<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended December 29, 1996
---------------------------------------
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: 0-19912
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Health o meter Products, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3635286
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24700 Miles Road, Bedford Heights, Ohio 44146-1399
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 464-4000
- --------------------------------------------------------------------------------
(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 l3 or l5(d) of the Securities Exchange Act of l934 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
------ ----
As of January 31, 1997, the issuer had 9,080,534 shares of common stock
outstanding.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended December 29, 1996
-----------------------------------------------------------
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: 33-80000
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Health o meter, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3330781
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24700 Miles Road, Bedford Heights, Ohio 44146-1399
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 464-4000
- --------------------------------------------------------------------------------
(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 l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---------- ---------
The Registrant is a wholly-owned subsidiary of Health o meter Products,
Inc. Accordingly, none of its equity securities are owned by non-affiliates.
<PAGE> 3
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
December 29 September 29
1996 1996
------------- --------------
(Unaudited)
ASSETS
Current assets
<S> <C> <C>
Cash $ 2,315 736
Trade accounts receivable, net 66,123 57,960
Inventories 44,036 43,626
Deferred income taxes 5,206 5,206
Other current assets 1,091 1,479
-------- --------
Total current assets 118,771 109,007
Property, plant and equipment, net 17,520 18,522
Other assets
Excess of cost over fair value
of net assets acquired, net 138,846 139,830
Deferred financing costs, net 4,365 4,579
Other 1,669 1,552
-------- --------
Total other assets 144,880 145,961
-------- --------
Total assets $281,171 273,490
======== ========
</TABLE>
(Continued)
2
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<TABLE>
<CAPTION>
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
December 29 September 29
1996 1996
------------ ------------
(Unaudited)
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Current portion of long-term debt $ 6,000 6,000
Accounts payable 22,711 22,851
Accrued liabilities 23,744 19,542
--------- ---------
Total current liabilities 52,455 48,393
Long-term debt
Revolving Credit Facility 45,900 41,600
Term Note 59,000 60,250
Senior Subordinated Notes 68,737 68,681
--------- ---------
Total long-term debt 173,637 170,531
Product liability 3,513 3,516
Other 2,068 2,043
--------- ---------
Total liabilities 231,673 224,483
Stockholders' equity
Common stock, par value $.01 per share;
authorized 20,000 shares; issued
and outstanding 9,080 shares 91 91
Paid-in capital 51,772 51,772
Warrants 1,773 1,773
Accumulated deficit (4,138) (4,629)
--------- ---------
Total stockholders' equity 49,498 49,007
--------- ---------
Total liabilities and stockholders' equity $ 281,171 273,490
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
<TABLE>
<CAPTION>
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THIRTEEN WEEKS ENDED
--------------------------
DECEMBER 29 DECEMBER 31
1996 1995
------------ ----------
<S> <C> <C>
Net sales $ 87,136 97,407
Operating costs and expenses
Cost of goods sold 61,077 66,863
Selling, general and
administrative expenses 19,055 18,802
Amortization of intangible assets 984 1,000
-------- --------
Total operating costs and expenses 81,116 86,665
-------- --------
Operating income 6,020 10,742
Interest expense 4,982 5,097
Other income (189) (70)
-------- --------
Income before income taxes 1,227 5,715
Income tax expense 736 3,738
-------- --------
Net income $ 491 1,977
======== ========
Net income per share $ 0.05 0.22
======== ========
Weighted average shares outstanding 9,080 9,071
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Thirteen weeks ended
------------------------
December 29 December 31
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 491 1,977
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization
of plant and equipment 1,730 1,473
Amortization of intangible assets 984 1,000
Amortization of deferred financing costs 214 215
Accretion of debt discount 56 56
Changes in
Accounts receivable (8,163) (17,083)
Inventories (410) (1,757)
Other assets 271 787
Accounts payable (140) 963
Accrued liabilities 4,202 9,197
Noncurrent liabilities 22 265
-------- --------
Net cash used in operating activities (743) (2,907)
-------- --------
Cash flows from investing activities
Capital expenditures (728) (853)
-------- --------
Net cash used in investing activities (728) (853)
-------- --------
Cash flows from financing activities
Proceeds from revolving credit facility 19,900 26,800
Repayments of revolving credit facility (15,600) (20,700)
Repayment of long-term debt (1,250) (1,250)
-------- --------
Net cash provided by financing activities 3,050 4,850
-------- --------
Increase in cash 1,579 1,090
Cash at beginning of the period 736 835
-------- --------
Cash at end of the period $ 2,315 1,925
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 2,375 2,505
Income taxes 415 --
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(1) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions are eliminated in consolidation.
