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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM 10-K
X ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 31, 1997
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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COMMISSION FILE NO. 0-18370
MFRI, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3922969
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7720 LEHIGH AVENUE
NILES, ILLINOIS 60714 (847) 966-1000
(Address of principal executive (Issuer's telephone number,
offices, including zip code) including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting securities of the registrant
beneficially owned by non-affiliates of the registrant (the exclusion of the
market value of the shares owned by any person shall not be deemed an admission
by the registrant that such person is an affiliate of the registrant), at March
31, 1997 was approximately $29,268,000.
The number of shares of the registrant's common stock outstanding at March
31, 1997 was 4,965,329.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document of the registrant are incorporated
herein by reference:
DOCUMENT PART OF FORM 10-K
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Proxy Statement for the 1997 annual meeting of III
stockholders
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PART I
ITEM 1. BUSINESS
MFRI, Inc. ("MFRI") has three business segments: Filtration Products,
Piping System Products and Industrial Process Cooling Equipment.
The Company's Filtration Products Business is carried out by Midwesco
Filter Resources, Inc. ("Midwesco Filter"), the Piping System Products business
is carried out by Perma-Pipe, Inc. ("Perma-Pipe") and the Industrial Process
Cooling Equipment Business is carried out by the Thermal Care Division
("Thermal Care"). Midwesco Filter and Perma-Pipe are wholly-owned subsidiaries
of MFRI. As used herein, unless the context otherwise requires, the term
Company includes MFRI, Midwesco Filter, Perma-Pipe, Thermal Care, and its
subsidiaries, and their predecessors
Midwesco Filter manufactures and sells a wide variety of filter bags for
baghouse air pollution control and particulate collection systems. Baghouses
are used in a wide variety of industries in the United States and abroad to
limit particulate emissions, primarily to comply with environmental
regulations, markets filter bag-related products and accessories, and provides
maintenance services, consisting primarily of dust collector inspection and
filter bag retensioning and replacement.
Perma-Pipe engineers, designs and manufactures specialty piping systems
and leak detection and location systems. Perma-Pipe's piping system products
include (i) secondary containment piping systems for transporting hazardous
fluids and petroleum products and (ii) insulated and jacketed district heating
and cooling piping systems for efficient energy distribution to multiple
locations from central energy plants. Perma-Pipe's leak detection and location
systems are sold as part of many of its piping system products, and, on a stand
alone basis, to monitor areas where fluid intrusion may contaminate the
environment, endanger personal safety, cause a fire hazard or damage equipment
or property.
Thermal Care engineers, designs and manufactures coolers for industrial
purposes.
On December 30, 1996, the Company acquired Thermal Care and certain other
specified assets and liabilities of Midwesco, Inc. by the merger of Midwesco,
Inc. with and into MFRI (the "Thermal Care Merger"). Through the Thermal Care
Merger, an aggregate of 2,124,298 shares of common stock of MFRI were issued to
the shareholders of Midwesco, Inc. and the 1,717,666 shares of common stock of
MFRI owned by Midwesco, Inc. immediately prior to the consummation of the
Thermal Care Merger were cancelled.
The information required with respect to the Company's lines of business
is included in the financial statements and related notes thereto.
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FILTRATION PRODUCTS
AIR POLLUTION CONTROL AND PARTICULATE COLLECTION SYSTEMS. Air pollution
control and particulate collection systems have been used for over 50 years in
many industrial applications. However, the enactment of federal and state
legislation and related regulations and enforcement have increased the demand
for air pollution control and particulate collection systems by requiring
industry to meet primary and secondary ambient air quality standards for
specific pollutants, including particulate. In certain manufacturing
applications, particulate collection systems are an integral part of the
production process. Examples of such applications include the production of
cement, carbon black and industrial absorbants.
The principal types of industrial air pollution control and particulate
collection systems in use today are baghouses, electrostatic precipitators,
scrubbers and mechanical collectors. The type of technology most suitable for a
particular application is a function of such factors as the ability of the
system to meet applicable regulations, initial investment, operating costs and
the parameters of the process, including operating temperatures, chemical
constituents present, size of particulate and pressure differential.
A baghouse is typically a large box-like structure which operates in a
manner similar to a vacuum cleaner. It can contain a single filter bag or an
array of several thousand cylindrical or envelope bags (as short as two feet or
as long as 30 feet), within a housing which is sealed to prevent the particulate
from escaping. Exhaust gases are passed through the baghouse, and the
particulate is captured on the fabric of the filter bag. The particulate is
removed from the bag by such methods as mechanical shaking or reverse air flow.
Baghouses are generally used with utility and industrial boilers, cogeneration
plants and incinerators and in the chemicals, cement, asphalt, metals, grain and
foundry industries.
In an electrostatic precipitator, the particulate in the gases is charged
as it passes electrodes and is then attracted to oppositely charged collection
plates. The collected material is periodically removed from the plates by
rapping or vibration. Electrostatic precipitators are used in such industries
as electric power generation, chemicals and pulp and paper as well as in
incinerators. Scrubbers are used for flue gas desulfurization, odor control,
acid gas neutralization and particulate collection. They operate by bringing
gases into contact with water or chemicals and are sometimes used in combination
with baghouses or electrostatic precipitators. Mechanical collectors are used
to remove relatively large particles from airstreams. They are frequently used
in association with other systems as a pre-screening device.
Because air pollution control equipment represents a substantial capital
investment, such systems usually remain in service for the entire life of the
plant in which they are installed. A baghouse can last up to 30 years and is
typically rebagged six to eight times during its useful life. Although reliable
industry statistics do not exist, the Company believes there are over 18,000
locations in the United States presently using baghouses, many of which have
multiple baghouses.
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PRODUCTS AND SERVICES. The Company manufactures and sells a wide variety
of filter bags for baghouse air pollution control and particulate collection
systems. Baghouses are used in a wide variety of industries in the United
States and abroad to limit particulate emissions, primarily to comply with
environmental regulations. The Company manufactures filter bags in standard
industry sizes, shapes and fabrics and to custom specifications, maintaining
manufacturing standards for over 8,000 styles of filter bags to suit
substantially all industrial applications. Filter bags are manufactured from
industrial yarn and fabric purchased in bulk. Most filter bags are produced
from acrylic, fiberglass, polyester, aramid or polypropylene fibers. The
Company also manufactures bags from more specialized materials, sometimes using
special finishes.
The Company manufactures substantially all of the seamless tube filter bags
sold in the United States. Seamless Tube(TM) filter bag fabric is knitted by
the Company on custom knitting equipment and finished using proprietary fabric
stabilization technology. The Company believes this vertically integrated
process gives it certain advantages over purchased fabric, including lower costs
and reduced inventory requirements. In addition, the Company believes its
Seamless Tube(TM) product offers certain users a superior performing filtration
medium because of its fabric structure, weight and lack of a vertical seam. In
certain applications, the knitted fabric structure allows equal airflows with a
lower pressure differential than conventionally woven fabrics, thereby reducing
power costs. In other circumstances, the fabric structure and absence of a
vertical seam allows greater airflow at the same pressure differential as
conventionally woven fabrics, thereby permitting the filtration of a greater
volume of particulate laden gas at no additional cost. The Seamless Tube(TM)
product often improves filter bag durability, resulting in longer life.
The Company also markets numerous filter bag-related products and
accessories used during the installation, operation and maintenance of
baghouses, including welded wire cages, which support filter bags, spring
assemblies for properly tensioning filter bags, and clamps and hanger assemblies
for attaching filter bags. Additionally, the Company markets other hardware
items used in the operation and maintenance of baghouses, including sonic horns
to supplement the removal of particulate from the filter bag and baghouse parts
such as door gaskets, shaker bars, tube sheets, dampers, solenoid valves, timer
boards, conveyors and airlocks. During fiscal 1995, the Company began
commercial operation of a manufacturing facility to produce welded wire cages.
The Company currently purchases all other filter bag-related products and
accessories for resale, including the exclusive North American marketing rights
to a Korean-manufactured line of solenoids, valves and timers used in
conjunction with pulsejet baghouses.
The Company also provides maintenance services, consisting primarily of
dust collector inspection and filter bag retensioning and replacement using a
network of independent contractors. The sale of filter bag-related products and
accessories and baghouse inspection, leak detection and maintenance services
accounts for approximately 15% of the net sales of the Company's filtration
products and services.
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Over the past three years, the Company's filtration products business has
served over 3,000 user locations. The Company has particular expertise in
supplying filter bags for use with electric arc furnaces in the steel industry.
The Company believes its production capacity and quality control procedures make
it a leading supplier of filter bags, in terms of sales, to large users in the
electric power industry. Orders from that industry tend to be substantial in
size but are usually at reduced margins. In the fiscal year ended January 31,
1997 ("fiscal 1997"), no customer accounted for 10% or more of net sales of the
Company's filtration products and services.
MARKETING. The customer base for the Company's filtration products and
services is industrially and geographically diverse. These products and
services are used primarily by operators of utility and industrial coal-fired
boilers, incinerators and cogeneration plants and by producers of metals,
cement, chemicals and other industrial products.
