<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- ----------------
Commission file number 0-13940
-------
CENTRAL SPRINKLER CORPORATION
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2328106
- --------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
451 North Cannon Avenue, Lansdale, PA 19446
------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(215) 362-0700
-----------------------------------------------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 11, 1999
----- ----------------------------
Common Stock, $.01 Par Value 3,851,637
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTRAL SPRINKLER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
April 30, October 31,
1999 1998
-------- -----------
(Amounts in thousands,
except per share)
ASSETS
Current Assets:
Cash and cash equivalents $ 13,761 $ 18,801
Accounts receivable, less allowance
for doubtful receivables of $6,716
in 1999 and $6,688 in 1998 45,383 45,315
Inventories 43,501 43,319
Deferred income taxes 10,041 11,117
Prepaid expenses and other assets 1,376 4,968
-------- --------
Total current assets 114,062 123,520
-------- --------
Property, Plant and Equipment 77,103 74,984
Less - Accumulated depreciation (34,050) (29,989)
-------- --------
43,053 44,995
-------- --------
Goodwill, less accumulated amortization of
$3,891 in 1999 and $3,765 in 1998 2,131 2,257
-------- --------
Other Assets 6,143 6,332
-------- --------
$165,389 $177,104
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 805 $ 297
Current portion of long-term debt 4,432 4,064
Accounts payable 20,355 21,353
Accrued expenses 20,748 20,379
-------- --------
Total current liabilities 46,340 46,093
-------- --------
Long-Term Debt 69,381 76,807
-------- --------
Long-Term Omega Liabilities 15,418 23,141
-------- --------
Other Noncurrent Liabilities 245 296
-------- --------
Commitments and Contingent Liabilities (Note 5)
Shareholders' Equity:
Common stock, $.01 par value; shares
authorized - 15,000; issued -
5,568 in 1999 and 1998 56 56
Additional paid-in capital 31,217 31,179
Retained earnings 24,737 21,556
Cumulative translation adjustments (42) 145
Deferred cost - Employee Stock Ownership
Plan ("ESOP") (5,054) (5,260)
-------- --------
50,914 47,676
Less - Common stock in treasury, at
cost - 1,722 shares in 1999 and 1998 (16,909) (16,909)
-------- --------
34,005 30,767
-------- --------
$165,389 $177,104
======== ========
See accompanying notes to financial statements.
2
<PAGE>
CENTRAL SPRINKLER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1999 1998 1999 1998
--------- --------- --------- ---------
(Amounts in thousands,
except per share)
<S> <C> <C> <C> <C>
Net Sales $ 58,040 $ 56,821 $ 108,768 $ 110,273
Cost of Sales 40,913 41,301 77,585 79,531
--------- --------- --------- ---------
Gross profit 17,127 15,520 31,183 30,742
--------- --------- --------- ---------
Operating Expenses:
Selling, general
and administrative 11,068 11,417 20,976 22,928
Research and development 1,544 1,613 3,001 3,489
--------- --------- --------- ---------
12,612 13,030 23,977 26,417
--------- --------- --------- ---------
Operating income 4,515 2,490 7,206 4,325
--------- --------- --------- ---------
Interest Expense (Income):
Interest expense 1,342 1,496 2,843 2,965
Interest income (176) (241) (312) (417)
--------- --------- --------- ---------
1,166 1,255 2,531 2,548
--------- --------- --------- ---------
Income before income taxes 3,349 1,235 4,675 1,777
Income Taxes 1,093 368 1,494 544
--------- --------- --------- ---------
Net Income $ 2,256 $ 867 $ 3,181 $ 1,233
========= ========= ========= =========
Net Income Per Common Share:
Basic $ .68 $ .26 $ .96 $ .38
========= ========= ========= =========
Diluted$ .67 $ .26 $ .95 $ .37
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CENTRAL SPRINKLER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
April 30,
1999 1998
-------- --------
(Amounts in thousands)
Operating activities:
Net income $ 3,181 $ 1,233
Noncash items included in income:
Depreciation and amortization 4,270 4,050
Deferred income taxes 1,223 78
Deferred costs 229 (4)
Decrease (increase) in -
Accounts receivable, net (68) 1,734
Inventories (182) (1,901)
Prepaid expenses and other assets 3,592 1,104
Increase (decrease) in -
Accounts payable (998) (4,535)
Accrued expenses, Omega liabilities
and other noncurrent liabilities (7,390) (2,955)
-------- --------
Cash provided by (used for) operating activities 3,857 (1,196)
-------- --------
Investing activities:
Acquisition of property, plant and equipment (2,217) (3,606)
Sales of short-term investments -- 13,048
Repurchase of subsidiary bond issue -- (7,500)
Other long term assets 57 (2,545)
-------- --------
Cash used for investing activities (2,160) (603)
-------- --------
Financing activities:
Short-term borrowings (repayments), net 508 (1,011)
Repayments of long-term debt (12,546) (1,673)
Proceeds from long term debt 5,488 --
Other - net (187) (80)
-------- --------
Cash used for financing activities (6,737) (2,764)
-------- --------
Decrease in cash and cash equivalents (5,040) (4,563)
Cash and cash equivalents at beginning of period 18,801 6,568
-------- --------
Cash and cash equivalents at end of period $ 13,761 $ 2,005
======== ========
See accompanying notes to financial statements
4
<PAGE>
CENTRAL SPRINKLER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Six Months Ended
April 30,
1999 1998
-------- -------
(Amounts in thousands)
Supplemental disclosures of cash flow
information:-
Cash paid (received) during the period for:
Interest expense $ 2,683 $ 2,843
======== =======
Income taxes $ (3,484) $ 375
======== =======
Interest income $ (310) $ (429)
======== =======
Supplemental schedule of non-cash
investing and financing activities: -
Refinancing of short-term borrowings
with long-term debt $ -- $ 7,500
======== =======
See accompanying notes to financial statements.
5
<PAGE>
CENTRAL SPRINKLER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share)
(1) Basis of Presentation:
The condensed financial statements included herein have been prepared
by the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These statements include all adjustments that, in the
opinion of management, are necessary to provide a fair statement of the results
for the periods covered. These financial statements should be read in
conjunction with the audited financial statements and the notes thereto included
in the Company's Form 10-K for the fiscal year ended October 31, 1998. The
results of operations for the interim periods presented are not necessarily
indicative of the results for the full year.
(2) Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market, and consist of the following:
April 30, October 31,
1999 1998
------- -------
Raw Materials and Work in Process $16,278 $15,605
Finished Goods 27,223 27,714
------- -------
$43,501 $43,319
======= =======
(3) Net Income Per Common Share:
Basic net income per common share is computed using the weighted
average number of shares of common stock outstanding. Diluted net income per
common share is computed using the weighted average number of shares of common
stock and common stock equivalents outstanding (dilutive stock options)unless
the inclusion of common stock equivalents would have an antidilutive impact.
Unreleased shares of the Company's stock in the ESOP are excluded from the
average number of common shares outstanding when computing basic and diluted net
income per share. The net income and weighted average common and common
6
<PAGE>
equivalent shares outstanding for purposes of calculating net income per common
share are computed as follows:
Three Six
Months Ended Months Ended
April 30, April 30,
1999 1998 1999 1998
------- ------- ------- -------
Net income used for basic
and diluted net income
per common share $ 2,256 $ 867 $ 3,181 $ 1,233
======= ======= ======= =======
Weighted average number of
common shares outstanding 3,846 3,846 3,846 3,846
Adjustment to exclude average
unreleased common shares
in ESOP (528) (570) (534) (575)
------- ------- ------- -------
Weighted average common shares
outstanding for basic net
income per common share 3,318 3,276 3,312 3,271
Dilutive effect of common stock
options outstanding 57 41 33 57
------- ------- ------- -------
Weighted average common and
common equivalent shares
outstanding for diluted net
income per common share 3,375 3,317 3,345 3,328
======= ======= ======= =======
(4) New Accounting Pronouncement:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 established standards for the reporting and display of
comprehensive income in financial statements. Comprehensive income is the change
in net assets during a period from transactions generated from non-owner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. The Company
adopted SFAS No. 130 as of November 1, 1998 and a reconciliation of
comprehensive income follows:
Three Months Ended Six Months Ended
April 30, April 30,
1999 1998 1999 1998
------- ------- ------- -------
Net Income $ 2,256 $ 867 $ 3,181 $ 1,233
Cumulative Translation Adjustments (77) 93 (187) (80)
------- ------- ------- -------
Comprehensive Income $ 2,179 $ 960 $ 2,994 $ 1,153
======= ======= ======= =======
7
<PAGE>
(5) Commitments and Contingent Liabilities:
The Company has been involved in seven class action lawsuits as well as
an administrative lawsuit filed on March 4,1998, by the United States Consumer
Product Safety Commission ("Commission") related to the Company's Omega
sprinklers. The Company has reached a settlement of the Omega litigation with
the Commission as well as a definitive settlement agreement with the plaintiffs
in the Hart and Santa Clara class actions. The court granted final approval to
the settlement on February 19, 1999. The agreements with the Commission and
Class Action litigants generally provide for replacement of the Omega sprinkler
heads with free replacement sprinklers and parts, the establishment of a
separate trust account for payments to the owners of Omega sprinklers,
administration of the recall program and a notification program related to the
Omega sprinkler product recall.
In accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies" and based on current information, the Company
revised its estimate of the probable future cost of settling these matters and
recorded a $38.0 million ($26.6 million net of tax) charge in third quarter of
fiscal 1998 to reflect the total estimated additional future cost.
In an effort to recover a portion of the cost of the Omega settlement,
the Company filed suit on August 19, 1998 against twelve product liability
insurance carriers with which the Company had coverage over the last 15 years.
Settlements have been reached with two of such insurance carriers as of the date
hereof and a small portion of the proceeds from the two settlements
representing adjustments to premiums has been applied as a reduction of cost of
sales in the three months ended April 30, 1999. No other insurance or third
party recoveries have been considered in the Company's analysis of the adequacy
of the accrual as of April 30, 1999.
The Company presently believes that the remaining reserve balance
totaling $27.4 million ($12.0 million of which is included in accrued expenses)
as of April 30, 1999 will be adequate to cover the total estimated future costs
of the Omega sprinkler matters. It is possible that additional litigation may
ensue. In the event additional information becomes available in the future which
may change management's estimates, future additional provisions may be
necessary.
8
<PAGE>
CENTRAL SPRINKLER CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Amounts in thousands, except per share)
RESULTS OF OPERATIONS
Net Sales. Net sales for the second quarter of fiscal 1999 increased 2.1% to
$58,040 or $1,219 over the $56,821 in the second quarter of fiscal 1998. Sales
gains were reported in the fire sprinkler and CPVC pipe and fittings lines in
the three month period. Net sales for the first six months of fiscal 1999 were
$108,768, 1.4% less than net sales for the comparable six-month period of fiscal
1998. This decline is primarily due to a 5.1% sales decline in the first quarter
of fiscal 1999 caused, in part, by the discontinuance of the Omega sprinkler
products in the third quarter of fiscal 1998, stiff market competition on
virtually all product lines and unfavorable publicity surrounding litigation and
governmental investigations into the Company's Omega sprinkler products. While
these events also adversely effected the second quarter, the Company was able to
overcome lost Omega sprinkler sales with stronger sales of new products and
increased marketing efforts. The new construction market and the retrofit of
existing buildings drive the demand for sprinkler products and the markets
continued to be strong in fiscal 1999.