In the opinion of management, the information furnished herein includes
all adjustments of a normal recurring nature that are necessary for a
fair presentation of results for the interim periods shown in
accordance with generally accepted accounting principles. The unaudited
interim consolidated financial statements have been prepared using the
same accounting principles that were used in preparation of the
Company's annual report on Form 10-K for the year ended September 29,
1996, and should be read in conjunction with the consolidated financial
statements and notes thereto. Because of the seasonal nature of the
small appliance and consumer scale industries, the results of
operations for the interim period are not necessarily indicative of
results for the full fiscal year.
(2) Inventories
-----------
<TABLE>
<CAPTION>
The components of inventories are as follows:
December 29 September 29
1996 1996
----------- ------------
<S> <C> <C>
Inventories at FIFO cost
Raw materials and purchased parts $14,906 13,446
Finished goods 28,541 29,591
------- -------
43,447 43,037
Excess of LIFO cost over FIFO 589 589
------- -------
Inventories $44,036 43,626
======= =======
</TABLE>
Work-in-process inventories are not significant and are included with
raw materials. Inventories accounted for under the last-in, first-out (LIFO)
method represent 58 percent and 62 percent of inventories at December 29, 1996
and September 29, 1996, respectively.
6
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\
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(3) Condensed Consolidated Financial Information
--------------------------------------------
Condensed consolidated financial information for Health o meter, Inc.
at December 29, 1996 and September 29, 1996, and for the thirteen-week
period ended December 29, 1996 and December 31, 1995 is as follows:
<TABLE>
<CAPTION>
December 29 September 29
1996 1996
---------- -----------
<S> <C> <C>
Current assets $ 118,771 109,007
Noncurrent assets 162,400 164,483
--------- ---------
Total assets $ 281,171 273,490
========= =========
Current liabilities $ 52,455 48,393
Noncurrent liabilities 179,218 176,090
Intercompany payables 47,658 47,658
--------- ---------
Total liabilities 279,331 272,141
Stockholder's equity
Common stock - $.01 par value;
1,000 shares authorized and outstanding 10 10
Paid-in capital 2,811 2,811
Accumulated deficit (981) (1,472)
--------- ---------
Total stockholder's equity 1,840 1,349
--------- ---------
Total liabilities and stockholder's equity $ 281,171 273,490
========= =========
Thirteen-week period ended
--------------------------
December 29 December 31
1996 1995
--------- ---------
Net sales $ 87,136 97,407
Gross profit 26,059 30,544
Net income 491 1,977
</TABLE>
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPANY OVERVIEW
- ----------------
Health o meter Products, Inc. (the "Company") is a holding company
which, through its wholly owned subsidiary, Health o meter, Inc. ("Health o
meter"), designs, manufactures, markets, and distributes a comprehensive line of
consumer and professional products. The Company's consumer products, marketed
under the Mr. Coffee(R) and Health o meter(R) brand names include automatic drip
coffeemakers, iced teamakers, hot teamakers, filters, water filtration products,
accessories, and other kitchen counter top appliances as well as bath, kitchen,
and diet scales and therapeutic devices. Professional products include the
Pelouze(R) and Health o meter(R) brands of office, food service, and medical
scales and timers.
RESULTS OF OPERATIONS
- ---------------------
Thirteen Weeks ended December 29, 1996 and December 31, 1995
Overview. Net sales in the first quarter of fiscal 1997 decreased
approximately 10.5 percent to $87.1 million, compared with $97.4 million for the
same period in fiscal 1996. The Company's gross profit in the first quarter of
fiscal 1997 was $26.1 million, or approximately 29.9 percent of net sales,
compared with $30.5 million, or approximately 31.4 percent of net sales in the
same period in fiscal 1996.