The Company has an integrated sales program for its filtration products
business which consists of field-based sales personnel, manufacturers'
representatives, a telemarketing operation and a computer-based customer
information system containing data on over 15,000 user locations. This system
enables the Company's sales force to access customer information classified by
industry, equipment type, operational data and the Company's quotation and sales
history. The system reminds the telemarketing personnel when each customer is
due to be called and maintains the name and position of the customer contact.
The Company believes its computer-based information system is instrumental in
increasing its sales of filter bag-related products and accessories and
maintenance and rebagging services. The Company is adding to its database for
each of these user locations sufficient information to support such sales.
In 1992, the Company intensified its efforts to market its filtration
products internationally by hiring employees for a new department created
specifically to target major users in foreign countries. Export sales have
increased steadily and totalled 15.7% of filtration products sales in the year
ended January 31, 1997. The Company believes that international sales of its
filtration products have a substantial future potential for growth.
BACKLOG. As of January 31, 1997, the dollar amount of backlog (uncompleted
firm orders) was approximately $6,832,000. As of January 31, 1996, the amount
of backlog was approximately $8,000,000. All of the backlog as of January 31,
1997 is expected to be completed in the fiscal year ending January 31, 1998
("fiscal 1998").
RAW MATERIALS AND MANUFACTURING. The basic raw materials used in the
manufacture of the Company's filtration products are industrial fibers and
fabrics supplied by leading producers of such materials. The greatest volume of
raw material purchases are of woven fiberglass fabric, yarns for manufacturing
Seamless Tube(TM) product and other woven and felted fabrics. For some of these
materials, there are only a limited number of suppliers. From time to time, any
of these materials could be in short supply, adversely affecting the Company's
business. The Company believes supplies of such materials are adequate to meet
current demand. The Company's
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inventory includes substantial quantities of various types of fabrics because
lead times from suppliers are frequently longer than the delivery time required
by customers.
The manufacturing processes for the filtration products include proprietary
computer controlled systems for measuring, cutting, tubing and marking fabric.
The Company also operates a number of special knitting machines and two
proprietary fabric stabilization lines to produce its Seamless Tube(TM)
product. On May 25, 1995, the Company purchased the assets and business which
Armtex, Inc. had used in the manufacture of knitted filtration fabrics. On
August 15, 1996, the Company purchased the assets and business of Eurotech Air
Filtration, Inc., an Oregon corporation, a supplier of pleated filtration
elements. The Company plans to manufacture these products at its Winchester,
Virginia facilities. The finish assembly work on each filter bag is performed
by skilled sewing machine operators using both standard sewing equipment and
specialized machines developed by or for the Company.
The Company maintains a quality assurance program involving statistical
process control techniques for examination of raw materials, work in progress
and finished goods. Certain orders for particularly critical applications
receive 100% quality inspection.
COMPETITION. The filtration products business is highly competitive. In
addition, new installations of baghouses are subject to competition from
alternative technologies. The Company believes that, based on domestic sales,
BHA Group, Inc., the Menardi-Criswell division of Hosokawa Micron International,
Inc., W.L. Gore & Associates, Inc. and the Company are the leading suppliers of
filter bags, parts and accessories for baghouses. There are at least 30 smaller
competitors, most of which are doing business on a regional or local basis.
Some of the Company's competitors have greater financial resources than the
Company.
The Company believes price, service and quality are the most important
competitive factors in its filtration products business. Often, a manufacturer
has a competitive advantage when its products have performed successfully for a
particular customer in the past. In such instances, additional efforts are
required by a competitor to market products to such a customer. In certain
applications, the Company's proprietary Seamless Tube(TM) product and customer
support provide the Company with a competitive advantage. Certain competitors
of the Company may have a competitive advantage because of their proprietary
products and processes, such as specialized fabrics and fabric finishes. In
addition, some competitors may have cost advantages with respect to certain
products as a result of lower wage rates and greater vertical integration.
GOVERNMENT REGULATION. The Company's filtration products business to a
large extent is dependent upon government regulation of air pollution at the
federal and state levels. Federal clean air legislation requires compliance
with national primary and secondary ambient air quality standards for specific
pollutants, including particulate. The states have primary responsibility for
implementing these standards, and in some cases, have adopted more stringent
standards than those adopted by the U.S. Environmental Protection Agency under
the Clean Air Act Amendments of 1990 ("Clean Air Act Amendments"). Although
there can be no assurances as
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to what the ultimate effect, if any, the Clean Air Act Amendments will have on
the Company's filtration products business, the Company believes that the Clean
Air Act Amendments are likely to have a long term positive effect on demand for
its filtration products and services. The current initiative of the U.S. EPA to
reduce the size of particulates regulated by the National Air Quality Standard
from 10 microns to 2.5 microns could have a significant positive effect on the
demand for the Company's filtration products in future years.
PIPING SYSTEM PRODUCTS
PRODUCTS AND SERVICES. The Company engineers, designs and manufactures
specialty piping systems and leak detection and location systems. The Company's
piping system products include (i) secondary containment piping systems for
transporting hazardous fluids and petroleum products and (ii) insulated and
jacketed district heating and cooling piping systems for efficient energy
distribution to multiple locations from central energy plants. The Company's
leak detection and location systems are sold as part of many of its piping
system products, and, on a stand alone basis, to monitor areas where fluid
intrusion may contaminate the environment, endanger personal safety, cause a
fire hazard or damage equipment or property.
The Company's leak detection and location systems consist of a sensor cable
attached to a microprocessor which utilizes a proprietary software program. The
system sends pulse signals through the center of the sensor cable, which is
positioned in the area to be monitored (e.g., along a pipeline in the ground or
in a subfloor), and employs a patented digital mapping technique to plot pulse
reflections, to continuously monitor the sensor cable for anomalies. The system
is able to respond to between one and three feet of wetted cable depending upon
the length of the monitored cable and is able to determine the location of
wetted cable within five feet. Once wetted cable is detected, the
microprocessor utilizes graphics software to illustrate the location of the
leak. The Company offers a variety of cables specific to different
environments. The Company's leak detection and location systems can sense the
difference between water and petroleum products and can detect multiple leaks.
With respect to these capabilities, the Company believes that its systems are
superior to systems manufactured by other companies. Once in place, the
Company's leak detection and location system can be monitored off-site because
the system can communicate with computers through telephone lines. The
Company's leak detection and location systems are being used to monitor fueling
systems at airports including those located in Denver, Colorado, Atlanta,
Georgia, Frankfurt, Germany, and Hamburg, Germany, and in many clean rooms,
including such facilities operated by IBM, Intel and Motorola. The Company
believes it is the only major supplier of the type of piping systems sold by it
in the United States that manufactures its own leak detection and location
systems.
The Company's secondary containment piping systems, manufactured in a wide
variety of piping materials, are generally used for the handling of hazardous
liquids and petroleum products. Secondary containment piping systems consists
of service pipes housed within outer containment pipes, which are designed to
contain any leaks from the service pipes. Each system is designed to provide
economical and efficient secondary containment protection that will meet
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all governmental environmental regulations. In 1990, the Company developed the
Double-Quik(R) thermoplastic secondary containment piping systems with leak
detection and location capabilities. This system is installed by using a
technique that allows simultaneous thermal welding of the service pipe and the
containment pipe in a single process, with a leak detection messenger cable in
place. The leak detection messenger cable is to be used subsequently to pull in
the leak detection sensor cable. In June 1993, the Company was granted a patent
on the special equipment designed to accomplish this process.
The Company's district heating and cooling piping systems are designed to
transport steam, hot water and chilled water to provide efficient energy
distribution to multiple locations from a central energy plant. These piping
systems consist of a carrier pipe made of steel, iron, copper or fiberglass;
insulation made of mineral wool, calcium silicate or polyurethane foam; and an
outer conduit of steel, fiberglass, polyethylene or PVC. The Company
manufactures several types of piping systems using different materials, each
designed to withstand certain levels of temperature and pressure.
The Company's piping systems normally are custom fabricated to job site
dimensions and frequently incorporate provisions for thermal expansion due to
varying temperatures. This custom fabrication helps to minimize the amount of
labor required by the installation contractor. In fiscal 1997, no single
customer accounted for more than 10% of the net sales of the Company's piping
system products. Most of the Company's piping system products are produced for
underground installations and therefore require trenching which is done by
unaffiliated installation contractors. Generally, sales of the Company's piping
system products tend to be lower during the winter months, due to weather
constraints over much of the country.
The Company's leak detection and location systems and its secondary
containment piping systems are used primarily by operators of military and
commercial airport fueling systems, oil refineries, pharmaceutical companies,
chemical companies, and in museums, dry storage areas and tunnels. The
Company's district heating and cooling systems are used primarily at prisons,
housing developments, military bases, cogeneration plants, hospitals and college
campuses. The Company believes many district heating and cooling systems in
place are 30 to 50 years old and ready for replacement. Replacement of district
heating and cooling systems is often motivated by the increased cost of
operating older systems due to leakage and heat loss.