Cost of Sales and Gross Profit. Cost of sales, in terms of dollars of expense,
decreased 0.9% and 2.4%, for the three-month and six-month periods ended April
30, 1999, respectively, over the same periods of fiscal 1998. These decreases
resulted in improved gross profit margin percentages for such periods. The
overall gross profit margin percentage for the second quarter of fiscal 1999 was
29.5% compared to 27.3% for the same period of fiscal 1998. The overall gross
profit margin percentage for the first six months of fiscal 1999 was 28.7%
compared to 27.9% for the same period of fiscal 1998. The reasons for the
improved margins for the fiscal 1999 three-and six-month periods include
improved efficiencies and cost reductions in several of the Company's
manufacturing operations and a small benefit from income generated by product
liability insurance settlements representing adjustments to premiums with two of
twelve insurance carriers that failed to cover product liability claims arising
from alleged defects in the Company's Omega fire sprinklers. Such settlements
only benefited the gross profit margin percentage by less than 1.0% and 0.5%,
for the three-and six-month periods of fiscal 1999, respectively. This impact
would have been materially higher except for increased costs associated with the
class action legal settlement. The Company realized its largest productivity and
efficiency gains at its grooved fittings
9
<PAGE>
and CPVC plastic facilities which achieved higher production output than the
comparable three- and six-month periods of fiscal 1998. The Company is also
completing the first phase of automation initiatives at its primary sprinkler
manufacturing.
Operating Expenses. Operating expenses for the second quarter of fiscal 1999
decreased 3.2%, or $418, to $12,612 from $13,030 in the second quarter of fiscal
1998. Total operating expenses for the six-month period ended April 30, 1999
decreased 9.2%, or $2,440, to $23,977 from $26,417 in the six-month period ended
April 30, 1998. The primary reason for the expense decreases was a formal profit
improvement program initiated in the second quarter of fiscal 1998. This program
included specific plans to reduce operating expenses including personnel and
related costs. The reduced operating expenses were greater in the first quarter
of fiscal 1999 than in the second quarter of fiscal 1999 because the second
quarter of fiscal 1998 already reflected, in part, many of the cost reduction
initiatives. In addition, the Company's second quarter selling expenses
increased due to a full quarter's operating costs associated with the opening of
a new distribution center in Kansas City and the relocation and expansion of one
of the Company's larger zone distribution centers during the quarter. The
Company also experienced higher fees for financing, legal and other financial
and investor related costs during the quarter. Research and development costs
were in line with expectations at 4.3% and 14.0% less than the comparable
three- and six-month periods of fiscal 1998, respectively.
Interest Expense (Income). Interest expense of $1,342 and $2,843 was incurred in
the three-month and six-month periods ending April 30, 1999, respectively,
compared to interest expense of $1,496 and $2,965 for the same periods of fiscal
1998. The decrease in interest expense is directly related to a lower average
debt balance during the fiscal 1999 periods. Total debt at April 30, 1999 was
$8,680 lower than it was at April 30, 1998. Some of the benefit of the lower
debt balance was offset by a higher average borrowing rate in both the
three-month and six-month periods ended April 30, 1999. Interest income declined
substantially, to $176 and $312 for the three-month and six-month periods ended
April 30, 1999, respectively. This represents a decline of 27.0% and 25.2% from
the comparable periods of fiscal 1998, respectively. Virtually all of this
decline is a result of a lower level of investable funds in 1999.
Income Taxes. The Company's effective income tax rate for the second quarter of
fiscal 1999 was 32.6% compared to 29.8% in the comparable period of 1998. For
the six-month period of fiscal 1999, the effective
10
<PAGE>
income tax rate was 32.0% compared to 30.6% in the comparable period in 1998.
The increase in the overall effective income tax rate for both the three-month
and six-month periods is primarily due to the higher level of income before
income taxes and the reduced impact on such amount of anticipated income tax
credits.
Seasonal Aspects of Business. The Company's sales are affected by seasonal
factors and the weather as well as the level of new construction activity and
the remodeling and retrofitting of older properties in the industrial,
commercial, residential and institutional real estate markets. The Company's
sales tend to increase the most when there is a high level of new construction
activity in all such real estate markets. In addition, as a result of relatively
higher levels of new construction during the warmer spring and summer months,
the demand for sprinkler system components tends to be greater during the summer
and fall than during other seasons.
11
<PAGE>
FINANCIAL CONDITION
April 30, 1999 Compared to October 31, 1998
Cash and Cash Equivalents. Cash and cash equivalents were $13,761 as of April
30, 1999 as compared to $18,801 at October 31, 1998. This decrease was primarily
a result of voluntary and scheduled long-term debt repayments in the net amount
of $7,058 for the six-month period of fiscal 1999. In addition, funds were used
for certain normal operating and investing activities.
Inventories. Inventories were $43,501 at April 30, 1999 as compared to $43,319
at October 31, 1998. The $182 increase in inventories was comprised of an
increase in raw materials and work in process of $673 and a decrease of $491 in
finished goods. The increase in raw material and work in process reflects, in
part, the anticipated seasonal demand for higher production and sales levels in
the second half of the year. In addition, the overall reduction in finished
goods inventory primarily reflects a reduction in days sales in inventory due to
the Company's inventory reduction programs.
Property, Plant and Equipment. The Company's gross property, plant and equipment
rose by $2,119, net, to $77,103 at April 30, 1999. The increase is primarily due
to continuing manufacturing automation of sprinkler assembly, expanding certain
machining capabilities for fire sprinklers, and tooling costs associated with
new products, particularly, the grooved and other fittings product lines.
Total Debt. The Company's total debt decreased to $74,618 at April 30, 1999
compared to $81,168 at October 31, 1998. The Company made voluntary and
scheduled net repayments of long-term debt of $7,058 during the first six months
of fiscal 1999.
Long-Term Omega Liabilities. The overall decline of $7,723 in this account from
October 31, 1998 to April 30, 1999 reflects realized costs associated with the
Company's Omega product recall program. In this six-month period, the Company
incurred nearly $3.7 million in replacement product materials, $1.9 million in
professional and legal fees and the balance in program administration,
notification and other costs.
Liquidity and Capital Resources. The Company's primary sources of long-term and
short-term liquidity are its current financial resources, projected cash flow
from operations and its borrowing capacity. The Company believes that these
sources are sufficient to fund the programs
12
<PAGE>
necessary for future operations, growth and expansion, and the Omega
settlements. As of April 30, 1999, after considering cash and cash equivalents
and the available borrowing capacity, based on the borrowing base formulas,
including subjective elements, as defined in the agreements, the Company has
approximately $7,600 of availability under the Revolving Credit Facility and a
line of credit. Under the terms of the Revolving Credit Facility, the Company
must maintain minimum balances of net borrowing availability. Should the net
balance of borrowing availability fall below such level, the bank may require
the Company to apply its lockbox receipts to its loan balances.
Cash provided by operating activities for the first six months of fiscal 1999
was $3,857 compared to a use of cash for operating activities of $1,196 for the
same period of fiscal 1998. This net change of $5,053 includes several important
items. Net income was $1,948 greater in the six-month period ended April 30,
1999 than in the same period of fiscal 1998. In addition, a decline of $3,592 in
prepaid expenses and other assets was realized primarily due to a refund of
federal income taxes from prior years of approximately $3,725. Other operating
activity elements included depreciation and amortization which rose $220 to
$4,270 in the six-month period of fiscal 1999, and deferred income taxes of
$1,223 in the 1999 period compared to $78 in the 1998 period. In addition,
spending on the Omega sprinkler replacement program rose considerably in fiscal
1999 due to the previously announced recall of these sprinklers. Total costs
incurred were $7,723 in the six months ended April 30, 1999.
Cash used for investing activities was $2,160 in the first six months of fiscal
1999 compared to $603 used for investing activities for the same six-month
period of fiscal 1998. In fiscal 1999, virtually all of such change reflects
cash used for the acquisition of property, plant and equipment. In the fiscal
1998 period, $13,048 of short-term investments were sold to finance the
repurchase of a $7,500 subsidiary bond issue, purchase $3,606 of property, plant
and equipment and fund the decline in other long-term assets.
Cash used for financing activities in the first six months of fiscal 1999 was
$6,737 as compared to $2,764 in the comparable prior year period. The primary
uses of cash in the first six months of fiscal 1999 and fiscal 1998 were net
repayments of long-term debt of $7,426 and $1,673, respectively.
The Company purchases property, plant and equipment from time to time as
required to maintain and expand its offices, manufacturing and research
facilities and distribution centers. The Company has expanded and improved its
operations over the years with such purchases. The Company presently intends to
continue this policy in the future. The
13
<PAGE>
Company has commitments in the ordinary course of business for such expansions
of facilities and equipment and for research and other contracts.
The Company's cash and cash equivalents, along with the Company's future
earnings and borrowing capacity are expected to provide adequate liquidity to
meet the Company's obligations, to fund future growth and expansion and fund the
Omega settlements.
The Company has been involved in seven class action lawsuits as well as an
administrative lawsuit filed on March 4, 1998, by the United States Consumer
Product Safety Commission (the "Commission") related to the Company's Omega
sprinklers. The Company has reached a settlement of the Omega litigation with
the Commission as well as a definitive settlement agreement with the plaintiffs
in the Hart and Santa Clara class actions. The court granted final approval to
the settlement on February 19, 1999. The agreements with the Commission and
Class Action litigants generally provide for replacement of the Omega sprinkler
heads with free replacement sprinklers and parts, the establishment of a
separate trust account for payments to the owners of Omega sprinklers,
administration of the recall program and a notification program related to the
Omega sprinkler product recall.
In accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies," and based on current information, the Company
revised its estimate of the probable future cost of settling these matters and
recorded a $38,015 ($26,610 net of tax) charge in the third quarter of fiscal
1998 to reflect the total estimated additional future cost.
In an effort to recover a portion of the cost of the Omega settlement, the
Company filed suit on August 19, 1998, against twelve product liability
insurance carriers with which the Company had coverage over the last 15 years.
Settlements have been reached with two of such insurance carriers as of the
date hereof, and a small portion of the proceeds from the two settlements
representing adjustments to premiums has been applied as a reduction of cost of
sales in the three months ended April 30, 1999.
The Company presently believes that the remaining reserve balance totaling $27.4
million ($12.0 million of which is included in accrued expenses) as of April 30,
1999 will be adequate to cover the total estimated future costs of the Omega
sprinkler matters. It is possible that additional litigation may ensue. In the
event additional information becomes available in the future which may change
management's estimates, future additional provisions may be necessary.
14
<PAGE>
This document contains certain forward-looking statements that are subject to
risks and uncertainties. Forward-looking statements include certain information
relating to the Company's product recall and litigation regarding its Omega
sprinklers (including the adequacy of charges taken to cover future costs),
general business strategy, the expansion and improvement of operations and
facilities, the growth expected in the construction market, the effects of the
Year 2000 matter on the Company, the effects of new products and automation on
the gross profit margin, liquidity, availability of funds and the effect that
certain litigation could have on the Company as well as information contained
elsewhere in this document where statements are preceded by, followed by or
include the words "believes," "expects," "estimates," "anticipates," "intends,"
or similar expressions. For such statements, the Company claims the protection
of the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including without limitation, those discussed elsewhere in this
document.