Net Sales and Gross Profit
Consumer Products Division. In the first quarter of 1997, the Consumer
Products Division's net sales were $77.1 million compared with $88.3 million in
1996, a decrease of 12.6 percent. The decrease in net sales was primarily
attributable to reduced sales of iced teamakers, hot teamakers and consumer
scales somewhat offset by increased sales of water and therapeutic products. The
Consumer Products Division's gross profit in the first quarter of 1997 decreased
16.2 percent to $23.0 million from $27.4 million in 1996. As a percent of net
sales gross profit margin was 29.8 percent in 1997, compared with 31.0 percent
in 1996, a decline of 3.9 percent. Lower margins in the Company's iced teamaker
and hot teamaker product lines, somewhat offset by improved margins in the
espresso/cappuccino, water filter pitcher and consumer scale product lines, were
the primary factors driving these results. The Company's automatic hot teamaker,
Mrs. Tea(TM), was a recently introduced product in 1996 while the Company's
water and therapeutic products are recently introduced products in 1997.
Historically, gross margins on individual product lines have been greatest near
the point of introduction and gradually decreasing as the product matures and
becomes subject to pricing pressure. There continues to be intense pressure on
retail prices and there can be no assurance as to the Company's ability to
achieve price increases or maintain current price levels in the future. For
these reasons, the
8
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Company continues its efforts to introduce new products and to reduce the cost
of existing products as a means of protecting margins.
Professional Products Division. In the first quarter of 1997, the
Professional Products Division's net sales increased 9.5 percent to $10.0
million compared with $9.1 million in 1996. The Company experienced increased
sales in the first quarter of 1997 of its commercial products and in its
international sales channel, while its medical, office and food product lines
sales levels were comparable with the same period in 1996. The Professional
Products Division's gross profit was $3.1 million, or 31.1 percent of net sales,
in the first quarter of 1997, compared with $3.1 million, or 34.5 percent of net
sales, in 1996. Reduced gross profit as a percent of net sales in the medical
and commercial product lines and lower margins in the international sales
channel due to an unfavorable sales mix shift from higher margin medical
products were the primary causes of the reduced gross profit margin.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses ("SG&A") for the first quarter of fiscal 1997 totalled
$19.1 million, or approximately 21.9 percent of net sales, compared with $18.8
million, or approximately 19.3 percent of net sales, for the first quarter of
fiscal 1996. The increase in SG&A as a percentage of net sales is primarily
attributable to higher national advertising expenditures to support the
marketing of products such as the Mrs. Tea(TM) automatic hot teamaker line and
the Health o meter(R) Water by Culligan(R) water filter pitchers.
Amortization of Intangible Assets. The amortization of intangible
assets relates primarily to intangible assets associated with the acquisition of
Mr. Coffee, inc. in August 1994.
Interest Expense. Net interest expense for the first quarter of fiscal
1997 was approximately $5.0 million, compared with $5.1 million for the same
period in the prior year.
Income Taxes. The effective tax rate was 60.0 percent for the first
quarter of fiscal 1997, compared with 65.4 percent in 1996. Expenses not
deductible for tax purposes, primarily the amortization of intangible assets
associated with the acquisition, resulted in an effective tax rate significantly
higher than the statutory tax rate in both periods.
Net Income. Based on the foregoing, the Company achieved net income of
approximately $0.5 million in the first quarter of fiscal 1997, compared with
approximately $2.0 million in the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of liquidity are internally generated
cash and borrowings under a Credit Agreement among Health o meter and a group of
Banks represented by Banque Nationale de Paris, New York Branch ("BNP") as agent
and as issuer of letters of credit, ("the Bank Credit Agreement") entered into
in connection with the acquisition by the Company of Mr. Coffee, inc. on August
17, 1994 ("the Acquisition").
9
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Cash flow activity for the first quarters of fiscal 1997 and 1996 is
presented in the Consolidated Statements of Cash Flows. During the first quarter
of fiscal 1997, the Company required approximately $0.7 million in cash flow to
sustain its operating activities. Net income plus non-cash charges generated
approximately $3.5 million, while changes in working capital components required
approximately $4.2 million. The increase in accounts receivable, which required
approximately $8.2 million, is attributable to seasonally higher sales activity.
The increase in inventories required $0.4 million. The increases in accounts
receivable and inventories were partially offset by an increase in accrued
liabilities which generated $4.1 million. Accrued liabilities increased due to
increases in accrued interest and certain volume related direct selling expense
accruals.
The Company's business is somewhat seasonal, with a large portion of
its sales and earnings generated in the fourth calendar quarter of the year.
During fiscal 1996, the Company generated approximately 34 percent of its annual
net sales in this quarter.
The Company's aggregate capital expenditures during the first quarter
of fiscal 1997 were approximately $0.7 million. The Company anticipates making
$7.2 million of capital expenditures for the remainder of fiscal 1997. These
capital expenditures relate primarily to new product tooling, information
systems and production equipment. Management plans to fund these capital
expenditures with available cash, cash flow from operations and, if necessary,
borrowings under the revolving credit facility provided under the Bank Credit
Agreement.
