value.
6.2 TERM OF OPTION AND VESTING. Each Option shall become
immediately exercisable on the date of grant. Each Option shall remain
exercisable for a term determined by the Board at the time of grant, provided,
however, that no Option shall expire later than ten (10) years from the date of
grant.
6.3 EXERCISE OF STOCK OPTION AND PAYMENT FOR SHARES. To
exercise an Option, the Optionee shall give written notice to the Company
specifying the number of shares to be purchased and accompanied by payment of
the full purchase price therefor. Payment of the purchase price shall be made
by presentment in any of the three following forms (or any combination
thereof); cash; check (either the personal check of the Optionee, whether
certified or not, or a bank check); or shares of Common Stock (whose value for
such purpose shall be their Fair Market Value on the date the exercise notice
is received, computed in accordance with Section 10 of the Plan).
Notwithstanding the foregoing, shares of Common Stock may be used as payment by
an individual subject to Section 16b-3 under the Securities Exchange Act of
1934 (the "Act"), only to the extent that such action would be exempt pursuant
to Rule 16b-3 thereunder. Shares of the Common Stock used in connection with
payment as herein described may not be shares obtained pursuant to Options
granted under the Plan unless such shares have been held for at least two years
from date of granting of the Option and one year from date of transfer of these
shares to Optionee. Any person exercising an Option shall make such
representations and agreement and furnish such information as the Board may in
its discretion deem necessary or desirable to assure compliance by the Company,
on terms acceptable to the Company, with the provisions of the Securities Act
of 1933, as amended, and any other applicable legal requirements that, if at
any time the Board shall determine that the listing, registration or
qualification of the shares subject thereto upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
regulatory body, as necessary or desirable in connection with the issue or
purchase of the shares subject thereto, no such Option may be exercised in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board. Upon the determination by the Board that any of the
above listings, registrations, qualifications, consent or approvals are
necessary or desirable, the Company shall undertake its best efforts to obtain
same. The Optionee shall have no rights against the Company if the Option is
not exercisable by virtue of the foregoing provision.
6.4 NON-TRANSFERABILITY OF OPTIONS. No stock granted under
the Plan shall be transferable by the Optionee other than by will or the law of
descent and distribution and such option shall be exercisable, during his or
her lifetime, only by the Optionee, and after such Optionee's death, only
pursuant to the provisions of Section 6.6 hereof.
6.5 TERMINATION OF SERVICE. Upon termination of an Optionee's
service as a Director of the Company, his or her Options shall be exercisable
only as to those shares of Common Stock that were purchasable by him or her at
the date of such
<PAGE> 5
termination and only for a period of three months after the date of
termination, but not beyond the original expiration date of such Options. If
an Optionee's services as Director is terminated for cause, all rights under
his or her Options shall expire upon such termination. The Board shall
determine the reason for termination of the Optionee's service and its
determination shall be binding and conclusive.
6.6 DEATH OF OPTIONEE. Upon the death of an Optionee, whether
during his or her period of service as a Director, or during the three month
period referred to in the first sentence of section 6.5, his or her Options
shall be exercisable by his or her legal representatives or beneficiaries only
as to those shares of Common Stock that were purchasable by him or her at the
time of death and only for a period of twelve (12) months after the date of his
or her death, but not beyond the original expiration date of such Options.
7. ADJUSTMENT IN EVENT OF CHANGES IN CAPITALIZATION. In the event of
a recapitalization, stock split, stock dividend, combination or exchange of
shares, merger, consolidation, rights offering, separation, reorganization or
liquidation, or any other change in the corporate structure or shares of the
Company, the Board shall make such equitable adjustments as it may deem
appropriate in the number and kind of shares authorized by the Plan and, with
respect to outstanding stock options, in the number and kind of shares covered
thereby and in the option price.
8. RIGHTS OF A STOCKHOLDER, ETC. An Optionee shall have no rights as
a stockholder with respect to any shares covered by an Option until the date of
issuance of such shares, and nothing in this Plan or any option granted
pursuant hereto shall confer on any person any right to continue in the service
of the Company or to continue to perform services for the Company or interfere
in any way with the right of the Company to terminate his service as a Director
at any time.
9. TERM OF PLAN. This Plan shall terminate and no Options shall be
granted thereunder following a date ten (10) years following the date of
enactment of this Plan by the Board of Directors. Notwithstanding the
foregoing, Options granted prior to the date of the termination of the Plan may
extend beyond that date and the terms and conditions of the Plan shall continue
to apply thereto.
10. FAIR MARKET VALUE. The term "Fair Market Value" as used herein
shall mean the closing price of a share of Common Stock, but without
consideration of any restrictions contained herein, on the principal securities
exchange on which the Common Stock is traded on the relevant date (or on the
next preceding date on which such stock was traded if no shares of Common Stock
were traded on the relevant date), or if the Common Stock is not traded on a
securities exchange, Fair Market Value shall be deemed to be the average of the
high/ask and low/bid prices of the Common Stock, without consideration of
restrictions placed on the stock issued under this Plan, in the
over-the-counter ("OTC") market on the relevant date or on the next preceding
date on which such a high/ask and low/bid prices were recorded, as reported by
the OTC Bulletin Board. If the Common Stock of the Company is not traded on a
securities exchange or in the over-the-counter market, Fair Market Value shall
be determined by the Board, which may seek appraisals by qualified independent
appraisers as it deems appropriate. Any qualified and independent appraisers
appointed shall be paid for their services by the Company.