Year 2000
Background. Many computer systems and applications currently use two-digit
fields to designate a year. As the century date change occurs, date-sensitive
systems may recognize the year 2000 as 1900, or not at all. This inability to
recognize, or properly treat, the year 2000 may cause systems to process
financial and operational information incorrectly, resulting in system failures
and other business problems.
Approach. We are assessing the impact of the year 2000 issue on our internal
information systems. We have performed a preliminary assessment of the year 2000
readiness of our internal information systems, including the hardware and
software we use. We plan to perform a year 2000 simulation on our software and
information systems during the third fiscal quarter of 1999. Based on the
results, we will revise our internal software and systems as necessary. Based on
our preliminary assessment, we do not anticipate any requirement for material
modification.
We will require all vendors who provide material hardware or software for our
information systems to provide assurances of their year 2000 compliance. We will
also seek assurances of year 2000 compliance from our material non-information
technology providers. We plan to complete this process during the third and
fourth fiscal quarters of 1999. Until our testing is complete and all of our
material vendors and providers are contacted, we will not be able to completely
evaluate whether our systems will need to be revised or replaced.
Status. Our testing to date has included our major infrastructure items,
hardware platforms and operating systems in our offices. Desktop computing,
servers, switching and routing platforms are currently being inventoried. We
have largely completed the implementation of year 2000 compliant internal
computer applications for our main financial and internal management information
systems.
Cost. Based on the work to date, we expect the additional cost for work,
material and upgrades needed to complete our year 2000 compliance process will
not exceed approximately $200,000. This includes the cost of upgrades, software
modification and related consulting fees.
Contingency Plans. As discussed above, we are engaged in an ongoing year 2000
assessment and have not yet developed any contingency plans. We will assess the
results of our year 2000 simulation testing and third-party vendor and service
provider responses to determine the nature and extent of any contingency plans.
15
<PAGE>
The Company is committed to the operation of its business without interruption.
The Company currently believes that its primary operating systems and software
are year 2000 compliant. However, there can be no assurances that the Company
will not experience serious unanticipated negative consequences and/or material
costs caused by undetected errors or defects in technology used in its products
or internal systems which are comprised predominantly of third party software
and hardware, or by the inability of third parties to adequately disclose and
correct their Year 2000 issues. While the Company presently believes that the
ultimate outcome of its efforts to be Year 2000 compliant will not have a
material effect on the Company's current financial position, liquidity, or
operations, there can be no assurances that unanticipated increased costs could
have a material effect on its results of operations. Readers should be cautioned
that forward-looking statements contained in the Year 2000 disclosure should be
read in conjunction with the Company's disclosure regarding forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
The Company's interest rate exposure relates primarily to long-term debt
obligations. All debt obligations and the interest rate swap are entered into
for purposes other than trading. A significant portion of the Company's interest
expense is based upon variable interest rates of its banks' prime rate or
Eurodollar rate.
The table below provides annual information about the Company's debt obligations
and interest rate swap agreement. All of the Company's
16
<PAGE>
debt obligations have been classified as variable rate. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates. For the interest rate swap, the table presents the notional
amounts and weighted average interest rates by contractual maturity date.
Notional amounts are used to calculate the contractual payments to be made under
the contract. Dollar amounts are in thousands.
Expected Variable Rate Average Interest Average
Maturity Long-Term Interest Rate Pay
Date Debt Rate Swap Rate
------------ --------------- ---------- ---------- -----------
1999 $ 3,225 6.71% $ - 1.224%
2000 4,993 6.65 550 1.224
2001 49,878 6.50 550 1.224
2002 1,743 5.98 550 1.224
2003 1,501 5.91 550 1.224
Thereafter 12,473 6.18 7,150 1.224
------- ------
Total $73,813 6.31% $9,350 1.224%
======= ======
Fair Value $73,813 $ (163)
======= ======
Exchange Rate Sensitivity
The Company conducts business on a global basis in several major international
currencies. As such, it is exposed to adverse or beneficial movements in foreign
currency exchange rates. Fluctuations in foreign currency exchange rates have
not had, and are not anticipated to have, a material impact on the Company's
current financial condition, liquidity, or operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 5 of the Notes to Consolidated Financial Statements (included herein),
relating to litigation regarding the Company's Omega sprinklers.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following items are filed as Exhibits and attached as
follows:
10(a) Agreement dated April 1, 1999 with Mathias J. Barton
10(b) Employment Agreement dated May 1, 1999 with James E.
Golinveaux
10(c) Agreement dated May 20, 1999 with Albert T. Sabol
10(d) Amendment to Employment Agreement dated May 25, 1999
with George G. Meyer
10(e) Amendment to Employment Agreement dated May 25, 1999
with Stephen J. Meyer
10(f) Employment Agreement dated May 26, 1999 with James R.
Buchanan
27 -- Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CENTRAL SPRINKLER CORPORATION
(Registrant)
/s/ E. Talbot Briddell
-------------------------
E. Talbot Briddell
Chairman and
Chief Executive Officer
DATE: June 11, 1999
/s/ Mathias J. Barton
-------------------------
Mathias J. Barton
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19
<PAGE>
[GRAPHIC OMITTED]
April 1, 1999
Mathias J. Barton
210 Polecat Road
Glen Mills, Pa. 19342
Dear Matt:
This is to confirm my offer to you to join Central Sprinkler as Senior Vice
President Finance/CFO reporting directly to me. Your starting salary will be
$145,000 per year plus a bonus opportunity of up to 35%. This bonus will be
prorated for the current fiscal year ending October 31, 1999. You will receive
up to $500 per month as a car allowance. Should you lose your job as a result of
a change in ownership of the Company, you will be afforded one year of
severance.
Additionally, you will be issued 15,000 stock options subject to the terms and
conditions of our Equity Compensation Plan. You will be eligible for the regular
benefits package including health insurance, short term and long term
disability, 401k and ESOP in accordance with the plan guidelines. As an
executive, subject to a physical, your life insurance will be three times your
annual salary with the imputed income tax responsibility at year end. As we
discussed, your vacation eligibility will be three weeks in the vacation year
which starts June 1, 1999. This offer is conditional upon your satisfactorily
completing a physical examination including drug screening.
Matt, I look forward to you joining the Central Sprinkler Company team and hope
to hear from you soon. Should you have any questions, please contact me at (215)
393-0223 or Ray Rawlins at (215) 393-0285.
Sincerely,
/s/ E. Talbot Briddell
- ------------------------
E. Talbot (Tal) Briddell
Chairman & CEO
Agreed & Accepted by:
Mathias J. Barton
Cc: R. E. Rawlins
Central Sprinkler Company
451 North Cannon Avenue, Lansdale, Pennsylvania 19446
(215) 362-0700 (800) 523-6512 FAX: (215) 362-5385
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the 1st day of May, 1999 between CENTRAL
SPRINKLER CORPORATION, a Pennsylvania corporation with its offices at 451 North
Cannon Avenue, Lansdale, Pennsylvania 19446 (the "Company"), and James
Golinveaux, an individual residing at 111 Clover Leaf Lane, N. Wales, PA 19454
(the "Employee").
RECITALS
--------
WHEREAS, the Company desires to employ Employee as an executive officer
of the Company; and
WHEREAS, Employee, agrees to be employed by the Company and the Company
accepts the employment of Employee, upon the terms, covenants and conditions
hereinafter set forth.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
each intending to be legally bound hereby, agree as follows:
1. Definitions.
-----------
For all purposes of this Agreement, the following terms shall have the
meanings specified in this Section unless the context clearly otherwise
requires:
(a) "Actual EBIT" shall mean the Company's EBIT for any specified
period.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
(c) A Person shall be deemed the "Beneficial Owner" of any securities:
(i) that such Person or any of such Person's Affiliates or Associates, directly
or indirectly, has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the "Beneficial Owner" of
securities tendered pursuant to a tender or exchange offer made by such Person
or any of such Person's Affiliates or Associates until such tendered securities
are accepted for payment, purchase or exchange; (ii) that such Person or any of
such Person's Affiliates or Associates, directly or indirectly, has the right to
vote or dispose of or has "beneficial ownership" of (as determined pursuant to
Rule l3d-3 of the General Rules and
<PAGE>
Regulations under the Exchange Act), including pursuant to any agreement,
arrangement or understanding, whether or not in writing; provided, however, that
a Person shall not be deemed the "Beneficial Owner" of any security under this
clause (ii) as a result of an oral or written agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding (A) arises solely from a revocable proxy given in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable provisions of the General Rules and Regulations under the
Exchange Act, and (B) is not then reportable by such Person on Schedule 13D
under the Exchange Act (or any comparable or successor report); or (iii) that
are beneficially owned, directly or indirectly, by any other Person (or any
Affiliate or Associate thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or understanding
(whether or not in writing) for the purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as described in the proviso to clause (ii)
above) or disposing of any voting securities of the Company; provided, however,
that nothing in this Section 1(b) shall cause a Person engaged in business as an
underwriter of securities to be the "Beneficial Owner" of any securities
acquired through such Person's participation in good faith in a firm commitment
underwriting until the expiration of 40 days after the date of such acquisition.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Business Combination" shall mean a reorganization, merger or
consolidation of the Company.
(f) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) there occurs a change of control of the Company of a nature
that would be required to be reported in response to: (A) Item 1(a) of the
Current Report on Form 8-K, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, or in any other filing under such law,
assuming that the Company would be subject to such provisions;
(ii) any Person, other than the Company, after the date hereof
becomes the Beneficial Owner of more than 50% of the Common Stock;
(iii) the Company is involved in a Business Combination with
respect to which all or substantially all of the Persons who were the respective
Beneficial Owners of the outstanding Common Stock immediately prior to such
Business Combination are not, following such Business Combination, Beneficial
Owners, directly or indirectly, of more than 50% of the then outstanding
shares of common stock and of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors of the
corporation resulting from such Business Combination in substantially the same
proportion as their ownership immediately prior to such Business Combination of
the outstanding Common Stock; or
2
<PAGE>
(iv)(A) Consummation of a complete liquidation or dissolution of
the Company or (B) sale or other disposition of all or substantially all of the
assets of the Company other than to a corporation with respect to which,
following such sale or disposition, individuals and entities that are the
Beneficial Owners of more than 50% of the outstanding Common Stock are
substantially the same as the individuals and entities who were the Beneficial
Owners of the outstanding Common Stock immediately prior to such sale or
disposition in substantially the same proportion as their ownership of the
outstanding Common Stock immediately prior to such sale or disposition.
(g) "Cause" shall mean the failure of the Employee to observe or
perform (other than by reason of illness, injury or incapacity) any of the
material terms or provisions of this Agreement, willful misconduct, material
neglect of the Company's business, conviction of a felony or other crime
involving moral turpitude, misappropriation of funds or habitual insobriety.
(h) "Common Stock" shall mean the common stock of the Company.
(i) "Company Multiplier" shall mean the percentage determined by
reference to the chart below:
If the ratio between Actual EBIT Then the Company
and Targeted EBIT is: Multiplier is:
--------------------- -------------
Less than 80% 0%
Greater than or equal to 80% and less than 90% 60%
Greater than or equal to 90% and less than 95% 70%
Greater than or equal to 95% and less than 100% 75%
Greater than or equal to 100% and less than 105% 100%
Greater than or equal to 105% and less than 110% 105%
Greater than or equal to 110% and less than 120% 110%
Greater than or equal to 120% and less than 130% 120%
Greater than or equal to 130% 130%
(j) "EBIT" shall mean earnings before interest and taxes calculated in
accordance with generally accepted accounting principles consistently applied,
but specifically excluding unusual items and Incentive Compensation.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
3
<PAGE>
(l) "Performance Factor" shall mean a percentage, established by the
Board in its sole discretion, which reflects the Board's evaluation of the
performance of the Employee in meeting the stated goals of the Company.