Indebtedness incurred in connection with the Acquisition has
significantly increased the Company's cash requirements and imposes various
restrictions on its operations. The Acquisition and related transactions were
financed with approximately $98 million in borrowings under the Bank Credit
Agreement, approximately $70 million in proceeds from a unit offering of 13%
senior subordinated notes due 2002, (the "Notes") and warrants to purchase
shares of Common Stock at a price of $6.25 per share, and approximately $17.2
million in net proceeds received from the exercise of certain transferable
rights to purchase 3,543,433 shares of Common Stock issued to the stockholders
of the Company. The Notes are generally not redeemable at the option of the
Company until August 15, 1999. Subject to certain conditions, at any time
through August 17, 1997, up to 35 percent of the initial principal amount of the
Notes originally issued may be redeemed with the net proceeds of one or more
public offerings of equity securities of the Company or Health o meter at a
redemption price of 110% of the principal amount thereof, together with accrued
and unpaid interest. For more detailed information, see the Company's Annual
Report on Form 10-K for the year ended September 29, 1996.
The Bank Credit Agreement includes a $75.0 million term loan facility,
which is subject to amortization on a quarterly basis in aggregate annual
amounts of $6.0 million, $8.75 million, $17.5 million, $15.0 million and $19.0
million during fiscal 1997 through fiscal 2001, respectively, and a $60.0
million revolving credit facility. Health o meter is required to make
prepayments on the Term Loan and Revolving Credit Facility with a percentage of
Excess Cash Flow (as defined) and 100% of the proceeds from certain asset sales,
issuances of debt and equity securities and extraordinary items outside the
ordinary course of business. The required term loan repayment for fiscal 1997,
which was paid in the second quarter of 1997, is
10
<PAGE> 12
$1.0 million. Health o meter may also make optional prepayments, in full or in
part, on the Term Loan.
The Bank Credit Agreement and the indenture governing the Notes
contain various customary covenants which the Company was in compliance with at
December 29, 1996. Borrowing availability under the revolving credit facility at
December 29, 1996 was $15.8 million after considering outstanding letters of
credit of $1.3 million, actual borrowings of $45.9 million, and sufficiency of
collateral. Health o meter's obligations under the Bank Credit Agreement are
secured by substantially all of Health o meter's assets and a pledge of all of
its issued and outstanding common stock. Health o meter's obligations under the
Bank Credit Agreement and the Notes are guaranteed by the Company.
Based upon current levels of operations, anticipated sales growth and
plans for expansion, management believes that the Company's cash flow from
operations (including favorable cost savings estimated to be achieved in the
future), combined with borrowings available under the Bank Credit Agreement,
will be sufficient to enable the Company to meet all of its cash operating
requirements over both the short term and the longer term, including scheduled
interest and principal payments, capital expenditures and working capital needs.
This expectation is predicated upon continued growth in revenues in the
Company's core businesses consistent with historical experience, achievement of
operating cash flow margins consistent with historical experience, and the
absence of significant increases in interest rates.
INFLATION
- ---------
Increases in interest rates, the costs of materials and labor, and
Federal, state and local tax rates can significantly affect the Company's
operations. Management believes that the current practices of maintaining
adequate operating margins through a combination of new product introductions,
product differentiation, cost reduction, outsourcing, manufacturing and overhead
expense control and careful management of working capital are its most effective
tools for coping with inflation.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
During 1995, the Financial Accounting Standards Board issued two
pronouncements which are effective for financial statements for years beginning
after December 15, 1995. The Company has considered the requirements of
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of and has determined that it will not require
recognition of any impairment losses. The Company has also determined to remain
within the accounting prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees, and accordingly the implementation of Statement No. 123,
Accounting for Stock-Based Compensation will result in additional disclosures
without any impact on the statements of operations or financial condition.
11
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See the Exhibit Index at page 13 of this Form 10-Q.
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURE
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.
HEALTH O METER PRODUCTS, INC.
HEALTH O METER, INC.