<PAGE> 6
11. TERMINATION AND AMENDMENT OF THE PLAN. The Board may, at any
time and from time to time, terminate, modify or amend the Plan in any respect.
12. NOTICES. All notices, requests and other documents to be given
hereunder by any party hereto shall be in writing and shall be either delivered
personally upon which delivery the recipient shall deliver a receipt therefor
in writing, signed and dated by the recipient, or mailed by registered or
certified mail, return receipt requested, to the appropriate party. Any such
notice, request or other document shall be deemed received at the time of
personal delivery or three business days after it is so mailed.
13. INDEMNIFICATION OF BOARD. In addition to such other rights of
indemnification as they may have as Directors, the members of the Board shall
be indemnified by the Company against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding in which such Board member is found liable in connection
with the performance of his duties (unless the conduct or inaction giving rise
to liability constitutes willful misconduct or gross negligence); provided that
within sixty (60) days after institution of any such action, suit or proceeding
a Board member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
14. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of stock pursuant to Options will be used for general corporate
purposes.
15. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option
shall impose no obligation upon the Optionee to exercise such option, nor shall
the granting of such Option be construed to guarantee service to the Optionee.
* * *
IN WITNESS WHEREOF, The Company has caused this document to be
executed by its duly authorized officer as of the 19th day of May __,
1997.
MET-COIL SYSTEMS CORPORATION
By Randall J. Stodola/s/
---------------------------------
Its Vice President
---------------------------------
<PAGE> 1
EXHIBIT 11
MET-COIL SYSTEMS CORPORATION
COMPUTATION OF INCOME (LOSS) PER
COMMON AND COMMON EQUIVALENT SHARE
(In thousand, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
------------------ -------------------
May 31, May 31, May 31, May 31,
1997 1996 1997 1996
================================================================================================================================
<S> <C> <C> <C> <C>
Common shares outstanding, beginning of period 3,139 3,058 3,031 2,871
Weighted average of common shares issued 1 61 101 160
Weighted average common equivalent shares attributed to stock
options granted, computed using the treasury stock method 0 0 0 0
Weighted average common shares
and common share equivalents 3,140 3,119 3,132 3,031
================================================================================================================================
Income (loss) applicable to common stock $ 896 $ (1,268) $ 34 $ (773)
================================================================================================================================
Net income (loss) per common share $ 0.29 $ (0.41) $ 0.01 $ (0.26)
================================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF MET-COIL SYSTEMS CORPORATION
AS OF MAY 31, 1997
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- -------------------------------------------------------------------------------------------------
<S> <C>
Iowa Precision Industries, Inc. Delaware
The Lockformer Company Illinois
Met-Coil Ltd. (1)
Met-Coil Systems International, Inc. (FSC) U.S. Virgin Islands
Fen-Pro Inc. Illinois (2)
Met-Coil - Texas Texas (3)
</TABLE>
All Subsidiaries do business under their own names or under the Met-Coil name.
- ------------------
(1) International joint venture, 50% owned by Met-Coil, based in Japan.
(2) F/K/A Roper Whitney Company, F/K/A Met-Coil-RWC, Inc., F/K/A
Fenestra, Inc.
(3) F/K/A Rowe Machinery & Automation, Inc.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-318087 of Met-Coil Systems Corporation on Form S-8, of our report dated
August 27, 1997, appearing in this Annual Report on Form 10-K of Met-Coil
Systems Corporation for the year ended May 31, 1997.
Deloitte & Touche LLP
Cedar Rapids, Iowa
August 27, 1997
<PAGE> 2
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-318087) pertaining to the Plans of our report dated July 31,
1995 with respect to the 1995 consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Met-Coil Systems Corporation
included in its Annual Report (Form 10-K) for the year ended May 31, 1997,
filed with the Securities and Exchange Commission.
Ernst & Young LLP
Des Moines, Iowa
August 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 594
<SECURITIES> 0
<RECEIVABLES> 4,926
<ALLOWANCES> 50
<INVENTORY> 8,793
<CURRENT-ASSETS> 16,018
<PP&E> 16,436
<DEPRECIATION> 13,343
<TOTAL-ASSETS> 23,525
<CURRENT-LIABILITIES> 14,047
<BONDS> 0
4,036
0
<COMMON> 16,279
<OTHER-SE> 17,877
<TOTAL-LIABILITY-AND-EQUITY> 23,525
<SALES> 36,776
<TOTAL-REVENUES> 36,844
<CGS> 28,523
<TOTAL-COSTS> 31,776
<OTHER-EXPENSES> 42
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,748
<INCOME-PRETAX> 578
<INCOME-TAX> 0
<INCOME-CONTINUING> 578
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 578
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