(m) "Person" shall mean any natural person, business trust,
corporation, partnership, limited liability company, joint stock company,
proprietorship, association, trust, joint venture, unincorporated association or
any other legal entity of whatever nature.
(n) "Severance" shall mean an obligation on the part of the Company, on
a monthly basis for the respective periods set forth herein, to (i) pay to the
Employee an amount equal to one twelfth of (A) the amount of the Employee's
Salary for the fiscal year immediately prior to an event triggering such Company
obligation plus (B) the amount of any Incentive Compensation the Employee
received during the fiscal year immediately prior to an event triggering such
Company obligation and (ii) continue to provide the Fringe Benefits to the
Employee provided, however, that such Fringe Benefits shall not continue in
effect for any period during which the Company is precluded from continuing the
Employee's participation in the plan or program under which any such Fringe
Benefit is provided by reason of any applicable law or regulation, including the
Federal tax law regarding discrimination.
(o) "Subsidiary" shall mean any corporation in which the Company,
directly or indirectly, owns at least 50% of the then outstanding voting
securities of such company entitled to vote generally in an election of such
company's directors, or an unincorporated entity of which the Company, directly
or indirectly, owns at least 50% of the profits or capital interests.
(p) "Targeted EBIT" shall mean the level of EBIT the Board shall
determine, in its sole discretion, for the purposes of calculating Incentive
Compensation.
2. Employment.
----------
The Company hereby employs the Employee, and the Employee hereby
accepts employment by the Company upon the terms and conditions set forth in
this Agreement. During the term of employment under this Agreement (the
"Employment Term"), the Employee shall perform such duties for the Company and
any of its Subsidiaries as are assigned from time to time by the Board or by
the President or CEO of the Company or their designee. The principal place of
employment of the Employee hereunder shall at all times during the Term be at
the offices of the Company in Lansdale, Pennsylvania, or other locations
reasonably acceptable to the Employee, in Employee's sole discretion.
3. Performance.
------------
The Employee shall devote his entire business efforts to the
performance of his duties hereunder; provided, however, that the Employee may
engage in personal investment activities so long as they do not interfere with
the performance of his duties hereunder.
4
<PAGE>
4. Term.
----
Unless otherwise terminated in accordance with Section 6, the
Employment Term shall be the period beginning on the date hereof and continuing
for a period of two years thereafter, and shall automatically renew for period
of one year unless one party gives written notice to the other at least three
months prior to the end of the initial two-year period, or at least three months
prior to the end of any one-year renewal period, that this Agreement shall not
be further extended. Section 7 shall not apply if Employment Term is ended by
this Section.
5. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company hereunder shall be $200,000 or such higher
amount as may be approved by the Board during the Employment Term (the
"Salary"), in accordance with the Company's payroll payment schedule in effect
from time to time, which the Company shall pay to the Employee in equal
installments every week.
(b) (i) In addition to the aforementioned Salary, the Company shall pay
to the Employee incentive compensation ("Incentive Compensation") equal
to the product of 35% percent of Base Salary multiplied by the Company
Multiplier and multiplied by the Performance Factor, subject to
adjustment as set forth below.
(ii) Incentive Compensation shall be calculated and paid quarterly.
After the end of any fiscal year, Incentive Compensation shall be
recalculated for the fiscal year just concluded and, if the Incentive
Compensation paid during the fiscal year exceeds Incentive Compensation
as calculated for the fiscal year, future Incentive Compensation
payments shall be reduced by the amount of such excess.
(iii) During fiscal year 1999 only, Incentive Compensation shall be
calculated with a minimum Performance Factor of 1.0.
(c) The Company shall provide the Employee with fringe benefits set
forth on Exhibit A (the "Fringe Benefits").
(d) If there is a Change of Control under subparagraphs (i)-(iii) of
Section 1(f) the Company shall pay to the Employee an amount equal to $100,000
within 180 days of the date of the occurrence of the event causing such a Change
of Control.
6. Termination.
-----------
(a) Total Disability. If the Employee becomes totally disabled (as
defined below), the Employment Term may be terminated by the Company, and the
Company shall have no further
5
<PAGE>
liability or obligation to the Employee hereunder except as follows: the
Employee shall receive (i) any unpaid Salary, Incentive Compensation and Fringe
Benefits that have accrued through the date of termination; (ii) continued
Salary for three months following the date he is considered totally disabled and
(iii) whatever benefits that he may be entitled to receive under any then
existing disability benefit plans of the Company, including any such plans
included in the Fringe Benefits. For the purposes hereof, the Employee shall be
deemed to be "totally disabled" if the Employee is considered totally disabled
under the Company's group disability plan in effect at that time, if any, or in
the absence of any such plan, under applicable Social Security regulations. In
the event of any dispute as to the disability of the Employee under this Section
6(a), the Employee shall submit to a physical examination by a licensed
physician mutually satisfactory to the Company and the Employee, the cost of
such examination to be paid by the Company, and the determination of such
physician shall be determinative.
(b) Death. If the Employee dies, this Employment Agreement shall
terminate, and thereafter the Company shall not have any further liability or
obligation to the Employee, his executors, administrators, heirs, assigns or any
other person claiming under or through him except that the Employee's estate
shall receive any unpaid Salary, Incentive Compensation and Fringe Benefits that
have accrued through the date of termination.
(c) Cause. The Company may terminate the Employment Term for Cause by
giving the Employee 30 days' notice of the termination date, which notice shall
include a description of the nature of the Cause, and thereafter the Company
shall not have any further liability or obligation to the Employee, except that
the Employee shall receive any unpaid Salary that has accrued through the date
of termination, net of any liabilities that the Employee may have to the
Company.
(d) Termination by Employee. Employee may terminate the Employment Term
by giving the Company 30 days' notice of the termination date. The Company shall
not have any liability or obligation to the Employee, except that the Employee
shall receive any unpaid Salary that has accrued through the date of
termination, net of any liabilities that the Employee may have to the Company,
and the Employee shall receive Severance for 12 months and such payment shall
include consideration for compliance with Section 7.
(e) Termination Without Cause. The Company shall have the right to
terminate the Employment Term without Cause at any time by giving the Employee
30 days' notice of the termination date, and (i) if no Change of Control has
occurred within the six months prior to such termination, the Employee shall
receive Severance for 12 months, and (ii) if a Change of Control has occurred
within the six months prior to such termination, the Employee shall receive
Severance for 24 months and such payment shall include consideration for
compliance with Section 7.
The Employee shall not be entitled to any Severance under this Section 6 unless
the Employee executes and delivers to the Company after a notice of termination
a release in a form, by which the Employee releases the Company from any
obligations and liabilities of any type whatsoever,
6
<PAGE>
except for the Company's obligation to provide Severance under this Section 6 as
well any amounts reimbursable to the Employee in accordance with Company policy.
The parties hereto acknowledge that the Severance to be provided under this
Section 6 are to be provided in consideration for the above-specified release.
7. Non-Competition; Non-Solicitation.
---------------------------------
(a) During Employee's employment by the Company and, if Employee is
terminated for Cause or if the Employment Term is terminated pursuant to Section
6(d) or (e), for a period of one year after Employee's termination of
employment, Employee shall not, except with the prior written consent of the
Board, directly or indirectly, own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with, or use or permit Employee's name
to be used in connection with, any business or enterprise in North America in
which Employee would be engaged in any selling any product competitive to that
sold by the Company and from which the Company receives at least 5% of its gross
revenues. Employee acknowledges that North America is the area in which the
Company presently does business.
(b) The foregoing restrictions shall not be construed to prohibit the
ownership by Employee of less than 5% of any class of securities of any
corporation which is engaged in any of the foregoing businesses having a class
of securities registered pursuant to the Exchange Act, provided that such
ownership represents a passive investment and that neither Employee nor any
group of persons including Employee in any way, either directly or indirectly,
manages or exercises control of any such corporation, guarantees any of its
financial obligations, otherwise takes any part in its business, other than
exercising Employee's rights as a shareholder, or seeks to do any of the
foregoing.
(c) During Employee's employment by the Company and, if Employee is
terminated for Cause or if the Employment Term is terminated pursuant to Section
6(d) or (e), for a period of one year after Employee's termination of
employment, Employee shall not, except with the prior written consent of the
Board, directly or indirectly, (i) solicit, divert, take away, or attempt to
solicit, divert or take away, any of the Company's "Principal Customers,"
defined for the purposes hereof to include any customer of the Company, from
which $100,000 or more of annual gross revenues are derived at such time, or
(ii) encourage any Principal Customer to reduce its patronage of the Company.
(d) During Employee's employment by the Company and, if Employee is
terminated for Cause or if the Employment Term is terminated pursuant to Section
6(d) or (e), for a period of one year after Employee's termination of
employment, Employee shall not, except with the prior written consent of the
Board, directly or indirectly, solicit or hire, or encourage the solicitation or
hiring of, any person who was a managerial or higher level employee of the
7
<PAGE>
Company at any time during the term of Employee's employment by the Company by
any employer other than the Company for any position as an employee, independent
contractor, consultant or otherwise. The foregoing covenant of Employee shall
not apply to any former employee of the Company after 12 months have elapsed
subsequent to the date on which such former employee's employment by the Company
has terminated.
8. Confidential Information.
------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (i)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company information, and reproductions thereof, whether prepared by him or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
9. Remedies.
--------
The Employee expressly acknowledges that the remedy at law for any
breach of Section 8 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 9, the rights conferred upon the Company by the preceding sentence shall
not be exclusive of, but shall be in addition to, any other rights or remedies
which the Company may have at law, in equity or otherwise.
8
<PAGE>
10. Indemnification.
---------------
The Company shall indemnify and advance expenses to the Employee, to
the maximum extent permitted by applicable law, against all costs, charges and
expenses incurred or sustained by him in connection with any action, suit or
proceeding to which he may be made a party by reason of his being an officer,
director or employee of the Company or of any subsidiary or affiliate of the
Company. The Company shall provide, at its expense, directors and officers
insurance for the Employee in amounts reasonably satisfactory to the Employee.
The rights set forth in this Section 10 shall be in addition to any other rights
to indemnity to which Employee may be entitled.
11. No Mitigation; No Set-Off.
-------------------------
The Employee shall not be required to mitigate the amount of any
payment provided for hereunder by seeking other employment or otherwise, nor
shall the amount of any payment provided for hereunder be reduced by any
compensation earned by the Employee as the result of employment by another
employer after the date of termination of his employment by the Company. The
Company's obligations to pay the Employee the amounts provided hereunder shall
be absolute and unconditional and shall not be affected by any circumstances,
including any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Employee or anyone else.
12. Legal Costs.
-----------
(a) In the event that either of the parties hereto files a complaint in
a court of competent jurisdiction for a breach of the terms hereof (a
"Litigation"), the Company shall advance the Employee monies for the reasonable
attorneys' fees, costs and expenses incurred by the Employee in connection a
Litigation as follows:
(i) the Employee shall make arrangements with his legal
counsel to receive detailed invoices of the services rendered by
such counsel in connection with a Litigation, in accordance with
such counsels normal billing practices,
(ii) upon the Employee's receipt of an invoice for legal
services rendered in connection with a Litigation, the Employee
shall forward such invoice to the Company, and
(iii) upon receipt of such an invoice, the Company shall
pay the invoice in accordance with the normal payment practices of
the Company.