Date: February 11, 1997 /s/ Steven M. Billick
--------------------------------
Steven M. Billick
Senior Vice President, Treasurer
and Chief Financial Officer
12
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Exhibit Index
-------------
Exhibit Number Description of Document
- -------------- -----------------------
10.20 Employment Agreement between the Company and
C. Wayne Morris dated October 7, 1996*
27 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
13
<PAGE> 1
Exhibit 10.20
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of the 7th
day of October, 1996 by and between C. WAYNE MORRIS ("Employee") and HEALTH O
METER PRODUCTS, INC., a Delaware corporation (the "Company").
W I T N E S S E T H
-------------------
WHEREAS, the Company desires to retain the services of the
Employee as its Senior Vice President - Professional Products; and
WHEREAS, the Company and the Employee deem it necessary and
appropriate to enter into an agreement setting forth the terms and conditions of
the Employee's employment with the Company.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, the Employee and the Company agree as follows:
ARTICLE I
EFFECTIVE TIME
Section 1.00. EFFECTIVE TIME. This Agreement shall become
effective as of October 7, 1996 (the "Effective Time").
ARTICLE II
EMPLOYMENT
Section 2.01. EMPLOYMENT. The Company hereby employs the
Employee and the Employee hereby agrees to serve the Company on the terms and
conditions set forth herein. Employee shall initially hold the offices of Senior
Vice President - Professional Products of the Company.
Section 2.02. AT WILL STATUS. Employee specifically
acknowledges and agrees that his employment with the Company is "at will," and
may be terminated by him or the Company at any time with or without cause.
1
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ARTICLE III
DUTIES OF EMPLOYMENT
Section 3.00. DUTIES. Subject to the authority of the Board,
Employee shall have the status and powers as are customarily associated with,
and shall perform such duties and functions as the Board shall from time to time
determine and as are customarily assigned to, the Senior Vice President -
Professional Products of a corporation. Employee shall devote his full time and
effort to the business and affairs of the Company. Employee further agrees to
serve, if elected or appointed thereto, as a director of the Company's
subsidiaries and affiliated entities (if any) and in one or more executive
offices of any of the Company's subsidiaries and affiliated entities (if any);
provided that the indemnity provisions of Section 11.01 of this agreement shall
apply to Employee's service in any such capacity.
ARTICLE IV
COMPENSATION AND RELATED MATTERS
Section 4.01. SALARY. As compensation for the employment
services to be rendered by Employee hereunder, the Company shall pay to Employee
a salary at an initial rate of One Hundred Seventy thousand ($170,000) Dollars
per annum, payable at such intervals as may be consistent with the Company's
payroll policies, subject to increase or decrease by the Compensation Committee
of the Board in its sole discretion. Compensation of Employee by salary payments
shall not be deemed exclusive and shall not prevent Employee from participating
in any other compensation or benefit plan of the Company. The salary payments
(including any increased salary payments) hereunder shall not in any way limit
or reduce any other obligation of the Company hereunder, and no other
compensation, benefit or payment hereunder shall in any way limit or reduce the
obligation of the Company to pay Employee's salary hereunder.
Section 4.02. EXPENSES. During the term of Employee's
employment hereunder, Employee shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by Employee in performing the services
hereunder, including, but not limited to, all expenses for travel and living
expenses while away from home on business or at the request of and in the
service of the Company, its subsidiaries or affiliated entities; provided that
such expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company. Employee shall also be provided an
automobile allowance from the Company, in such amount as is determined
appropriate by the Board of Directors of the Company from time to time.
2
<PAGE> 3
Section 4.03 CONTINUED PARTICIPATION. Employee shall be
entitled to participate in all of the Company's employee benefit plans in effect
from time to time and made available by the Company to its executives and key
management employees, including the Company's life and long-term disability
insurance plans, medical and dental plans and 401 (k) Plan.
Section 4.04. ANNUAL PERFORMANCE BONUS. In addition to the
Employee's salary, the Employee will be entitled to participate during the
period of his employment in any bonus plan established by the Board of Directors
from time to time that contemplates participation by the executive officers of
the Company. The amount of any annual bonus payable to Employee shall be
determined under such plan; notwithstanding the foregoing, unless the Employee
is terminated for cause or resigns prior to the end of the 1997 fiscal year, the
Employee shall be entitled to receive a cash bonus with respect to such year in
an amount equal to not less than $21,250, whether or not the Employee would be
entitled to receive a Bonus under the terms of such plan.