MARKETING. The Company's piping system products are used by industrially
and geographically diverse customers. The Company employs one national sales
manager and seven regional sales managers who utilize and assist a network of
approximately 85 domestic independent manufacturer's representatives, none of
whom sell products that are competitive with the Company's piping system
products. The Company also sells its piping systems and leak detection and
location systems in Europe, through its wholly owned subsidiaries Perma-Pipe
Services, Ltd. and SZE Hagenuk GmbH ("SZE Hagenuk"). In addition, the Company
has other arrangements to market its patented leak detection and location
systems in many other foreign countries through agents.
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PATENTS, TRADEMARKS AND APPROVALS. The Company owns several patents
covering the features of its electronic leak detection system, which expire
commencing in 2006 and thereafter. In addition, the Company's leak detection
system is listed by Underwriters Laboratories and the U.S. Environmental
Protection Agency and is approved by Factory Mutual and the Federal
Communication Commission. The Company is also approved as a supplier of
underground district heating systems under the federal government guide
specifications for such systems. The Company also owns numerous trademarks
connected with its piping business. In addition to Perma-Pipe(R), the Company
owns other trademarks for its piping and leak detection systems including the
following: Chil-Gard(R), Double-Pipe(R), Double-Quik(R), Escon-A(R),
Ferro-Shield(R), Galva-Flex(R), Galva-Gard(R), Hi Gard(R), Imperial(R),
Poly-Therm(R), Pal-AT(R), Ric Wil(R), Ric-Wil Dual Gard(R), Stereo-Heat(R),
Safe-T-Gard(R) and Uniline(R). The Company also owns United Kingdom trademarks
for Poly-Therm(R), Perma-Pipe(R) and Ric-Wil(R), a Canadian trademark for
Ric-Wil(R) and a German trademark for Leacom(R).
BACKLOG. As of January 31, 1997, the dollar amount of backlog (uncompleted
firm orders) was approximately $14,500,000, all of which is expected to be
completed in fiscal 1998. As of January 31, 1996, the amount of backlog was
approximately $21,200,000. The higher backlog at January 31, 1996 was largely
due to the late fourth quarter booking of a large secondary containment order
for a U.S. government installation.
RAW MATERIALS AND MANUFACTURING. The basic raw materials used in the
production of the Company's piping system products are carbon steel, alloy,
plastic and fiberglass mostly purchased in the form of pipe or tube. Although
such materials are generally readily available, there may be instances when any
of these materials could be in short supply. The Company believes supplies of
such materials are adequate to meet current demand.
The sensor cables used in the Company's leak detection and location systems
are manufactured to the Company's specifications by companies regularly engaged
in the business of manufacturing such cables. The Company owns patents for some
of the features of its sensor cables. The monitoring component of the leak
detection and location system is assembled by the Company from standard
components purchased from many sources. The Company's proprietary software is
installed onto the system on a read only memory chip.
The Company's manufacturing processes for its piping systems include
equipment and techniques to fabricate piping systems from a wide variety of
materials, including carbon steel, alloy, copper and plastic piping, and
engineered thermoplastics and fiberglass reinforced polyesters and epoxies. The
Company uses computer-controlled machinery for electric plasma metal cutting,
filament winding, pipe coating, insulation foam application, pipe cutting and
pipe welding. The Company employs skilled workers for carbon steel and alloy
welding to various code requirements. The Company is authorized to apply the
American Society of Mechanical Engineers code symbol stamps for unfired pressure
vessels and pressure piping. The Company's inventory includes various types of
pipe, tube, insulation, pipe fittings and other components used
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in its products. The Company maintains a quality assurance program involving
lead worker sign-off of each piece at each work station and non-destructive
testing protocols.
COMPETITION. The Company believes the competitors for its piping system
products generally include those competing in the district heating and cooling
market, specialty manufacturers of contained piping systems that offer a limited
number of pipe material choices, and leak detection and location system
manufacturers that sell in the piping market and the stand alone leak detection
system market. The piping system products business is highly competitive. The
Company believes its competition in the district heating and cooling market
consists of two other national companies, Rovanco Piping Systems, Inc. and
Thermacor Process, Inc. neither of which dominates this market, and numerous
regional competitors. The Company's secondary containment piping systems have a
wider range of competitors than those in the district heating and cooling market
and include Asahi/America, Guardian by Chemtrol and GF Plastics Systems.
Products competitive with the Company's leak detection and location systems
include: (1) cable-based systems manufactured by the TraceTek Division of
Raychem; (2) linear gaseous detector systems manufactured by Tracer Technologies
and Arizona Instrument Corp; and (3) probe systems manufactured by Redjacket, as
well as several other competitors that provide probe systems for the service
station and hydrocarbon leak detection industries.
The Company believes that price, quality, service and a comprehensive
product line are the key competitive factors in the Company's piping system
products business. The Company believes it has a more comprehensive line of
piping system products than any of its competitors. Certain competitors of the
Company have cost advantages as a result of manufacturing a limited range of
products. Some of the Company's competitors have greater financial resources
than the Company.
GOVERNMENT REGULATION. The demand for the Company's leak detection and
location systems and secondary containment piping systems is driven primarily by
federal and state environmental regulation with respect to hazardous waste. The
Federal Resource Conservation and Recovery Act requires, in some cases, that the
storage, handling and transportation of certain fluids through underground
pipelines feature secondary containment and leak detection. The National
Emission Standard for Hydrocarbon Airborne Particulates, which requires
reduction of airborne volatile organic compounds and fugitive emissions, has
caused many major refineries to recover fugitive vapors and dispose of the
recovered material into the process sewer system which then becomes a hazardous
waste system required to be secondarily contained. Although there can be no
assurances as to the ultimate effect of these government regulations, the
Company believes they will increase the demand for its piping system products.
INDUSTRIAL PROCESS COOLING EQUIPMENT
PRODUCTS AND SERVICES. The Company's Thermal Care division engineers,
designs and manufactures coolers for industrial purposes. The Company's cooling
products include (i) chillers (portable and central); (ii) cooling towers; (iii)
plant circulating systems; (iv) water, hot oil, and
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negative pressure temperature controllers; (v) water treatment equipment and
(vi) various other accessories and replacement parts relating to the foregoing
products. The Company's cooling products are used to optimize manufacturing
productivity by quickly removing heat from manufacturing processes. The
principal market for the Company's cooling products is the plastics processing
industry. The Company also sells its products to OEM's, other cooling
manufacturers on a private branded basis and to manufacturers in the laser,
metallizing, and reaction injection molding industries.
The Company combines chillers or cooling towers and plant circulating
equipment to create plant-wide systems that account for a large portion of its
business. The Company specializes in customizing cooling systems according to
customer orders.
Chillers. Chillers are refrigeration units designed to provide cool water
to a process for the purpose of removing heat from the process and transferring
that heat to an area where it can be dissipated. This heat is either dissipated
using air (air cooled chillers) or water (water cooled chillers). Water cooled
chillers use a cooling tower to transfer the heat from the chiller using water
and then releasing the heat to the atmosphere with the cooling tower.
The Company believes that it manufactures the most complete line of
chillers available in its primary market (plastics processing). The Company's
line of portable chillers are available from 1/2 horsepower to 40 horsepower
and incorporate a new microprocessor that is capable of computer communications.
While portable chillers are considered to be a commodity product by many
customers, the Company believes that its new unit enables it to provide the
customer with quality, features, and benefits at a competitive price.
Central chillers are used for plant wide cooling, and while some models
incorporate their own pump and tank, most are sold with a separate pumping
system. The Company is currently the only manufacturer to offer as many types
of central water and remote air cooled chillers. These chillers are
distinguished by the manner in which the compressor (refrigerant pump) and the
evaporator (heat exchanger water to refrigerant) is utilized in the chiller. The
Company believes that its ability to offer this variety of units and the
extensive use of PLC (Programmable Logic Controls) provides it with a unique
concept sales advantage. The Company's central chillers are available from 10
horsepower to 125 horsepower per refrigeration section.
Cooling Towers. A cooling tower is essentially a cabinet with heat
transfer fill media that has water flow down across the fill while air is pulled
up by a fan motor through the fill. Cooling takes place by evaporation. Cooling
towers are located outdoors and are designed to provide approximately 85 degrees
F water to remove heat from water cooled chillers, air compressors, hydraulic
oil and other processes that can effectively be cooled with such water.
The Company markets two lines of cooling towers. The FT series towers were
introduced in 1984 and at the time were the first fiberglass cooling towers to
be sold in the U.S. The cabinets for these towers are imported from Taiwan and
are available in sizes ranging from three
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to 850 tons. (One tower ton equals 12,000 BTU/hour of heat removal). Fiberglass
cooling towers have achieved high popularity and are available from many
suppliers. The FC fiberglass tower line, which is designed and engineered by
the Company and which the Company believes is the highest quality cooling tower
in the market today, is available from 80 to 200 tons.
Plant Circulating Systems. The Company manufactures and markets a variety
of tanks in various sizes with pumps and piping arrangements that utilize alarms
and other electrical options. Thus, each system is unique and customized to
meet customers' individual needs. These plant circulating systems are used as
an integral part of central tower and chiller systems. This product line was
expanded in Fiscal 1997 with the introduction of FRP tanks.