(b) In the event that a Litigation is resolved in a manner that is
adverse to the Employee, in addition to any remedy available to the Company as a
result of the resolution of a Litigation, the Employee shall promptly pay to the
Company the full amount of any payments made by the Company pursuant to this
Section 12.
9
<PAGE>
(c) IN THE EVENT EMPLOYEE SHALL FAIL TO FULLY REIMBURSE THE COMPANY FOR
ANY AMOUNTS ADVANCED BY EITHER OF THEM TO EMPLOYEE PURSUANT TO THIS SECTION 12,
WITHIN 10 DAYS AFTER THE SAME SHALL BE DUE AND PAYABLE AND WRITTEN DEMAND
THEREFOR SHALL HAVE BEEN MADE, EMPLOYEE HEREBY IRREVOCABLY AUTHORIZES AND
EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD IN PENNSYLVANIA, OR ELSEWHERE, TO
APPEAR FOR EMPLOYEE AND TO CONFESS AND ENTER JUDGMENT AGAINST EMPLOYEE AND IN
FAVOR OF THE COMPANY FOR THE FULL AMOUNT OWED TO THE COMPANY PURSUANT TO THIS
SECTION 12, WHICH AMOUNT MAY BE BEST ESTABLISHED BY AFFIDAVIT OF AN OFFICER OF
THE COMPANY TOGETHER WITH ANY UNPAID INTEREST THEREON, COSTS OF THE SUIT, AND AN
ATTORNEYS' FEE FOR COLLECTION OF 10% OF THE THEN-TOTAL OUTSTANDING AMOUNTS OF
ANY ADVANCES MADE TO EMPLOYEE PURSUANT TO THIS SECTION 12.
THIS WARRANT OF ATTORNEY SHALL NOT BE EXHAUSTED BY ONE EXERCISE
THEREOF, BUT JUDGMENT MAY BE CONFESSED AS MANY TIMES AND IN AS MANY
JURISDICTIONS AS MAY BE NECESSARY TO SECURE FULL SATISFACTION OF ANY AMOUNTS DUE
TO THE COMPANY PURSUANT TO THIS SECTION 12. SUCH POWERS MAY BE EXERCISED DURING
AS WELL AS AFTER THE EXPIRATION OR TERMINATION OF THE TERM AND DURING AND AT ANY
TIME AFTER ANY EXTENSION OR RENEWAL OF THE TERM OF THIS AGREEMENT. JUDGMENT
HEREUNDER MAY BE CONFESSED ON THE ORIGINAL OR PHOTOCOPIES OF THIS AGREEMENT AND
THE JUDGMENT OR JUDGMENTS CONFESSED HEREUNDER SHALL BE WITHOUT ANY STAY OF
EXECUTION, ALL OF WHICH IS HEREBY WAIVED.
IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT, EMPLOYEE
HEREBY KNOWINGLY, INTENTIONALLY, VOLUNTARILY AND UNCONDITIONALLY WAIVES ANY AND
ALL RIGHTS EMPLOYEE HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR A
HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE
STATE OF PENNSYLVANIA. IN NEGOTIATING AND EXECUTING THIS AGREEMENT, EMPLOYEE HAS
BEEN REPRESENTED BY SEPARATE COUNSEL AND FULLY UNDERSTANDS THE LEGAL EFFECT
HEREOF.
IN ADDITION TO ANY RIGHTS GRANTED HEREUNDER, THE COMPANY SHALL HAVE ALL
THE RIGHTS AND REMEDIES GRANTED BY APPLICABLE LAW, ALL OF WHICH SHALL BE
CUMULATIVE AND CONCURRENT, AND SHALL BE IN ADDITION TO EVERY OTHER SUCH RIGHT OR
REMEDY.
(d) The Company shall reimburse the Employee for all reasonable costs
and reasonable attorney's fees incurred by Employee in connection with the
preparation, negotiation, execution and delivery of this Agreement up to a
maximum amount of $10,000.
10
<PAGE>
13. Release; No Right of Action.
---------------------------
The Company hereby releases the Employee, his estate and his personal
representatives, and the Employee hereby releases the Company, its successors
and assigns, officers and directors, of and from any and all liabilities that
any such released party may have to any such releasing party with respect to any
actions or omissions prior to the date hereof; provided, however, that this
release shall not apply to any claims that may be asserted by the Employee
pursuant to any indemnity rights which Employee may have. The Company shall not
have any rights to take any action or otherwise refrain from taking action
against Employee hereunder as a result of any facts or circumstances occurring
or otherwise existing prior to the date hereof.
14. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania without regard to its provisions
concerning conflicts of laws.
(b) Company. For purposes of Sections 8 and 9, the term "Company" shall
be deemed to include any incorporated or unincorporated Subsidiaries and other
Affiliates of the Company.
(c) Binding Effect. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) Notices. All notices required to be given under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed to each party as set forth in the introduction to
this Agreement.
(e) Entire Agreement; Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements or understandings of the parties regarding
these matters, including any prior agreement between the Employee and the
Company. Any such prior agreement is hereby terminated as of the date hereof.
This Agreement may not be modified or amended in any way except in writing by
the parties hereto.
(f) Duration. Notwithstanding the termination of the Employment Term
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
11
<PAGE>
(h) Severability, If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
(i) Interpretation. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to any gender include
all genders, (c) "including" has the inclusive meaning frequently identified
with the phrase "but not limited to" and (d) references to "hereunder" or
"herein" relate to this Agreement. The section and other headings contained in
this Agreement are for reference purposes only and shall not control or affect
the construction of this Agreement or the interpretation thereof in any respect.
Any reference to a party's being satisfied with any particular item or to a
party's determination of a particular item presumes that such standard will not
be achieved unless such party shall be satisfied or shall have made such
determination in its sole or complete discretion.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement as of the day and year first written
above.
CENTRAL SPRINKLER CORPORATION
By: /s/ E. T. Briddell
-------------------------
Name: E. T. Briddell
Title: CEO
/s/ James Golinveaux
-------------------------
James Golinveaux
12
<PAGE>
EXHIBIT A
Medical, dental, term life, short-term disability and travel accident
insurance coverage, all at levels comparable to those provided to other senior
officers of the Company.
13
<PAGE>
AGREEMENT
---------
This Agreement is made as of this 20th day of May 1999 by and between
Central Sprinkler Corporation (the "Parent Company"), Central Sprinkler Company
(the "Company"), Central Castings Corporation, Central Sprinkler Export Company,
Central CPVC Corporation and Albert T. Sabol. (The five companies are
collectively referred to herein as the "Companies").
WHEREAS Mr. Sabol has continuously served the Companies since July 8,1986
in various executive capacities.
WHEREAS the Companies desire to obtain the benefit of Mr. Sabol's unique
experience, ability and services in a new position with new reporting
responsibilities. It is agreed that he will devote his best efforts to the
Companies in this new position and reporting role, subject to the terms and
conditions of compensation and severance contained herein.
1. Effective the date hereof, Mr. Sabol will report directly to the
Chief Financial Officer of the Companies and assume the role and title
of Vice President, Financial Reporting and Control.
2. Compensation for such services will consist of continuation of Mr.
Sabol's base salary of $175,000, participation in the Companies'
Management Incentive Compensation Plan at a 35% bonus level,
participation in the Companies' stock option plans as well as
continuation of the fringe benefits currently in place.
3. In the event the Companies elect to terminate the employment of Mr.
Sabol without cause, subsequent to the date hereof, Mr. Sabol shall be
entitled to separation pay in the amount of twelve months of current
base salary or payment in accordance with the Companies' severance
policy for vice presidents then in effect, whichever is more. The
Companies will continue to provide Mr. Sabol with family health and
life insurance until the end of such twelve-month period at the same
share of costs as for other active employees. During the twelve-month
period, Mr. Sabol's stock options would continue to vest and remain
exercisable. The Companies further agree to provide prepaid
outplacement services for one year at Manchester similar to those
received by other executives upon their termination from Central.
4. If Mr. Sabol, prior to October 31, 1999, deems the reporting
relationship or his responsibilities unsatisfactory for any reason, he
may elect to receive the separation package enumerated in Section 3.
However, in order to receive such package, he must remain actively
employed and effectively help with a transition for up to three
1
<PAGE>
months, at the Company's option, after notice of his separation. These
three months will be part of the twelve months of severance.
5. After October 31, 1999, upon the occurrence of the events specified
below, and if he notifies the Companies within two weeks of such event
of his intention to resign, Mr. Sabol will be deemed to have good cause
to terminate employment and receive the separation pay package
enumerated in section 3 above:
a) Mr. Sabol's compensation (base salary and bonus level), is reduced
by the Companies below the level in force on the date hereof.
b) Mr. Sabol's role as second highest financial officer of the
Companies or reporting are further reduced or diminished beyond that
contemplated herein.
c) Mr. Sabol's assigned office and workspace in Lansdale does not
remain comparable to what it currently is.
6. It is understood that to receive any of these benefits noted above
after termination, Mr. Sabol would be required to sign a release
similar to the attached.
7. If there is a change of ownership within the next year at Central
Sprinkler and Mr. Sabol remains with the company and cooperates
effectively and satisfactorily for a period of six months after such
change of control, he will receive a bonus of $50,000. The sole
determination of whether Mr. Sabol's cooperation has been effective and
satisfactory will be by the CEO and CFO of the company at the end of
the aforementioned six months.
8. Parent Company. The Parent Company shall cause the Company to perform
each of its obligations hereunder. The Parent Company hereby guarantees
such obligations to Mr. Sabol.
9. Termination of Other Agreements. All other employment or severance
related arrangements except for the indemnification agreement dated
September 18, 1986 between the Companies and Mr. Sabol are hereby
terminated, and neither party shall have any further rights, duties,
liabilities or obligations hereunder.
10. Notice. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in
writing and shall be delivered personally or mailed by registered or
certified mail, return receipt requested, or by overnight express
courier service, as follows:
If to the Company or the Parent Company, to:
Central Sprinkler Corporation
451 North Cannon Avenue
Lansdale, Pennsylvania 19446
Attention: E. Talbot Briddell
2
<PAGE>
With a copy to:
Thomas J. Sharbaugh, Esquire
Morgan, Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103-2921
If to Mr. Sabol, to:
Albert T. Sabol
57 Larkin Lane
Norristown, PA 19403
11. General. The terms of this Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania.
Mr. Sabol may not assign his interest in this Agreement.
This Agreement shall be binding upon and inure to the benefit of the
Company and the Parent Company, and Mr. Sabol and their heirs,
successors and assigns.
IN WITNESS WHEREOF, the parties hereto, each intending to be legally
bound, have hereunto duly executed this Agreement the day and year
first written above.
CENTRAL SPRINKLER COMPANY
Witness: /s/ Kathy Drummond By: /s/ E. Talbot Briddell
-------------------------- -------------------------
Title: CEO
Witness: /s/ Diane Messa By: /s/ Albert T. Sabol
-------------------------- -------------------------
Albert T. Sabol
3
<PAGE>
Amendment to
Employment Agreement
This Amendment (this "Amendment") is made as of the 25th day of May, 1999, to
that certain Employment Agreement (the "Employment Agreement") dated as of March
19, 1990, as amended, by and among Central Sprinkler Company) (the "Company"),
Central Sprinkler Corporation (the "Parent Company") and George G. Meyer (the
"Employee"). Capitalized terms used herein but not defined herein shall have the
meanings assigned to them in the Employment Agreement.