Section 4.05 STOCK OPTIONS. On October 7, 1996, Employee will
receive the following:
(a) Non-qualified stock options to purchase 15,000 shares of
the Company's Common Stock under the Company's 1995 Stock
Option and Incentive Plan. Such options shall be exercisable
at market price on October 7, 1996, or at $5.375, whichever is
higher, and will vest in 25% increments on an annual basis,
commencing on the first anniversary of the date of grant; and
(b) Non-qualified performance-based stock options to purchase
15,000 share of the Company's Common Stock stock options under
the Company's 1995 Stock Option and Incentive Plan. Such
options shalls be exercisable at market price on October 7,
1996, or $5.375, whichever is higher, and will vest in 20%
increments a year beginning in fiscal 1997, conditioned upon
the Company's achievement of stated EBITDA objectives.
The options set forth in this Paragraph will expire 10 years from the date of
grant, or earlier in the event of termination of the Employee's employment, with
the Company and will be subject to the other terms and conditions set forth in
the forms of Option Agreement relating thereto attached as Exhibit A to this
Agreement.
3
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ARTICLE V
SEVERANCE ARRANGEMENTS
Section 5.01 DEFINITIONS.
(a) For purposes of this Article, "termination for cause"
shall mean any termination of the Employee's employment resulting from: (i)
Employee's engaging in fraud, misappropriation of funds, embezzlement or like
conduct committed against the Company; (ii) Employee's conviction of a felony;
or (iii) Employee's material violation of any provision of this Agreement which
has not been cured within thirty (30) days after written notice setting forth
such material violation and also setting forth the actions that Employee shall
be required to take to cure such material violation has been given by the
Company to Employee.
(b) The Company may terminate Employee's employment hereunder
at any time without cause. Notwithstanding any other provisions of this
Agreement to the contrary and for purposes of this Article, any termination of
Employee's employment resulting from: (i) Employee's death or (ii) Employee's
inability to perform the essential functions of his job with or without
reasonable accommodation, shall be deemed to be a termination by the Company
without cause.
Section 5.02 RESIGNATION; TERMINATION FOR CAUSE. If Employee
resigns from his positions with the Company or his employment shall be
terminated by the Company for cause, the Company shall pay Employee his full
salary through the date of resignation or termination at the rate then in effect
and the Company shall have no further obligations to Employee under this
Agreement.
Section 5.03 TERMINATION WITHOUT CAUSE. If the Company
terminates Employee's employment hereunder without cause, then:
(a) the Company shall pay Employee his full salary
through the date of termination, at the annual rate
then in effect;
(b) in lieu of any further salary payments to Employee
for periods subsequent to the date of termination, the
Company shall continue to pay to Employee his salary
at the annual rate in effect immediately prior to such
termination until the earlier to occur of (i) the date
that Employee obtains a position with another employer
providing for the payment of an annual base salary at
a rate substantially equivalent to that provided
herein or (ii) the expiration of the twelve (12) month
period following such termination (the "Salary
Continuation Period"), in equal periodic installments
consistent with the Company's payroll policies; and
4
<PAGE> 5
(c) payment of the foregoing by the Company shall
constitute complete satisfaction and remedy with
respect to termination of Employee's employment by the
Company without cause.
Section 5.04 CONTINUED BENEFITS. Unless Employee is terminated
by the Company for cause, or Employee shall resign from his positions with the
Company, the Company shall maintain in full force and effect, for the continued
benefit of Employee during the Salary Continuation Period, coverage under all
medical and dental insurance plans and programs in which Employee participated
prior to termination at the same cost to Employee as that applicable to other
employees participating in such plans during such period; PROVIDED, that
Employee's continued participation is possible under the general terms and
provisions of such plans and programs. In the event Employee's participation in
any such plan or program is barred, the Company shall arrange to provide
Employee with benefits substantially similar to those which Employee would
otherwise have been entitled to receive under such plans and programs from which
his continued participation is barred.
ARTICLE VI
BINDING AGREEMENT
Section 6.00 BINDING AGREEMENT. This Agreement and all rights
of Employee hereunder shall inure to the benefit of and be enforceable by
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Employee should die
while any amounts would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee,
designee or, if there is no such designee, to Employee's estate. This Agreement
and all rights of the Company hereunder shall inure to the benefit of and be
enforceable by the Company's successors and assigns.
ARTICLE VII
REPRESENTATIONS AND AGREEMENTS OF EMPLOYEE
Section 7.01 ABILITY TO PERFORM. Employee represents and
warrants that he is free to enter into this Agreement and to perform the duties
required hereunder, and that there are no employment contracts or
understandings, restrictive covenants or other restrictions, whether written or
oral, preventing the performance of his duties hereunder.