Temperature Control Units. Most temperature control units are used by
injection molders of plastic parts to remove heat from the molds at an elevated
temperature for the purpose of improving part quality. The recent introduction
of the Company's totally redesigned unit, the RA series, has resulted in a
doubling of temperature control unit sales. Over 90% of the temperature control
units sold in the industry are water units. The remaining units use oil as the
heat transfer medium. The Company sells an oil temperature control unit
manufactured in Denmark pursuant to an exclusive marketing agreement for North
America.
Water Treatment Equipment and Accessories. Sold as an accessory to cooling
tower systems, water treatment equipment must be used to protect the equipment
that is being cooled. The Company sells units manufactured to its
specifications by a supplier that provides all the equipment needed to properly
treat the water. While a relatively small part of Thermal Care's business, this
arrangement allows the Company to offer a complete system to its cooling
products customers. In addition, the Company provides other items to complement
a system that is purchased from a supplier and usually drop shipped directly to
a customer; principally, heat exchangers, filtration systems, special valves,
and "radiator type" coolers.
Parts. The Company strives to fill parts orders within 24 hours and sells
parts at competitive margins in order to enhance new equipment sales.
MARKETING. In general, the Company sells its cooling products to five
different markets.
1. The domestic plastics market is the largest market served by the Company,
representing the core of its business. There are approximately 8,000 companies
processing plastic products in the United States, primarily using injection
molding, extrusion, and blow molding machinery. The Company believes that the
total market for water cooling equipment in the plastics industry is $120
million annually, and that the Company is the third largest supplier of heat
transfer equipment to the plastics industry with a market share of 14% to 16%.
The Company believes that the plastics industry is a mature industry with growth
generally consistent with that of the national economy. Due to the high
plastics content in many major consumer items, such as cars and appliances, this
industry experiences economic cyclical activity. The Company believes that it
is recognized in the domestic plastics market as a quality equipment
11
<PAGE> 13
manufacturer and that the Company will be able to maintain its market share with
opportunities for increased share through product development. The Company's
cooling products are sold through independent manufacturers' representatives on
an exclusive territory basis. Seventeen agencies are responsible for covering
the United States and are supported by four Thermal Care regional managers.
2. The primary emphasis for the sale of the Company's cooling products
outside the United States has been in Latin America and through system design
consultants' assembly of complete world wide PET (plastic bottle) plants,
significant numbers of which are being built by large companies. This activity
is currently recovering from a decline in recent years due to the devaluation of
the Mexican peso. The Company believes that Thermal Care has a significant
opportunity for growth due to the high quality of its equipment and the fact
that it offers complete and integrated system design. Many United States
competitors do not provide equipment outside of the U.S., and while there are
European competitors selling equipment in Latin America, the Company believes
that they lack system design capabilities and have a significant freight
disadvantage. The Company markets its cooling products through a combination of
manufacturers' representatives, distributors, and consultants, some of which are
recognized as the leaders in the distribution of plastics machinery throughout
Latin America.
3. A relatively small percentage of the Company's cooling products are sold
to smaller competitors on a private branded basis. The margins on this
equipment are lower; however, such sales are primarily in product lines where
the incremental volume is of significant benefit in Thermal Care's manufacturing
process. The Company believes that there are a number of companies that could
participate with it in this type of name branding activity.
4. The Company sells cooling towers to the HVAC industry, primarily to
contractors or commercial/governmental facilities, for cooling the condensers of
chillers used to provide air conditioning. The Company believes that the size
of this market exceeds $300 million annually, but the Company's market share is
low due to the relatively high pricing of its high quality products. The
Company's cooling towers are sold through either manufacturers' representatives
or distributors.
5. An increasing share of the Company's sales is to non-plastics industries
that require specialized heat transfer equipment, usually sold to end-users as a
package by the supplier of the primary equipment. The Company's sales in the
laser, metallizing and reaction injection molding industries have been
particularly strong. The Company believes that the size of this market is over
$200 million annually. The Company expects growth in this market due to its
ability to work with OEM customers that perceive the Company to be a quality
supplier. Distribution of products in this market is generally handled by the
OEM. The Company is establishing a manufacturers' network to cover
approximately one half the U.S.
TRADEMARKS. The Company has applied for registration of the trademark,
"Thermal Care", with the U.S. Patent and Trademark Office.
12
<PAGE> 14
BACKLOG. As of January 31, 1997, the dollar amount of Thermal Care's
backlog (uncompleted firm orders) was approximately $4,513,000. As of January
31, 1996, the amount of backlog was approximately $4,116,000. Substantially all
of the backlog as of January 31, 1997 is expected to be completed before January
31, 1998.
RAW MATERIALS AND MANUFACTURING. Thermal Care's production facility uses
approximately 35,000 square feet with an additional 15,000 square feet of
inventory storage space. The plant layout is designed to facilitate movement
through multiple work centers. Thermal Care uses the Manufacturing Accounting
Production Inventory Control System (MAPICS) to support its manufacturing
operations. The status of the customer order at any given moment can be
determined through the MAPICS System.
The Company utilizes prefabricated sheet metal and sub-assemblies
manufactured by both Thermal Care and outside vendors for temperature controller
manufacture. This reduces the labor to complete finish goods. The production
line for the product is self-contained, allowing the Company to assemble, wire,
test, and crate the units for shipment with minimal handling.
FT towers up to 100 tons in capacity are assembled to finished goods
inventory, which allows the Company to meet quick delivery requirements. Towers
over 100 tons in capacity are shipped for field assembly. The Company employs
field technicians that can assist the customer with assembly. FT cooling towers
are manufactured using fiberglass and hardware components purchased from a
Taiwanese manufacturer, which is the Company's sole source for such products.
The wet deck is cut from bulk fill material and installed inside the tower.
Customer-specified options can be added at any time.
The FC towers are rectangular in design and are engineered by the Company.
Two different cabinet sizes of the FC tower account for 16 different model
variations from 80 through 200 tons. All FC cooling towers are assembled at
the Company's Niles facility. FC towers can be shop assembled before shipment.
The Company assembles all plant circulating systems by fabricating the
steel to meet the size requirements and adding purchased components to meet the
customer specifications. Electrical control boxes assembled in the electrical
panel shop are then added to the tank and hardwired to all electrical
components. The interior of carbon tanks is coated with an immersion service
epoxy and the exterior is painted in a spray booth. The Company now offers
stainless steel and fiberglass tanks to meet the need for noncorrosive
applications.
Portable chillers are assembled using components manufactured by the
Company and supplied by outside vendors. Small air cooled portable chillers are
assembled using a condensing unit, a non-corrosive tank, hose, and prepainted
sheet metal. Many of the components in these chillers are fabricated as
sub-assemblies and held in inventory. Once the water and refrigeration
components have been assembled, the unit is moved to the electrical department
for the addition of control sub-assemblies and hardwiring. The chillers are
then evacuated, charged with
13
<PAGE> 15
refrigerant and tested under fully loaded conditions. The final production step
is to clean, insulate, label, and crate the chiller for shipment.
Central chillers are manufactured to customer specifications. Many of the
components are purchased to the job requirements and production is planned so
that sub-assemblies are completed to coincide with the work center movements.
After mechanical and electrical assembly, the chiller is evacuated, charged with
refrigerant and tested at full and partial load conditions. The equipment is
then insulated and prepared for painting. The final production step completes
the quality control inspection and prepares the unit for shipment.
The Company believes that there are approximately 13 competitors selling
cooling equipment in the domestic plastics processing equipment market. Three
manufacturers, including the Company, collectively share approximately 75% of
the market. Some potential foreign customers with relatively small cooling
needs are able to purchase small refrigeration units (portable chillers) that
suit their needs and are manufactured in their respective local markets at
prices below that which the Company can offer competing products. However, such
local manufacturers often lack the technology and products needed for plant-wide
cooling. The Company believes that its positive reputation for producing
quality plant-wide cooling product results in a significant portion of the
business in this area.
The Company believes that price, quality, service and a comprehensive
product line are the key competitive factors in Thermal Care's business. The
Company believes that it has a more comprehensive line of cooling products than
any of its competitors. Certain competitors of Thermal Care have cost
advantages as a result of manufacturing in non-union and more modern/efficient
shops and of offering a limited range of products. Some of Thermal Care's
competitors have greater financial resources than the Company.
GOVERNMENT REGULATION. The Company does not expect compliance with Federal,
State and local provisions regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment to have
a material effect upon the capital expenditures, earning or competitive
position of Thermal Care, nor is management aware of the need for any material
capital expenditures for environmental control facilities for the remainder of
the current fiscal year or for the foreseeable future. Although regulations
recently promulgated under the Federal Clean Air Act prohibit the manufacture
and sale of certain refrigerants, none of these refrigerants are used by the
Company in its products. Although there can be no assurance as to the ultimate
effect on the Company of the Clean Air Act and related laws, the Company
expects that suitable refrigerants conforming to Federal, State and local laws
and regulations will continue to be available to the Company.