WHEREAS, the parties hereto desire to amend the Employment Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the mutual promises
and convenants herein and other good and valuable consideration, the receipt of
which is hereby acknowledged, and intending to be legally bound thereby, hereby
agrees as follows:
1. Amendment to Section 3.1 The first sentence of Section 3.1 shall be
eliminated in its entirety and the following language shall be added in its
stead:
"The term of employment under this Agreement (the "Employment Term")
shall be for a period commencing on May 25, 1999 and continuing
thereafter until 12:00 a.m. New York City Time on April 29, 2003, unless
otherwise extended or renewed by the execution of a written instrument
in a form mutually agreeable to the parties hereto and unless sooner
terminated by the occurrence of a Termination of Employment (as defined
in Section 3.2 hereof)."
2. Amendment of Section 3.2, Subsection (a) of Section 3.2 of the Employment
Agreement is hereby eliminated in its entirety.
3. Amendment of Section 4.2. The first two sentences of Section 4.2 shall be
eliminated in their entirety and the following language shall be added in
their stead:
"The employee shall be entitled to a minimum participation interest
("Minimum Interest") of 2.0% in the Plan. If the Company grants to its
Employee for any future fiscal year a participation interest in the Plan
that exceeds 2.0% such greater percentage shall thereafter be guaranteed
and shall be deemed the Minimum Interest for all purposes hereunder".
<PAGE>
The following language shall be added as an additional sentence at the end
of Section 4.2:
"Notwithstanding the foregoing, the Employee shall have no right to
participate in Central Sprinkler Corporation's 1999 Management Incentive
Compensation Plan."
4. Amendment of Section 5. The first sentence of Section 5 shall be eliminated
in its entirety and the following language shall be added in its stead:
"The Employee, until April 29, 2003, shall not in any capacity engage or
have a financial interest in any business competing with the Company or
any affiliate of the Company within the United States."
5. Addition of New Section 12. The following language shall be added as
section 12 to the Employment Agreement:
"12. Release. The Company hereby releases the Employee, his estate and
his personal representatives, and the Employee hereby releases the
Company, its successors and assigns, officers and directors, of and from
any and all claims of, or liabilities that any such released party may
have to any such releasing party with respect to any actions or
omissions prior to the date hereof; provided, however, that this release
shall not apply to any claims that may be asserted by the Employee for
indemnification under any contract or otherwise with respect to claims
made by third parities or any derivative action concerning his action,
or omission as an officer or director of the Company. The foregoing
released liabilities shall include, without limitation, any liabilities
that the Company could have for payments to the Employee under Section
4.2 hereof with respect to any period prior to May 1, 1999."
6. Amendment of Section 7. Section 7 shall be eliminated in its entirety and
the following language shall be added in its stead:
"7. Removal of Employee. The Company shall have the right to remove the
Employee from the position in which he is employed hereunder. If the
Employee is removed from his position pursuant to this Section 7 without
the Employee's written consent, the Employee shall have the right to
terminate his employment hereunder by sending a Notice of Termination to
the Company. The date specified in such notice of Termination shall
constitute the date of "Termination of Employment" for purposes of this
Agreement, except that the Employee's compensation and benefits
described in Section 4 and the guarantee thereof contained in Section 8,
shall continue until April 29, 2003. In any such case, if the Employee
terminates his employment pursuant to this Section 7 the restrictions
contained in Section 5 shall terminate on the date of Termination of
Employment."
<PAGE>
7. Additional Consideration. In consideration for this Amendment, the Employee
shall receive as additional compensation $136,023 at the date of this
Amendment, $60,840 on August 1, 1999 and $54,080 on October 1, 1999. Each
of these payments is conditioned upon all requirements of the Employment
Agreement, as amended, having been fulfilled by the Employee and that the
Employee is employed as of the date future payments are due.
8. Counterparts. This Amendment may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon the
same instrument.
Miscellaneous. Except as herein modified and amended, all terms and conditions
of the Employment Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
Central Sprinkler Corporation
By: /s/ E. Talbot Briddell
----------------------
Name: E. Talbot Briddell
Title: Chairman and CEO
/s/ George G. Meyer
-----------------------
George G. Meyer
<PAGE>
Amendment to
Employment Agreement
This Amendment (this "Amendment") is made as of the 25th day of May, 1999, to
that certain Employment Agreement (the "Employment Agreement") dated as of March
19, 1990, as amended, by and among Central Sprinkler Company) (the "Company"),
Central Sprinkler Corporation (the "Parent Company") and Stephen J. Meyer (the
"Employee"). Capitalized terms used herein but not defined herein shall have the
meanings assigned to them in the Employment Agreement.
WHEREAS, the parties hereto desire to amend the Employment Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the mutual promises
and convenants herein and other good and valuable consideration, the receipt of
which is hereby acknowledged, and intending to be legally bound thereby, hereby
agrees as follows:
1. Amendment to Section 3.1. The first sentence of Section 3.1 shall be
eliminated in its entirety and the following language shall be added in its
stead:
"The term of employment under this Agreement (the "Employment Term") shall
be for a period commencing on May 25, 1999 and continuing thereafter until
12:00 a.m. New York City Time on April 29, 2003, unless otherwise extended
or renewed by the execution of a written instrument in a form mutually
agreeable to the parties hereto and unless sooner terminated by the
occurrence of a Termination of Employment (as defined in Section 3.2
hereof)."
2. Amendment of Section 3.2, Subsection (a) of Section 3.2 of the
Employment Agreement is hereby eliminated in its entirety.
3. Amendment of Section 4.2. The first two sentences of Section 4.2 shall
be eliminated in their entirety and the following language shall be
added in their stead:
"The employee shall be entitled to a minimum participation interest
("Minimum Interest") of 1.5% in the Plan. If the Company grants to its
Employee for any future fiscal year a participation interest in the
Plan that exceeds 1.5% such greater percentage shall thereafter be
guaranteed and shall be deemed the Minimum Interest for all purposes
hereunder".
The following language shall be added as an additional sentence at the
end of Section 4.2:
<PAGE>
"Notwithstanding the foregoing, the Employee shall have no right to
participate in Central Sprinkler Corporation's 1999 Management
Incentive Compensation Plan."
4. Amendment of Section 5. The first sentence of Section 5 shall be
eliminated in its entirety and the following language shall be added in
its stead:
"The Employee, until April 29, 2003, shall not in any capacity engage
or have a financial interest in any business competing with the
Company or any affiliate of the Company within the United States."
5. Addition of New Section 12. The following language shall be added as
Section 12 to the Employment Agreement:
"12. Release. The Company hereby releases the Employee, his estate and
his personal representatives, and the Employee hereby releases the
Company, its successors and assigns, officers and directors, of and
from any and all claims of, or liabilities that any such released
party may have to any such releasing party with respect to any actions
or omissions prior to the date hereof; provided, however, that this
release shall not apply to any claims that may be asserted by the
Employee for indemnification under any contract or otherwise with
respect to claims made by third parities or any derivative action
concerning his action, or omission as an officer or director of the
Company. The foregoing released liabilities shall include, without
limitation, any liabilities that the Company could have for payments
to the Employee under Section 4.2 hereof with respect to any period
prior to May 1, 1999."
6. Amendment of Section 7. Section 7 shall be eliminated in its entirety
and the following language shall be added in its stead:
7. Removal of Employee . The Company shall have the right to remove
the Employee from the position in which he is employed hereunder. If
the Employee is removed from his position pursuant to this Section 7
without the Employee's written consent, the Employee shall have the
right to terminate his employment hereunder by sending a Notice of
Termination to the Company. The date specified in such notice of
Tennination shall constitute the date of "Termination of Employment"
for purposes of this Agreement, except that the Employee's
compensation and benefits described in Section 4 and the guarantee
thereof contained in Section 8, shall continue until April 29, 2003.
In any such case, if the Employee terminates his employment pursuant
to this Section 7 the restrictions contained in Section 5 shall
terminate on the date of Termination of Employment."
<PAGE>
7. Additional Consideration. In consideration for this Amendment, the
Employee shall receive as additional compensation $104,952 at the date
of this Amendment, $45,630 on August 1, 1999 and $40,560 on October 1,
1999. Each of these payments is conditioned upon all requirements of the
Employment Agreement, as amended, having been fulfilled by the Employee
and that the Employee is employed as of the date future payments are
due.
8. Counterparts. This Amendment may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon
the same instrument.
Miscellaneous. Except as herein modified and amended, all terms and
conditions of the Employment Agreement shall remain unchanged and in full
force and effect.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
Central Sprinkler Corporation
By: /s/ E.T. Briddell
------------------------------
Name: E.T. Briddell
Title: Chairman and CEO
/s/ Stephen J. Meyer
---------------------------------
STEPHEN J. MEYER
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the 26 day of May, 1999 between CENTRAL
SPRINKLER CORPORATION, a Pennsylvania corporation with its offices at 451 North
Cannon Avenue, Lansdale, Pennsylvania 19446 (the "Company"), and James R.
Buchanan, an individual residing at 683 Wetherby Lane, Devon, PA (the
"Employee").
RECITALS
--------
WHEREAS, the Company desires to employ Employee as an executive officer of
the Company; and
WHEREAS, Employee, agrees to be employed by the Company and the Company
accepts the employment of Employee, upon the terms, covenants and conditions
hereinafter set forth.
WITNESSETH:
-----------
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. Definitions.
------------
For all purposes of this Agreement, the following terms shall have the
meanings specified in this Section unless the context clearly otherwise
requires:
a.) "Actual EBIT" shall mean the Company's EBIT for any specified period.
b.) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule l2b-2 of the General Rules and Regulations under the
Exchange Act.
c.) A Person shall be deemed the "Beneficial Owner" of any securities: (i)
that such Person or any of such Person's Affiliates or Associates, directly or
indirectly, has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the "Beneficial Owner" of
securities tendered pursuant to a tender or exchange offer made by such Person
or any of such Person's Affiliates or Associates until such tendered securities
are accepted for payment, purchase or exchange; (ii) that such Person or any of
such Person's Affiliates or Associates, directly or indirectly, has the right to
vote or dispose of or has "beneficial ownership" of (as determined pursuant to
Rule l3d-3 of the General
<PAGE>
Rules and Regulations under the Exchange Act), including pursuant to any
agreement, arrangement or understanding, whether or not in writing; provided,
however, that a Person shall not be deemed the "Beneficial Owner" of any
security under this clause (ii) as a result of an oral or written agreement,
arrangement or understanding to vote such security if such agreement,
arrangement or understanding (A) arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and Regulations
under the Exchange Act, and (B) is not then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) that are beneficially owned, directly or indirectly, by any other Person
(or any Affiliate or Associate thereof) with which such Person (or any of such
Person's Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in the proviso to
clause (ii) above) or disposing of any voting securities of the Company;
provided, however, that nothing in this Section 1(b) shall cause a Person
engaged in business as an underwriter of securities to be the "Beneficial Owner"
of any securities acquired through such Person's participation in good faith in
a firm commitment underwriting until the expiration of 40 days after the date of
such acquisition.
d.) "Board" shall mean the Board of Directors of the Company.
e.) "Business Combination" shall mean a reorganization, merger or
consolidation of the Company.