Section 7.02 COOPERATION. Employee agrees to submit to a
medical examination and to cooperate and supply such other information and
documents as may be required by any insurance company in connection with the
Company's obtaining life insurance on the life of Employee, and any other type
of insurance or fringe benefit as the Company shall determine from time to time
to obtain.
5
<PAGE> 6
ARTICLE VIII
RESTRICTIVE COVENANTS
Section 8.01 NON-COMPETITION. Employee agrees that during the
Non-Competitive Period (as defined below), Employee shall not, directly or
indirectly, as owner, partner, joint venturer, stockholder, employee, broker,
agent, principal, trustee, corporate officer, director, licensor or in any
capacity whatsoever, engage in, become financially interested in, be employed
by, render any consultation or business advice with respect to, or have any
connection with, any business engaged in manufacturing, assembly, marketing or
sales of coffeemakers, teamakers, filters, scales, massagers or any other
product then being manufactured, assembled, marketed or sold by the Company, or
then being developed by the Company with the expectation of sale by the Company
within 90 days, in any geographic area where, at the time of termination of his
employment hereunder, the business of the Company was being conducted in any
material respect; provided, however, that Employee may own any securities of any
corporation which is engaged in such business and is publicly owned and traded
but in an amount not to exceed at any one time five percent (5%) of any class of
stock or securities of such corporation. The term "Non-Competitive Period" shall
mean the period commencing on the date of his termination or resignation and
ending on the date which is (i) twelve (12) months later, in the event of
termination by the Company without cause, or (ii) eighteen (18) months later, in
the event of termination by Employee of his employment hereunder, or termination
by the Company for cause.
Section 8.02 NO HIRING. During the Non-Competitive Period,
Employee will not knowingly (i) hire or attempt to hire any employee of the
Company or of any of the Company's subsidiaries or affiliated entities (if any);
(ii) assist in such hiring by any other person; or (iii) encourage any such
employee to terminate his employment with the Company or any of such
subsidiaries or affiliated entities.
Section 8.03 SEVERABILITY. If any portion of the restrictions
set forth in this Article VIII should, for any reason whatsoever, be declared
invalid by a court of competent jurisdiction, the validity or enforceability of
the remainder of such restrictions shall not thereby be adversely affected.
Section 8.04 REASONABLENESS. Employee agrees that the
territorial and time limitations set forth in this Article VIII are reasonable
and properly required for the adequate protection of the business of the
Company. In the event any such territorial or time limitation is deemed to be
unreasonable by a court of competent jurisdiction, Employee agrees to the
reduction of the territorial or time limitation to the area or period which such
court shall have deemed reasonable.
6
<PAGE> 7
ARTICLE IX
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
Section 9.01 NON-DISCLOSURE. Employee shall not, during the
term of this Agreement and at any time thereafter, directly or indirectly,
disclose or permit to be known outside of the scope of his duties to the
Company, to any person, firm or corporation, any confidential information
acquired by him during the course of, or as an incident to, his employment
relating to the Company. It shall not be outside the scope of Employee's duties
to the Company to disclose confidential information to the Company's directors,
officers, employees, advisors, attorneys, accountants, lenders, financial
institutions or investors. Such confidential information shall be limited to
proprietary technology, market data, formulae, customer and supplier lists,
non-public financial and operating information and data, and any other documents
embodying such confidential information to the extent that such data and
information relate specifically to the Company. Such restrictions apply only to
the reproduction or use of the specific written documents of the Company
relating to the above-described categories and not to any knowledge (including
but not limited to knowledge gained from such confidential information) based on
Employee's experience during his employment with the Company or otherwise.
Section 9.02 RETURN OF DOCUMENTS. Upon termination of
Employee's employment with the Company, all documents, records, reports,
writings and other similar documents containing confidential information,
including copies thereof, then in Employee's possession or control shall be
returned and left with the Company.
ARTICLE X
EQUITABLE RELIEF
Section 10.00 RIGHT TO INJUNCTION. Employee recognizes that
the services to be rendered by him hereunder are of a special, unique, unusual,
extraordinary and intellectual character, involving skill of the highest order
and giving them peculiar value, the loss of which cannot be adequately
compensated for in damages. In the event of a breach of this Agreement by
Employee, the Company shall be entitled to injunctive relief or any other legal
or equitable remedies. Employee agrees that the Company may recover by
appropriate action the amount of the actual damages caused the Company by any
failure, refusal or neglect of Employee to perform his agreements,
representations and warranties herein contained. The remedies provided in this
Agreement shall be deemed cumulative and the exercise of one shall not preclude
the exercise of any other remedy, at law or in equity, for the same event or any
other event.