14
<PAGE> 16
EMPLOYEES
As of March 31, 1997, the Company had 665 full-time employees, 72 of whom were
engaged in sales and marketing, 81 of whom were engaged in management and
administration, and the remainder were engaged in production. Hourly
production employees of the Company's filtration products business are covered
by a collective bargaining agreement, which expires in October 1997. Hourly
production employees of the Company's piping system products business in
Lebanon, Tennessee are covered by a collective bargaining agreement that
expires in March 1998. Most of production employees of the Company's cooling
products business are represented by two unions, the Pipefitters and the
International Brotherhood of Electrical Workers unions pursuant to collective
bargaining agreements that both expire on June 1, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding the executive officers
of the Company as of March 31, 1997:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
OF THE COMPANY OR
ITS PREDECESSORS
AGE POSITION SINCE
--- ------------------------------------- -----------------
<S> <C> <C> <C>
David Unger 62 Chairman of the Board of Directors, 1972
President and Chief Executive Officer
Henry M. Mautner 70 Vice Chairman of the Board of 1972
Directors
Gene K. Ogilvie 57 Vice President and Director 1969
Fati A. Elgendy 48 Vice President and Director 1990
Bradley E. Mautner 40 Vice President and Director 1994
Don Gruenberg 54 Vice President and Director 1980
Michael D. Bennett 53 Vice President, Secretary and 1989
Treasurer
Billy E. Ervin 51 Vice President 1986
Joseph P. Findley 57 Vice President 1991
J. Tyler Headley 46 Vice President 1973
Robert A. Maffei 49 Vice President 1987
Herbert J. Sturm 46 Vice President 1977
</TABLE>
All of the officers serve at the discretion of the Board of Directors.
15
<PAGE> 17
David Unger was the President of Midwesco, Inc. from 1972 through January
1994. He has been a director of Midwesco, Inc. since 1972, and served that
company in various executive and administrative capacities from 1958 until the
consummation of the Thermal Care Merger.
Henry M. Mautner served as Chairman of Midwesco, Inc., from 1972, and
served that company in various executive and administrative capacities from
1949, until the consummation of the Thermal Care Merger. Since the
consummation of the Thermal Care Merger, he has served as the Chairman of the
Company formed to succeed to the non-Thermal Care businesses of Midwesco, Inc.
Mr. Mautner is the father of Bradley E. Mautner.
Gene K. Ogilvie has been employed by the Company and its predecessors in
various executive capacities since 1969. He has been general manager of
Midwesco Filter or its predecessor since 1980 and President and Chief Operating
Officer of Midwesco Filter since 1989. From 1982 until the consummation of the
Thermal Care Merger, he served as Vice President of Midwesco, Inc.
Fati A.Elgendy became President and Chief Operating Officer of Perma Pipe
in March, 1995. Mr. Elgendy served as Vice President, Director of Sales and
Marketing for Perma-Pipe from 1990 until March of 1995. He was associated with
Midwesco, Inc. from 1978 until the consummation of the Perma-Pipe Merger.
Bradley E. Mautner has served as Vice President of the Company since
December 1996 and has been a director of the Company since 1995. From 1994 to
the consummation of the Thermal Care Merger, he served as President of
Midwesco, Inc. In addition, since February 1996, he has served as the Chief
Executive Officer of Midwesco Services, Inc. (formerly known as Mid Res, Inc.).
From February 1988 to January 1996, he served as the President of Mid Res,
Inc. Bradley E. Mautner is the son of Henry M. Mautner.
Don Gruenberg has served as Vice President and director of the Company
since December 1996. He was employed by Airtemp division of Chrysler
Corporation in various positions from 1968 to 1969. From 1970 to 1974, Mr.
Gruenberg was employed in various positions by Dunham-Bush Inc. Prior to
rejoining Midwesco, Inc. in 1980, he was employed by Thermal Care/Mayer, a
division of Midwesco, Inc. from 1974 to 1979. During the intervening period,
Mr. Gruenberg served as an independent manufacturer's representative for
several product lines in the Midwest region. Mr. Gruenberg is a member of the
National Board, Society of the Plastics Industry.
Michael D. Bennett has served as the Chief Financial Officer and Vice
President of MFRI and its predecessors since August, 1989.
Billy E. Ervin has been Vice President, Director of Production of
Perma-Pipe since 1986.
16
<PAGE> 18
Joseph P. Findley has been Vice President, Manufacturing, of Midwesco
Filter since October 1991, having served as Manager, Quality Control and
Assurance since January 1989. From 1971 to 1988, he served in various
executive capacities for the Menardi-Criswell division of Hosokawa Micron
International, Inc. and a predecessor of that division.
J. Tyler Headley has been employed by the Company in various executive
capacities since 1973 and has served as Vice President, Marketing and Sales of
Midwesco Filter since May 1986.
Robert A. Maffei has been Vice President, Director of Sales and Marketing
of Perma-Pipe since August 1996. He had served as Vice President, Director of
Engineering of Perma-Pipe since 1987 and an employee of Midwesco, Inc. from
1986 until the acquisition of Perma-Pipe by MFRI in 1994.
Herbert J. Sturm has served the Company since 1975 in various executive
capacities including Vice President, Materials and Marketing Services of
Midwesco Filter.
ITEM 2. PROPERTIES
The Company's principal executive offices, and the production facilities
for the Company's cooling products business, are located in a 126,000-square
foot facility leased by the Company at 7720 Lehigh Avenue, Niles, Illinois
60714. The production facilities for the Company's filtration products, which
total 164,500 square feet, are located in buildings situated on approximately
fifteen acres owned by the Company in a modern industrial park in Winchester,
Virginia. This includes the adjacent facility purchased by the Company in May
1996. The primary production facilities for the Company's piping system
products are located on approximately 24 acres of land in a modern industrial
park in Lebanon, Tennessee, and are housed in four buildings, which total
120,000 square feet including additions currently under construction and
contain manufacturing, warehouse and office facilities. The Company owns the
buildings and the land for the Tennessee facility. The Company leases a
22,000-square foot warehouse facility in Niles, Illinois and a 2,600-square
foot office and warehouse facility located in Riverside, California.
The Company believes its properties and equipment are well maintained, in
good operating condition and that their productive capacities will be generally
adequate for its present and currently anticipated needs.
Compliance with environmental regulations by the Company in its
manufacturing operations has not had, and is not anticipated to have, a
material effect on the capital expenditures, earnings or competitive position
of the Company.
ITEM 3. LEGAL PROCEEDINGS
Midwesco, Inc., or one of its affiliates, PermAlert ESP, Inc.
("PermAlert") or Perma-Pipe, Inc. ("PPI"), was a party to three lawsuits (the
"Pending Suits"), each of which, upon
17
<PAGE> 19
consummation of the Thermal Care Merger, became the obligations of MFRI.
Pursuant to the merger agreement relating to the Thermal Care Merger, from and
after the effective time of the Thermal Care Merger (the "Effective Time"),
MFRI will bear all costs and expenses of the Pending Suits, including, but not
limited to, any judgments or settlement costs (the "Expenses"); provided,
however, after MFRI has spent an aggregate of $400,000 in Expenses, all such
Expenses of the Pending Suits will be paid from a special escrow holding 66,890
shares of MFRI common stock (the "Special Escrow"). In the event there are no
shares of MFRI common stock in the Special Escrow, the responsibility for the
Pending Suits will be solely that of MFRI. Upon the disposition or termination
of all of the Pending Suits, any shares in the Special Escrow will be
distributed to the shareholders of Midwesco, Inc. as of the Effective Time
prorata to their interests in Midwesco, Inc. at the Effective Time.
IHP Industrial v. Perm Alert ESP, Case No. 96 CV 068(b), was filed in May
1996, in the Circuit Court of Lauderdale County, Mississippi. It involves a
contract which PermAlert entered into with IHP Industrial, Inc. to supply a
contained piping system for underground transport of jet fuel at the Air
National Guard field in Meridian, Mississippi. The original purchase order for
the project was $723,680 and subsequent change orders increased the contract
price to $749,207. The plaintiff is seeking damages in excess of $832,537.74,
based on claims for breach of warranty, misrepresentation and negligence.
PermAlert has filed a counter-claim for $193,884.21, for amounts due under the
original contract, including change orders, and for extras involved in the
repair of the contained piping system.
State Farm Mutual Automobile Ins. Co. v. George Hyman Constr. Co, et al.,
Case No. 95 L 310, is pending in the Circuit Court of the Eleventh Judicial
Circuit, McLean County, Illinois. In July 1996, defendant J.A. House, Inc.
("J.A. House") sued Perma-Pipe in a Third Party Complaint in that litigation.
The claim against Perma-Pipe relates to a sub-contract which Perma-Pipe entered
with J.A. House, pursuant to which Perma-Pipe agreed to supply a hot water
supply and return piping system with leak detection capabilities, for the
construction of the State Farm Mutual Automobile Insurance Company complex in
Bloomington, Illinois. J.A. House seeks unspecified damages, in an amount in
excess of $150,000.00, for breach of contract, breach of warranty,
indemnification and negligence, based on its alleged costs in locating and
repairing leaks in the return piping system and in its attempt to dry out the
system after the leaks were repaired.