f.) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) there occurs a change of control of the Company of a nature that
would be required to be reported in response to: (A) Item 1(a) of the
Current Report on Form 8-K, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, or in any other filing under
such law, assuming that the Company would be subject to such provisions;
(ii) Any Person, other than the Company, after the date hereof becomes
the Beneficial Owner of more than 50% of the Common Stock;
(iii) the Company is involved in a Business Combination with respect
to which all or substantially all of the Persons who were the respective
Beneficial Owners of the outstanding Common Stock immediately prior to such
Business Combination are not, following such Business Combination,
Beneficial Owners, directly or indirectly, of more than 50% of the then
outstanding shares of common stock and of the combined voting power of the
<PAGE>
then outstanding voting securities entitled to vote generally in the
election of directors of the corporation resulting from such Business
Combination in substantially the same proportion as their ownership
immediately prior to such Business Combination of the outstanding Common
Stock; or
(iv) (A) Consummation of a complete liquidation or dissolution of the
Company or (B) sale or other disposition of all or substantially all of the
assets of the Company other than to a corporation with respect to which,
following such sale or disposition, individuals and entities that are the
Beneficial Owners of more than 50% of the outstanding Common Stock are
substantially the same as the individuals and entities who were the
Beneficial Owners of the outstanding Common Stock immediately prior to such
sale or disposition in substantially the same proportion as their ownership
of the outstanding Common Stock immediately prior to such sale or
disposition.
g.) "Cause" means (i) the willful neglect by the employee of his duties
hereunder; provided such neglect remains uncured for a period of 30 days after
written notice describing the same is given to the Employee, (ii) the conviction
of the Employee of any felony involving moral turpitude, or (iii) any act of
fraud or embezzlement involving the Company or any of its Affiliates.
h.) "Common Stock" shall mean the common stock of the Company.
i.) "Company Multiplier" shall mean the percentage determined by reference
to the chart below:
If the ratio between Actual EBIT Then the Company
and Targeted EBIT is: Multiplier is:
-------------------------------- ----------------
Less than 80% 0%
Greater than or equal to 80% and less than 90% 60%
Greater than or equal to 90% and less than 95% 70%
Greater than or equal to 95% and less than 100% 75%
Greater than or equal to 100% and less than 105% 100%
Greater than or equal to 105% and less than 110% 105%
Greater than or equal to 110% and less than 120% 110%
Greater than or equal to 120% and less than 130% 120%
Greater than or equal to 130% 130%
j.) "EBIT" shall mean earnings before interest and taxes calculated in
accordance with generally accepted accounting principles consistently applied,
but specifically excluding unusual items and Incentive Compensation.
<PAGE>
k.) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
l.) "Performance Factor" shall mean a percentage, established by the Board
in its sole discretion, which reflects the Board's evaluation of the performance
of the Employee in meeting the stated goals of the Company.
m.) "Person" shall mean any natural person, business trust, corporation,
partnership, limited liability company, joint stock company, proprietorship,
association, trust, joint venture, unincorporated association or any other legal
entity of whatever nature.
n.) "Severance" shall mean an obligation on the part of the Company, on a
monthly basis for the respective periods set forth herein, to (i) pay to the
Employee an amount equal to one twelfth of (A) the amount of the Employee's
Salary for the fiscal year immediately prior to an event triggering such Company
obligation plus (B) the amount of any Incentive Compensation the Employee
received during the fiscal year immediately prior to an event triggering such
Company obligation and (ii) continue to provide the Fringe Benefits to the
Employee provided, however, that such Fringe Benefits shall not continue in
effect for any period during which the Company is precluded from continuing the
Employee's participation in the plan or program under which any such Fringe
Benefit is provided by reason of any applicable law or regulation, including the
Federal tax law regarding discrimination.
o.) "Subsidiary" shall mean any corporation in which the Company, directly
or indirectly, owns at least 50% of the then outstanding voting securities of
such company entitled to vote generally in an election of such company's
directors, or an unincorporated entity of which the Company, directly or
indirectly, owns at least 50% of the profits or capital interests.
p.) "Targeted EBIT" shall mean the level of EBIT the Board shall determine,
in its sole discretion, for the purposes of calculating Incentive Compensation.
2. Employment.
-----------
The Company hereby employs the Employee, and the Employee hereby accepts
employment as Executive Vice President of Sales by the Company upon the terms
and conditions set forth in this Agreement. During the term of employment under
this Agreement (the "Employment Term"), the Employee shall perform such duties
for the Company and any of its Subsidiaries as are assigned from time to time by
the Board or by the President or CEO of the Company or their designee. The
principal place of employment of the Employee hereunder shall at all times
during the Term be at the offices of the Company in Lansdale, Pennsylvania, or
other locations reasonably acceptable to the Employee, in Employee's sole
discretion.
<PAGE>
3. Performance.
------------
The Employee shall devote his entire business efforts to the performance of
his duties hereunder; provided, however that the Employee may engage in personal
investment activities so long as they do not interfere with the performance of
his duties hereunder.
4. Term.
-----
Unless otherwise terminated in accordance with Section 6, the Employment
Term shall be the period beginning on the date November 1, 1998, hereof and
continuing for a period of three years thereafter, and shall automatically renew
for period of one year unless one party gives written notice to the other at
least three months prior to the end of the initial two-year period, or at least
three months prior to the end of any one-year renewal period, that this
Agreement shall not be further extended.
5. Compensation for Employment.
----------------------------
a.) The basic annual rate of compensation of the Employee for his
employment services to the Company hereunder shall be $225,000 or such higher
amount as may be approved by the Board during the Employment Term (the
"Salary"), in accordance with the Company's payroll payment schedule in effect
from time to time, which the Company shall pay to the Employee in equal
installments every week.
b.) (i) In addition to the aforementioned Salary, the Company shall pay to
the Employee incentive compensation ("Incentive Compensation") equal to the
product of 35% percent of Base Salary multiplied by the Company Multiplier and
multiplied by the Performance Factor, subject to adjustment as set forth below.
(ii) Incentive Compensation shall be calculated and paid quarterly.
After the end of any fiscal year, Incentive Compensation shall be recalculated
for the fiscal year just concluded and, if the Incentive Compensation paid
during the fiscal year exceeds Incentive Compensation as calculated for the
fiscal year, future Incentive Compensation payments shall be reduced by the
amount of such excess.
(iii) During fiscal year 1999 only, Incentive Compensation shall be
calculated with a minimum Performance Factor of 1.0.
c.) The Company shall provide the Employee with fringe benefits set forth
on Exhibit A (the "Fringe Benefits").
d.) If there is a Change of Control under subparagraphs (i)-(iii) of
Section 1(f) the Company shall pay to the Employee an amount equal to $300,000
within 180 days of the date of the occurrence of the event causing such a Change
of Control.
<PAGE>
6. Termination.
------------
a.) Total Disability. If the Employee becomes totally disabled (as defined
below), the Employment Term may be terminated by the Company, and the Company
shall have no further liability or obligation to the Employee hereunder except
as follows: the Employee shall receive (i) any unpaid Salary, Incentive
Compensation and Fringe Benefits that have accrued through the date of
termination; (ii) continued Salary for three months following the date he is
considered totally disabled and (iii) whatever benefits that he may be entitled
to receive under any then existing disability benefit plans of the Company,
including any such plans included in the Fringe Benefits. For the purposes
hereof, the Employee shall be deemed to be "totally disabled" if the Employee is
considered totally disabled under the Company's group disability plan in effect
at that time, if any, or in the absence of any such plan, under applicable
Social Security regulations. In the event of any dispute as to the disability of
the Employee under this Section 6(a), the Employee shall submit to a physical
examination by a licensed physician mutually satisfactory to the Company and the
Employee, the cost of such examination to be paid by the Company, and the
determination of such physician shall be determinative.
b.) Death. If the Employee dies, this Employment Agreement shall terminate,
and thereafter the Company shall not have any further liability or obligation to
the Employee, his executors, administrators, heirs, assigns or any other person
claiming under or through him except that the Employee's estate shall receive
any unpaid Salary, Incentive Compensation and Fringe Benefits that have accrued
through the date of termination.
c.) Cause. The Company may terminate the Employment Term for Cause by
giving the Employee 30 days' notice of the termination date, which notice shall
include a description of the nature of the Cause, and thereafter the Company
shall not have any further liability or obligation to the Employee, except that
the Employee shall receive any unpaid Salary that has accrued through the date
of termination, net of any liabilities that the Employee may have to the
Company.
d.) Termination by Employee. Employee may terminate the Employment Term by
giving the Company 30 days' notice of the termination date. The Company shall
not have any liability or obligation to the Employee, except that the Employee
shall receive any unpaid Salary that has accrued through the date of
termination, net of any liabilities that the Employee may have to the Company,
and the Employee shall receive Severance for 12 months and such payment shall
include consideration for compliance with Section 7.
e.) Termination Without Cause. The Company shall have the right to
terminate the Employment Term without Cause at any time by giving the Employee
30 days' notice of the termination date. The Employee shall receive Severance
for 24 months and such payment shall include consideration for compliance with
Section 7.
<PAGE>
The Employee shall not be entitled to any Severance under this Section 6 unless
the Employee executes and delivers to the Company after a notice of termination
a release by which the Employee releases the Company from any obligations and
liabilities of any type whatsoever, except for the Company's obligation to
provide Severance under this Section 6 as well any amounts reimbursable to the
Employee in accordance with Company policy. The parties hereto acknowledge that
the Severance to be provided under this Section 6 are to be provided in
consideration for the above-specified release.
7. Non-Competition, Non-Solicitation.
----------------------------------
(a) During Employee's employment by the Company and, if Employee is
terminated for Cause or if the Employment Term is terminated pursuant to Section
6(d) or (e), for a period of one year after Employee's termination of
employment, Employee shall not, except with the prior written consent of the
Board, directly or indirectly, own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with, or use or permit Employee's name
to be used in connection with, any business or enterprise in North America in
which Employee would be engaged in any selling any product competitive to that
sold by the Company and from which the Company receives at least 5% of its gross
revenues. Employee acknowledges that North America is the area in which the
Company presently does business.
(b) The foregoing restrictions shall not be construed to prohibit the
ownership by Employee of less than 5% of any class of securities of any
corporation which is engaged in any of the foregoing businesses having a class
of securities registered pursuant to the Exchange Act, provided that such
ownership represents a passive investment and that neither Employee nor any
group of persons including Employee in any way, either directly or indirectly,
manages or exercises control of any such corporation, guarantees any of its
financial obligations, otherwise takes any part in its business, other than
exercising Employee's rights as a shareholder, or seeks to do any of the
foregoing.
(c) Employee further covenants and agrees that during Employee's employment
by the Company and for the period of one year thereafter, Employee shall not,
directly or indirectly, (i) solicit, divert, take away, or attempt to solicit,
divert or take away, any of the Company's "Principal Customers," defined for the
purposes hereof to include any customer of the Company, from which $100,000 or
more of annual gross revenues are derived at such time, or (ii) encourage any
Principal Customer to reduce its patronage of the Company.
(d) Employee further covenants and agrees that during Employee's employment
by the Company and for the period of one year thereafter, Employee shall not,
except with the prior written consent of the Board, directly or indirectly,
solicit or hire, or encourage the solicitation or hiring of, any person who was
a managerial or higher
<PAGE>
level employee of the Company at any time during the term of Employee's
employment by the Company by any employer other than the Company for any
position as an employee, independent contractor, consultant or otherwise. The
foregoing covenant of Employee shall not apply to any former employee of the
Company after 12 months have elapsed subsequent to the date on which such former
employee's employment by the Company has terminated.