7
<PAGE> 8
ARTICLE XI
MISCELLANEOUS
Section 11.01 INDEMNIFICATION; INSURANCE. The Company will
indemnify Employee to the maximum extent permitted by law (including advancing
expenses where appropriate) with respect to actions taken by him as an officer
or director of the Company, any of its subsidiaries, or any affiliated entity of
the Company or any of its subsidiaries. The Company's obligation to provide
indemnification shall survive termination of employment. The Company will also
maintain in effect during Employee's employment hereunder directors and officer
liability insurance, to the extent the same can be obtained on commercially
reasonable terms. If permitted by the terms of the policy providing such
insurance, Employee will remain insured under such policy until the first to
occur of (i) termination of such policy (other than termination by the Company),
or (ii) the fifth anniversary of termination of Employee's employment with the
Company.
Section 11.02 ARBITRATION. Should any dispute arise between
the parties concerning the performance of this Agreement, the parties agree to
mediation and, if not resolved through such mediation within thirty (30) days,
final and binding arbitration in Cleveland, Ohio in accordance with the rules of
the American Arbitration Association, subject to Article X in the case of
alleged breach of Articles VIII or IX.
The decision rendered in any arbitration proceedings shall be
in writing and shall set forth the basis therefor. The parties shall abide by
the award rendered in the arbitration proceedings, and such award may be entered
as a final, non-appealable judgment, and may be enforced and executed upon, in
any court having jurisdiction over the party against whom enforcement of such
award is sought. Each of the parties agrees (in connection with any action
brought to enforce the arbitration provisions of this paragraph) not to assert
in any such action, any claim that it is not subject to the personal
jurisdiction of such court, that the action is brought in an inconvenient forum,
that the venue of the action is improper or that such mediation or arbitration
may not be enforced by such courts. Each party agrees that service of process
may be made upon it by any method authorized by the laws of the state in which
arbitration is to be conducted in accordance with this Section 11.02.
Section 11.03 NOTICE. For the purposes of this Agreement,
notices, demands and all other communications provided for in the Agreement
shall be in writing, shall be deemed to have been duly given when delivered or
unless otherwise specified mailed by U.S. registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to Employee: C. Wayne Morris
2233 S. Highland Avenue, "Yorktown Apts"
Lombaro, IL 60148
If to the Company: Health o meter Products, Inc.
24700 Miles Road
Bedford Heights, Ohio 44146
8
<PAGE> 9
With a copy to: Calfee, Halter & Griswold
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
Attn: Thomas F. McKee, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
Section 11.04 AMENDMENT OR ALTERATION. No amendment or
alteration of the terms of this Agreement shall be valid unless made in writing
and signed by both of the parties hereto.
Section 11.05 GOVERNING LAW. This Agreement shall be governed
by the laws of the State of Ohio, without giving effect to the conflicts of laws
provisions thereof.
Section 11.06 SEVERABILITY. The holding of any provision of
this Agreement to be invalid or unenforceable by a court of competent
jurisdiction shall not affect any other provision of this Agreement, which shall
remain in full force and effect.
Section 11.07 WAIVER OR BREACH. No waiver of or failure to
enforce any provisions of this Agreement shall be deemed, or shall constitute, a
waiver of any other provision of this Agreement, nor shall such waiver or
failure to enforce constitute a continuing waiver.
Section 11.08 ASSIGNMENT. This Agreement may not be
transferred or assigned by either party without the prior written consent of the
other party.
Section 11.09 FURTHER ASSURANCES. The parties agree to execute
and deliver all such further documents, agreements and instruments and take such
other and further action as may be necessary or appropriate to carry out the
purposes and intent of this Agreement.
Section 11.10 HEADINGS. The section headings appearing in this
Agreement are for purposes of each reference and shall not be considered a part
of this Agreement or in any way modify, amend or affect its provisions.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
HEALTH O METER PRODUCTS, INC.
By: /s/ S. DONALD MCCULLOUGH
--------------------------------
Name: S. Donald McCullough
Title: President and Chief Operating Officer
Health o meter Products, Inc.
/s/ C. WAYNE MORRIS
-------------------
C. Wayne Morris
10
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