In May 1993, Midwesco, Inc. and PermAlert filed a complaint against PPG
Industries, Inc. ("PPG") and Crain Brothers, Inc. ("Crain") which remains
pending in the United States District Court for the Western District of
Louisiana entitled, Midwesco, Inc. et al. v. PPG Industries, Inc., et al., Case
No. 93 C 1271. This case involves a March, 1991 agreement between PermAlert
and PPG for the manufacture and delivery, by PermAlert, of a chlorine pipeline
and related services. In turn, PermAlert entered into sub-contracts with Crain
and Thermon Manufacturing Co. ("Thermon") for some of the work under its
contract with PPG. PermAlert's original contract was for $1,009,683.00. In
August 1992, the parties entered into a change order, which increased the
contract price by an additional $240,764.00. During the
18
<PAGE> 20
course of PermAlert's work, PPG and PermAlert agreed to additional change
orders in the amount of $125,887.05. PPG has failed to pay $236,024.78 due
under the contract and the change orders.
In its amended complaint in the lawsuit, PermAlert seeks: (1) $236,024.78
in compensatory damages from PPG for breach of contract; and (2) punitive
damages in excess of $250,000.00 from PPG for fraud. In turn, PPG has filed a
counter-claim against PermAlert, alleging that the heat-trace system failed,
and seeking damages in the amount of $449,222.00, its alleged costs of repair
for the system. In response, PermAlert has also asserted claims in the lawsuit
against Thermon, Crain and Keystone Pipeline Services, Inc. ("Keystone"),
seeking: (1) a declaration that PermAlert is not obligated to pay Crain the
$118,690.61 which Crain has demanded in connection with work it performed for
the project; (2) damages in an unspecified amount against Crain and Thermon for
negligence; (3) indemnification and contribution from Crain and Thermon, if
PermAlert is required to pay any damages to PPG; and (4) damages for negligence
and contribution from Keystone, PPG's project supervisor, if PermAlert is
required to pay any damages to PPG.
19
<PAGE> 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders of the Company was held on December 16,
1996. The only matter voted upon at the special meeting was the Thermal Care
Merger. The following table sets forth the results of the vote on such matter:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
For 3,647,198
Against 24,687
Abstain
Withheld
Broker Non-Votes
------------
TOTAL: 3,671,885
</TABLE>
20
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on The Nasdaq National Stock Market
under the symbol "MFRI." The following table sets forth, for the periods
indicated, the high and low sales prices as reported by the Nasdaq National
Market for fiscal 1996 and for fiscal 1997.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
-------------- ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . $5.38 $4.00
Second Quarter . . . . . . . . . . . . . . 6.00 4.00
Third Quarter . . . . . . . . . . . . . . . 7.13 5.25
Fourth Quarter . . . . . . . . . . . . . . 7.50 5.75
<CAPTION>
FISCAL 1997 HIGH LOW
-------------- ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . $7.25 $5.75
Second Quarter . . . . . . . . . . . . . . 8.00 6.50
Third Quarter . . . . . . . . . . . . . . . 8.13 6.63
Fourth Quarter . . . . . . . . . . . . . . 8.13 6.88
</TABLE>
As of January 31, 1997, there were approximately 150 stockholders of
record, and approximately 1,350 beneficial stockholders of the Company's Common
Stock.
The Company has never declared or paid a cash dividend and does not
anticipate paying cash dividends on its common stock in the foreseeable future.
Management presently intends to retain all available funds for the development
of the business and for use as working capital. Future dividend policy will
depend upon the Company's earnings, capital requirements, financial condition
and other relevant factors. The Company's line of credit agreement contains
certain restrictions on the payment of dividends. The primary restriction
limits dividends to a cumulative amount of up to 50% of net income.
On October 21, 1996, the shareholders of Midwesco, Inc. approved the
Thermal Care Merger by unanimous written consent and on October 25, 1996, the
Company and Midwesco, Inc. entered into an Agreement for Merger. On December
30, 1996, shares of the Company's common stock constituting consideration for
the Thermal Care Merger (the "Merger Shares") were issued to 20 shareholders of
Midwesco, Inc., 14 of whom are "accredited investors" as such term is defined
by Rule 501(a) promulgated under the Securities Act of 1933 (the "Securities
Act"). The offer and sale of the Merger Shares were effected in reliance upon
the exemptions from registration under Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
21
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the Company for the fiscal years
ended January 31, 1997, 1996, 1995, 1994 and 1993 are derived from the
financial statements of the Company. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included herein in response to Item 7 and
the consolidated financial statements and related notes included herein in
response to Item 8.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net Sales $93,573 $85,838 $75,495 $29,866 $25,262
Income from operations 6,396 4,738 2,384 2,459 1,755
Net Income 3,230 2,373 1,203 1,534 1,149
Net Income per share 0.70 0.52 0.27 0.54 0.41
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $75,328 $58,985 $47,917 $36,898 $12,472
Long-term debt, less current
portion 22,627 13,691 6,650 3,100 -
Capitalized leases,
less current portion 1,294 217 252 147 20
</TABLE>
The following table sets forth statements of operations data for the
Company's industrial process cooling equipment business. See Notes 4 and 11 to
Notes to Financial Statements. This information is not included in the
accounts of the Company prior to December 30, 1996 because the Midwesco Merger
was not effected until December 30, 1996. Since Thermal Care was a division of
Midwesco, Inc. prior to the Midwesco Merger, per share data is not available.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------------------
1997 1996 1995 1994 1993
------- ------- -------------- ------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
THERMAL CARE STATEMENTS OF OPERATIONS
DATA:
Net Sales $20,036 $19,775 $18,528 $13,127 11,640
Income (loss) from continuing operations 661 1,318 1,623 (89) (63)
Net Income (loss) 1,161 894 936 128 (420)
Net Income (loss) per share NA NA NA NA NA
</TABLE>
22
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and certain other
information contained in this report, which can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "continue",
"remains", "intend", "aim", "should", "prospects", "could", "future",
"potential", "believes", "plans", and likely" or the negative thereof or other
variations thereon or comparable terminology, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
and are subject to the safe harbors created thereby. These statements should
be considered as subject to the many risks and uncertainties that exist in the
Company's operations and business environment. Such risks and uncertainties
could cause actual results to differ materially from those projected. These
uncertainties include, but are not limited to, economic conditions, market
demand and pricing, competitve and cost factors, raw material availability and
prices, global interest rates, currency exchange rates, labor relations and
other risk factors.
FILTRATION PRODUCTS BUSINESS
RESULTS OF OPERATIONS
The Company's filtration products business is characterized by a large
number of relatively small orders and a limited number of large orders,
typically from electric utilities. In fiscal 1997, the average order amount
was approximately $6,118. The timing of large orders can have a material
effect on the comparison of net sales and gross profit from period to period.
These large orders generally are highly competitive and result in a lower gross
margin. In fiscal 1997, 1996 and 1995, no customer accounted for 10% or more
of the net sales of the Company's filtration products and services.
The Company's filtration products business, to a large extent, is
dependent on government regulation of air pollution at the federal and state
levels. The Company believes that continuing growth in the sale of its
filtration products and services will be materially dependent on continuing
enforcement of environmental laws such as the Clean Air Act Amendments.
Although there can be no assurances as to what ultimate effect, if any, the
Clean Air Act Amendments will have on the Company's filtration products
business, the Company believes that the Clean Air Act Amendments are likely to
have a long term positive effect on demand for the Company's filtration
products and services.
FISCAL 1997 COMPARED WITH FISCAL 1996
Net sales increased 3% from 36,590,000 to $37,563,000 due to higher unit
sales across most product lines.
23
<PAGE> 25
Gross profit as a percent of net sales increased from 23.9% to 26.3%,
primarily due to higher intake margins and a favorable product mix.
Selling expense increased from $2,783,000 to $3,265,000 and from 7.6% to
8.7% of net sales. The increase is primarily the result of increased
international selling expenses, additional domestic sales and marketing
staffing, and higher gross profit-related incentive compensation.
General and administrative expenses increased from $1,858,000 to $1,982,000
and from 5.1% to 5.2% of net sales, primarily the result of profit-related
incentive compensation.
FISCAL 1996 COMPARED WITH FISCAL 1995
Net sales increased 17% from $31,270,000 to $36,590,000, due to higher
unit sales of the Company's full line of filtration products. This increase
was primarily due to sales of bag-related products and export sales of filter
bags.
Gross profit as a percent of net sales increased from 21% to 23.9%,
primarily due to plant efficiencies from larger production volumes, higher
intake margins, and a favorable product mix.
Selling expense increased from $2,378,000 to $2,783,000; selling expense
as a percent of net sales was unchanged at 7.6%. The dollar increase is
primarily attributable to increased international sales efforts and higher
gross margin-related incentive compensation.
General and administrative expenses increased from $1,641,000 to
$1,858,000, primarily the result of profit-related incentive compensation.
General and administrative expenses as a percent of net sales decreased from
5.2% to 5.1%.