8. Confidential Information.
-------------------------
a.) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (i)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
b.) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by him or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
9. Remedies.
---------
The Employee expressly acknowledges that the remedy at law for any breach
of Section 8 will be inadequate and that upon any such breach or threatened
breach, the Company shall be entitled as a matter of right to injunctive relief
in any court of competent jurisdiction, in equity or otherwise, and to enforce
the specific performance of the Employee's obligations under these provisions
without the necessity of proving the actual damage to the Company or the
inadequacy of a legal remedy. Subject to the remainder of this Section 9, the
rights conferred upon the Company by the preceding sentence shall not be
exclusive of, but shall be in addition to, any other rights or remedies which
the Company may have at law, in equity or otherwise.
<PAGE>
10. Indemnification.
----------------
The Company shall indemnify and advance expenses to the Employee, to the
maximum extent permitted by applicable law, against all costs, charges and
expenses incurred or sustained by him in connection with any action, suit or
proceeding to which he may be made a party by reason of his being an officer,
director or employee of the Company or of any subsidiary or affiliate of the
Company. The Company shall provide, at its expense, directors and officers
insurance for the Employee in amounts reasonably satisfactory to the Employee.
The rights set forth in this Section 10 shall be in addition to any other rights
to indemnity to which Employee may be entitled.
11. No Mitigation, No Set-Off.
--------------------------
The Employee shall not be required to mitigate the amount of any payment
provided for hereunder by seeking other employment or otherwise, nor shall the
amount of any payment provided for hereunder be reduced by any compensation
earned by the Employee as the result of employment by another employer after the
date of termination of his employment by the Company. The Company's obligations
to pay the Employee the amounts provided hereunder shall be absolute and
unconditional and shall not be affected by any circumstances, including any
set-off, counterclaim, recoupment, defense or other right which the Company may
have against the Employee or anyone else.
12. Legal Costs.
------------
a.) In the event that either of the parties hereto files a complaint in a
court of competent jurisdiction for a breach of the terms hereof (a
"Litigation"), the Company shall advance the Employee monies for the reasonable
attorneys' fees, costs and expenses incurred by the Employee in connection a
Litigation as follows:
(i) The Employee shall make arrangements with his legal counsel to
receive detailed invoices of the services rendered by such counsel in
connection with a Litigation, in accordance with such counsels normal
billing practices,
(ii) Upon the Employee's receipt of an invoice for legal services
rendered in connection with a Litigation, the Employee shall forward such
invoice to the Company, and
(iii) Upon receipt of such an invoice, the Company shall pay the
invoice in accordance with the normal payment practices of the Company.
b.) In the event that a Litigation is resolved in a manner that is adverse
to the Employee, in addition to any remedy available to the Company as a result
of the resolution of a Litigation, the Employee shall promptly pay to the
Company the full amount of any payments made by the Company pursuant to this
Section 12.
<PAGE>
c.) IN THE EVENT EMPLOYEE SHALL FAIL TO FULLY REIMBURSE THE COMPANY FOR ANY
AMOUNTS ADVANCED BY EITHER OF THEM TO EMPLOYEE PURSUANT TO THIS SECTION 12,
WITHIN 10 DAYS AFTER THE SAME SHALL BE DUE AND PAYABLE AND WRITTEN DEMAND
THEREFOR SHALL HAVE BEEN MADE, EMPLOYEE HEREBY IRREVOCABLY AUTHORIZES AND
EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD IN PENNSYLVANIA, OR ELSEWHERE, TO
APPEAR FOR EMPLOYEE AND TO CONFESS AND ENTER JUDGMENT AGAINST EMPLOYEE AND IN
FAVOR OF THE COMPANY FOR THE FULL AMOUNT OWED TO THE COMPANY PURSUANT TO THIS
SECTION 12, WHICH AMOUNT MAY BE BEST ESTABLISHED BY AFFIDAVIT OF AN OFFICER OF
THE COMPANY TOGETHER WITH ANY UNPAID INTEREST THEREON, COSTS OF THE SUIT, AND AN
ATTORNEYS' FEE FOR COLLECTION OF 10% OF THE THEN-TOTAL OUTSTANDING AMOUNTS OF
ANY ADVANCES MADE TO EMPLOYEE PURSUANT TO THIS SECTION 12.
THIS WARRANT OF ATTORNEY SHALL NOT BE EXHAUSTED BY ONE EXERCISE THEREOF,
BUT JUDGMENT MAY BE CONFESSED AS MANY TIMES AND IN AS MANY JURISDICTIONS AS MAY
BE NECESSARY TO SECURE FULL SATISFACTION OF ANY AMOUNTS DUE TO THE COMPANY
PURSUANT TO THIS SECTION 12. SUCH POWERS MAY BE EXERCISED DURING AS WELL AS
AFTER THE EXPIRATION OR TERMINATION OF THE TERM AND DURING AND AT ANY TIME AFTER
ANY EXTENSION OR RENEWAL OF THE TERM OF THIS AGREEMENT. JUDGMENT HEREUNDER MAY
BE CONFESSED ON THE ORIGINAL OR PHOTOCOPIES OF THIS AGREEMENT AND THE JUDGMENT
OR JUDGMENTS CONFESSED HEREUNDER SHALL BE WITHOUT ANY STAY OF EXECUTION, ALL OF
WHICH IS HEREBY WAIVED.
IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT, EMPLOYEE HEREBY
KNOWINGLY, INTENTIONALLY, VOLUNTARILY AND UNCONDITIONALLY WAIVES ANY AND ALL
RIGHTS EMPLOYEE HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR A HEARING
UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE STATE
OF PENNSYLVANIA. IN NEGOTIATING AND EXECUTING THIS AGREEMENT, EMPLOYEE HAS BEEN
REPRESENTED BY SEPARATE COUNSEL AND FULLY UNDERSTANDS THE LEGAL EFFECT HEREOF.
IN ADDITION TO ANY RIGHTS GRANTED HEREUNDER, THE COMPANY SHALL HAVE ALL THE
RIGHTS AND REMEDIES GRANTED BY APPLICABLE LAW, ALL OF WHICH SHALL BE CUMULATIVE
AND CONCURRENT, AND SHALL BE IN ADDITION TO EVERY OTHER SUCH RIGHT OR REMEDY.
<PAGE>
d.) The Company shall reimburse the Employee for all reasonable costs and
reasonable attorney's fees incurred by Employee in connection with the
preparation, negotiation, execution and delivery of this Agreement up to a
maximum amount of $10,000.
13. Release, No Right of Action.
----------------------------
The Company hereby releases the Employee, his estate and his personal
representatives, and the Employee hereby releases the Company, its successors
and assigns, officers and directors, of and from any and all liabilities that
any such released party may have to any such releasing party with respect to any
actions or omissions prior to the date hereof; provided, however, that this
release shall not apply to any claims that may be asserted by the Employee
pursuant to any indemnity rights which Employee may have. The Company shall not
have any rights to take any action or otherwise refrain from taking action
against Employee hereunder as a result of any facts or circumstances occurring
or otherwise existing prior to the date hereof.
14. General.
--------
a.) Governing Law. The terms of this Agreement shall be governed by the
laws of the Commonwealth of Pennsylvania without regard to its provisions
concerning conflicts of laws.
b.) Company. For purposes of Sections 8 and 9, the term "Company" shall be
deemed to include any incorporated or unincorporated Subsidiaries and other
Affiliates of the Company.
c.) Binding Effect. All of the terms and provisions of this Agreement shall
be binding upon and inure to the benefit and be enforceable by the respective
heirs, representatives, successors (including any successor as a result of a
merger or similar reorganization) and assigns of the parties hereto, except that
the duties and responsibilities of the Employee hereunder are of a personal
nature and shall not be assignable in whole or in part by the Employee.
d.) Notices. All notices required to be given under this Agreement shall be
in writing and shall be deemed to have been given when personally delivered or
when mailed by registered or certified mail, postage prepaid, return receipt
requested, or when sent by Federal Express or other overnight delivery service,
addressed to each party as set forth in the introduction to this Agreement.
e.) Entire Agreement, Modification. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements or understandings of the parties regarding these
matters, including any prior agreement between the Employee and the Company. Any
such prior agreement is hereby terminated as of the date hereof This Agreement
may not be modified or amended in any way except in writing by the parties
hereto.
<PAGE>
f.) Duration. Notwithstanding the termination of the Employment Term and of
the Employee's employment by the Company, this Agreement shall continue to bind
the parties for so long as any obligations remain under the terms of this
Agreement.
g.) Waiver. No waiver of any breach of this Agreement shall be construed to
be a waiver as to succeeding breaches.
h.) Severabilily. If any provision of this Agreement or application thereof
to anyone under any circumstances is adjudicated to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect any
other provisions or applications of this Agreement which can be given effect
without the invalid or unenforceable provision or application and shall not
invalidate or render unenforceable such provision in any other jurisdiction.
i.) Interpretation. Unless the context of this Agreement clearly requires
otherwise, (a) references to the plural include the singular, the singular the
plural, the part the whole, (b) references to any gender include all genders,
(c) "including" has the inclusive meaning frequently identified with the phrase
"but not limited to" and (d) references to "hereunder" or "herein" relate to
this Agreement. The section and other headings contained in this Agreement are
for reference purposes only and shall not control or affect the construction of
this Agreement or the interpretation thereof in any respect. Any reference to a
party's being satisfied with any particular item or to a party's determination
of a particular item presumes that such standard will not be achieved unless
such party shall be satisfied or shall have made such determination in its sole
or complete discretion.
j.) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
CENTRAL SPRINKLER CORPORATION
By: /s/ E. T. Briddell
--------------------------
Name: E. T. Briddell
Title: CEO
/s/ James R. Buchanan
--------------------------
James R. Buchanan
<PAGE>
EXHIBIT A
A. Medical, dental, term life, short-term disability and travel accident
insurance coverage, all at levels comparable to those provided to other
senior officers of the Company.
B. Car allowance of $750.00 per month.
C. One two month period of fully paid leave to be taken after 4/l/2000.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000766041
<NAME> CENTRAL SPRINKLER CORPORATION
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> OCT-31-1999 OCT-31-1999
<PERIOD-START> FEB-01-1999 NOV-01-1998
<PERIOD-END> APR-30-1999 APR-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 13,761 13,761
<SECURITIES> 0 0
<RECEIVABLES> 52,099 52,099
<ALLOWANCES> (6,716) (6,716)
<INVENTORY> 43,501 43,501
<CURRENT-ASSETS> 114,062 114,062
<PP&E> 77,103 77,103
<DEPRECIATION> (34,050) (34,050)
<TOTAL-ASSETS> 165,389 165,389
<CURRENT-LIABILITIES> 46,340 46,340
<BONDS> 69,381 69,381
0 0
0 0
<COMMON> 56 56
<OTHER-SE> 33,949 33,949
<TOTAL-LIABILITY-AND-EQUITY> 165,389 165,389
<SALES> 58,040 108,768
<TOTAL-REVENUES> 58,040 108,768
<CGS> 40,913 77,585
<TOTAL-COSTS> 40,913 77,585
<OTHER-EXPENSES> 12,612 23,977
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,166 2,531
<INCOME-PRETAX> 3,349 4,675
<INCOME-TAX> 1,093 1,494
<INCOME-CONTINUING> 2,256 3,181
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,256 3,181
<EPS-BASIC> 0.68 0.96
<EPS-DILUTED> 0.67 0.95
</TABLE>