PIPING SYSTEM PRODUCTS BUSINESS
RESULTS OF OPERATIONS
Generally the Company's leak detection and location systems and secondary
containment piping systems have higher profit margins than its district heating
and cooling piping systems. However, the Company has been able to improve the
margins for its district heating and cooling piping systems by booking orders
more selectively. The Company has benefitted from continuing efforts to have
its leak detection and location systems and secondary containment piping
systems included as part of the customers' original specifications for an
increasing number of construction projects.
Although demand for the Company's secondary containment piping system
products is generally affected by its customers' need to comply with
governmental regulations, purchases of such products at times may be delayed by
customers due to adverse economic factors. In fiscal
24
<PAGE> 26
1997, 1996 and 1995, no customer accounted for 10% or more of net sales of the
Company's piping system products.
The Company's piping system products business is characterized by a large
number of small and medium orders and a small number of large orders. The
average order amount for fiscal 1997 was approximately $29,282. The timing of
such orders can have a material effect on the comparison of net sales and gross
profit from period to period. Most of the Company's piping system products are
produced for underground installations and therefore require trenching, which
is performed directly for the customer by installation contractors unaffiliated
with the Company. Generally, sales of the Company's piping system products
tend to be lower during the winter months, due to weather constraints over much
of the country.
FISCAL 1997 COMPARED WITH FISCAL 1996
Net sales increased 10% from $49,248,000 to $54,194,000, due primarily to
a major domestic secondary containment sale booked in fiscal 1996 and
essentially completed in fiscal 1997, and to a full year's sales from SZE
Hagenuk, which was acquired late in fiscal 1996.
Gross profit as a percent of net sales increased from 16.6% to 21.1%, due
primarily to favorable product mix, as the increased domestic secondary
containment sales and SZE Hagenuk sales carry higher than average gross profit
as a percent of net sales.
Selling expense increased from $1,802,000 to $2,583,000 and from 3.7% to
4.8% of net sales, due primarily to increased profit-related incentive
compensation, increased staffing in the customer service area, and the full
year's expenses from SZE Hagenuk purchased in late fiscal 1996.
General and administrative expense increased from $3,766,000 to $4,757,000
and from 7.5% of sales to 8.8%. The increase resulted primarily from increased
staffing in customer service and the inclusion of SZE Hagenuk for a complete
year.
Foreign net sales increased from $3,659,000 to $6,207,000 and foreign
operating income increased from $206,000 to $589,000, due primarily to the
inclusion of a full year's operations of SZE Hagenuk.
FISCAL 1996 COMPARED WITH FISCAL 1995
Net sales increased 11% from $44,225,000 to $49,248,000, due primarily to
continued high demand for district heating and cooling systems, which is
partially due to the full year effect of the September 1994 purchase of Ricwil,
compared with only four months in the prior year.
25
<PAGE> 27
Gross profit as a percent of net sales increased from 13.6% to 16.6%, due
primarily to completion of most of the low margin order backlog acquired from
Ricwil in the earlier year and partially to benefits of the factory expansion
and related work flow rationalization.
Selling expense increased from $1,455,000 to $1,802,000; selling expense
as a percent of net sales increased from 3.3% to 3.7%. The dollar increase is
primarily attributable to the full year effect of new sales personnel added
during the earlier year and due to higher commission expense on higher sales.
The percent benefit of spreading higher selling expenses over higher sales was
more than offset by additional expenses attributable to new sales personnel.
General and administrative expenses increased from $3,186,000 to
$3,766,000; general and administrative expenses as a percent of net sales
increased from 7.2% to 7.6%. The increases resulted primarily from increased
staffing in field services and engineering.
Foreign net sales increased from $3,186,000 to $3,659,000, due primarily
to the acquisition of SZE Hagenuk in fiscal 1996 and due partially to increased
sales in Perma Pipe Services Ltd. Foreign operating income (loss) increased
from a loss of $54,000 in fiscal 1995 to a profit of $206,000 in fiscal 1996,
due primarily to profit in SZE Hagenuk and a recovery to profitability in Perma
Pipe Services Ltd. due to some easing of competitive price pressures.
INDUSTRIAL PROCESS COOLING EQUIPMENT BUSINESS
RESULTS OF OPERATIONS
The Company's cooling products business is characterized by a large number
of relatively small orders and a limited number of large orders. In fiscal
1997, the average order amount was approximately $5,886. Generally, OEM sales
have lower profit margins than its sales for the domestic and international
plastics industries and other markets. Large orders generally are highly
competitive and result in lower profit margins. In fiscal 1997, 1996 and 1995,
no customer accounted for 10% or more of the Company's cooling products net
sales. Although the accounts of the Industrial Process Cooling Equipment
business were not included in the accounts of the Company prior to December 30,
1996, the following pro forma information is presented to help the reader
understand this business.
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
Net sales increased 1% from $19,776,000 to $20,036,000. The increase was
due primarily to additional OEM portable chiller sales partially offset by
lower export sales, as the large fiscal 1996 sale for a plastic bottle making
plant in China was not replaced in fiscal 1997.
Gross profit as a percent of net sales increased from 22.9% to 29.3%
primarily due to classifying commission expenses ($1,506,000 in fiscal 1997) as
selling expenses in fiscal 1997 instead of as cost of goods sold as in fiscal
1996, and a more favorable sales product mix.
26
<PAGE> 28
Selling expenses increased from $1,206,000 to $2,700,000; selling expenses
as a percent of net sales increased from 6.1% to 13.5%. The increase is due
primarily to classifying commission expenses ($1,506,000 in fiscal 1997) as
selling expenses in fiscal 1997 instead of as cost of goods sold as in fiscal
1996.
General and administrative expenses increased from $2,004,000 to
$2,514,000 and from 10.1% to 12.5% of net sales, due primarily to increased
engineering sales support expenses and to a provision for lawsuits described as
follows. Proforma general and administrative expenses for the year ended
January 31, 1997 include a provision of $400,000 for the estimated ultimate
cost of three lawsuits which had been considered in negotiating the acquisition
price of the Thermal Care Merger and which, upon the consummation of the
Thermal Care Merger, became the obligations of MFRI. Pursuant to the merger
agreement relating to the Thermal Care Merger, should MFRI spend more than an
aggregate of $400,000 in costs, expenses, judgements or settlements of such
lawsuits, additional amounts will be paid from a special escrow holding 66,890
shares of MFRI common stock, such escrow having been established as a part of
the Thermal Care Merger. Management believes that the liability recognized is
adequate and that the lawsuits' outcome should not have a material adverse
effect on the Company.
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
Net sales increased 6.7% from $18,528,000 to $19,776,000. The increase is
due primarily to sales for new large plants being built in the People's
Republic of China producing PET (Polyethylene - Terephthalate) beverage
bottles.
Gross profit as a percent of net sales decreased from 25.8% to 22.9%
primarily due to non-recurring costs associated with a reorganization of the
factory work flow and an unfavorable product mix.
Selling expenses increased from $819,000 to $1,206,000; selling expenses
as a percent of net sales increased from 4.4% to 6.1%. The dollar increase is
due primarily to the addition of the California sales office/warehouse, related
personnel and advertising promoting the office/warehouse.
General and administrative expenses decreased from $2,335,000 to
$2,004,000 and from 12.6% of sales to 10.1% of sales, due primarily to a shift
in corporate administrative resources from Thermal Care to MFRI during fiscal
1996.
GENERAL CORPORATE EXPENSES
General corporate expenses include general and administrative expense not
allocated to business segments and interest expense.
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
General and administrative expenses not allocated to business segments
increased from $1,933,000 to $2,389,000, due primarily to increased
profit-based incentive compensation, expenses of upgrading the Company's
computer hardware and software, and higher adminbistrative, financial
management and accounting salaries expense. The increased administrative,
financial management and accounting salaries expenses reflect shifts in time
devoted to corporate administrative matters from other areas, with some
offsetting decrease in Perma-Pipe administrative expense. The December 30,
1996 acquisition of Midwesco had a minimal effect on general corporate
expenses.
27
<PAGE> 29
Interest expense increased from $925,000 to $992,000 due primarily to
higher borrowings to finance working capital, fixed asset acquisitions, the
acquisiiton of SZE Hagenuk, and the purchase of real estate to provide for the
expansion of Midwesco Filter in Winchester, Virginia. See liquidity and
capital resources for description of steps which have been taken to lower and
stabilize the Company's cost of money.
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
General and administrative expenses not allocated to business segments
increased to $1,933,000 from $1,553,000, due primarily to expenses of upgrading
the Company's computer hardware and software systems, profit-based incentive
compensation, and volume-related expenses of credit and collections.
Interest expense of $925,000 in fiscal 1996 represented the cost of
borrowing under the Company's line of credit and term loan, obtained at the
time of the acquisitions of Perma-Pipe on January 28, 1994 and Ricwil on
September 30, 1994, respectively, and under Industrial Revenue Bonds issued
during the third quarter of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
To finance a September 1994 acquisition of Ricwil, the Company borrowed
$4,000,000 from a bank under a term loan which is repayable in 16 consecutive
quarterly installments which commenced January 31, 1995.
On September 14, 1995 and October 18, 1995, respectively, Midwesco Filter
and Perma-Pipe received the proceeds of Industrial Revenue Bonds. Such
proceeds are available for capital expenditures related to manufacturing
capacity expansions and efficiency improvements during a three-year period
commencing in the fourth quarter of 1994 in the Filtration Products Business in
Winchester, Virginia ($3,150,000) and the Piping System Products Business in
Lebanon, Tennessee ($3,150,000). The bonds mature approximately 12 years from
the date of issuance, but the Company's agreement with the bank whose letter of
credit secures payment of the bonds requires equal annual principal reductions
sufficient to amortize the bonds in full beginning approximately four years
after issuance. The bonds bear interest at a variable rate, which initially
approximated 5% per annum, including letter of credit and remarketing fees.
Each bond indenture establishes a trusteed project fund for deposit of the bond
proceeds. The trustee is authorized to make disbursements from the project
fund upon requisition from the Company to pay costs of capital expenditures
which comply with the requirements of the loan agreement for each bond.
Pending such disbursements, the trustee invests the balance of the project fund
in investments defined by the indenture and limited by applicable law. Such
invested funds totaled $3,880,000 at January 31, 1997. The bonds are secured
by bank letters of credit which expire approximately two years from the date of
issuance; the Company expects to arrange for renewal, reissuance or extension
of the letter of credit prior to each expiration date during the term of the
bonds.
28
<PAGE> 30
On May 8, 1996, the Company purchased for approximately $1.1 million a
10.3-acre parcel of land with a 67,000-square foot building adjacent to its
filtration products property in Winchester, Virginia to accommodate the
Company's growing activities. The purchase was financed 80% by a seven-year
mortgage bearing interest at 8.38% and 20% by the aforementioned revenue bonds.
The Company has positive working capital of $27.9 million and a current
ratio of 2.6 to 1.
Working capital and investment needs of the Company have historically been
funded through the Company's operations and a revolving line of credit. The
Company assumed approximately $6,611,000 of Midwesco, Inc. long-term debt in
the Midwesco Merger, $5,000,000 of which represented assumed bank and other
debt, with the remainder representing assumed capitalized lease obligations.
Effective December 15, 1996, the Company replaced its revolving line of credit
and the unpaid portion of the $4,000,000 September 1994 term loan with $15
million of fixed rate senior unsecured notes due 2007 (the "Notes") and a new
$5 million floating rate unsecured revolving line of credit (the "Credit
Line"). Proceeds of the Notes were also used to repay the Midwesco, Inc. debt
assumed by the Company. The Notes bear interest at an annual rate of 7.21% and
require principal payment beginning in the year ended January 31, 2001, and
continuing annually thereafter, resulting in a seven-year average life. No
amounts were outstanding under the Credit Line as of January 31, 1997.
At January 31, 1997 the Company had contracted for a substantial portion
of an estimated $650,000 capacity expansion project at its Lebanon, Tennessee
piping systems manufacturing facility, to be primarily financed from the
proceeds of the Tennessee Industrial Revenue Bonds.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company as of January 31,
1997 and January 31, 1996 and for each of the three years in the period ended
January 31, 1997 and the notes thereto are set forth elsewhere herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors of the Company is incorporated
herein by reference to the table under the caption "Nominees For Election as
Directors" and the textual paragraphs
29
<PAGE> 31
following the aforesaid table in the Company's proxy statement for the 1997
annual meeting of stockholders.
Information with respect to executive officers of the Company is included
in Item 1, Part I hereof under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is incorporated herein
by reference to the information under the caption "Executive Compensation" in
the Company's proxy statement for the 1997 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management of the Company is incorporated herein by reference to the
information under the caption "Beneficial Ownership of Common Stock" in the
Company's proxy statement for the 1997 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and transactions is
incorporated herein by reference to the information under the caption "Certain
Transactions" in the Company's proxy statement for the 1997 annual meeting of
stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULE AND REPORTS ON FORM 8-K
a. (1) Consolidated Financial Statements
Refer to Part II, Item 8 of this report.
(2) Financial Statement Schedule
a. Schedule II - Valuation and Qualifying Accounts
(3) The exhibits, as listed in the Exhibit Index set forth on
pages E-1 and E-2, are submitted as a separate section of
this report.
b. During the last quarter of the fiscal year ended January 31,
1997, the Company filed a Current Report on Form 8-K dated
December 30, 1996. The Items Nos. 1, 2 and 7 were reported
on in such report. Midwesco, Inc. and Subsidiaries
30
<PAGE> 32
Consolidated Financial Statements and Unaudited Pro Forma Combined
Financial Statements were included in such report.
c. See Item 14(a)(3) above.
d. The response to this portion of Item 14 is submitted as a
separate section of this report.
31
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
MFRI, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of MFRI, Inc. and
subsidiaries as of January 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended January 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a)(2). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects the financial position of MFRI, Inc. and subsidiaries as of
January 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
April 18, 1997
<PAGE> 34
MFRI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended January 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $93,573,000 $85,838,000 $75,495,000
Cost of sales 71,768,000 68,958,000 62,898,000
- -----------------------------------------------------------------------------------------------
Gross Profit 21,805,000 16,880,000 12,597,000
Operating expenses:
Selling expense 6,104,000 4,585,000 3,832,000
General and administrative expense 8,740,000 6,993,000 6,025,000
Management services agreement - net 565,000 564,000 356,000
- -----------------------------------------------------------------------------------------------
Total Operating Expenses 15,409,000 12,142,000 10,213,000
- -----------------------------------------------------------------------------------------------
Income from Operations 6,396,000 4,738,000 2,384,000
Interest expense - net 992,000 925,000 496,000
- -----------------------------------------------------------------------------------------------
Income Before Income Taxes 5,404,000 3,813,000 1,888,000
Income taxes 2,174,000 1,440,000 685,000
- -----------------------------------------------------------------------------------------------
Net Income $3,230,000 $2,373,000 $1,203,000
- -----------------------------------------------------------------------------------------------
Net income per common share $0.70 $0.52 $0.27
Weighted Average Common
and Common Share Equivalents Outstanding 4,627,000 4,543,000 4,493,000
</TABLE>
See notes to consolidated financial statements
<PAGE> 35
MFRI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31,
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,416,000 $ 449,000
Trade accounts receivable (net of allowance
for doubtful accounts: 1997 - $270,000;
1996 - $199,000) 18,759,000 16,137,000
Accounts receivable - related companies 157,000 165,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,807,000 4,032,000
Income taxes receivable 186,000 363,000
Inventories 17,244,000 13,205,000
Deferred income taxes 2,193,000 1,733,000
Prepaid expenses and other current assets 487,000 781,000
- ----------------------------------------------------------------------------------------------
Total Current Assets 45,249,000 36,865,000
- ----------------------------------------------------------------------------------------------
RESTRICTED CASH FROM BOND PROCEEDS 3,880,000 5,046,000
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements 6,846,000 3,353,000
Machinery and equipment 9,237,000 7,532,000
Furniture and office equipment 2,919,000 2,051,000
Transportation equipment 1,147,000 700,000
- ----------------------------------------------------------------------------------------------
20,149,000 13,636,000
Less accumulated depreciation and amortization 5,095,000 3,752,000
- ----------------------------------------------------------------------------------------------
Property, Plant and Equipment - Net 15,054,000 9,884,000
- ----------------------------------------------------------------------------------------------
OTHER ASSETS:
Patents (net of accumulated amortization) 1,128,000 1,237,000
Goodwill (net of accumulated amortization) 8,120,000 4,733,000
Other assets 1,897,000 1,220,000
- ----------------------------------------------------------------------------------------------
Total Other Assets 11,145,000 7,190,000
- ----------------------------------------------------------------------------------------------
Total Assets $75,328,000 $58,985,000
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<C> <C> <C>
CURRENT LIABILITIES:
Drafts payable $1,598,000 $2,209,000
Accounts payable:
Trade 6,261,000 4,807,000
Related companies 16,000 183,000
Accrued compensation and payroll taxes 1,579,000 939,000
Other accrued liabilities 1,128,000 1,020,000
Commissions payable 6,049,000 4,509,000
Current maturities of long-term debt 564,000 3,031,000
Billings in excess of costs and
estimated earnings on uncompleted contracts 210,000 490,000
- --------------------------------------------------------------------------------------------------
Total Current Liabilities 17,405,000 17,188,000
- --------------------------------------------------------------------------------------------------
Long-term debt, less current maturities 23,921,000 14,267,000
Deferred income taxes and other 1,148,000 1,307,000
- --------------------------------------------------------------------------------------------------
Total Long-Term Liabilities 25,069,000 15,574,000
- --------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 15,000,000 shares;
Issued and outstanding: 1997 - 4,962,000 : 1996 - 4,524,000 50,000 45,000
Additional paid-in capital 21,384,000 17,967,000
Retained earnings 11,478,000 8,248,000
Accumulated translation adjustment (58,000) (37,000)
- --------------------------------------------------------------------------------------------------
Total Stockholders' Equity 32,854,000 26,223,000
- --------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $75,328,000 $58,985,000
==================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE> 36
MFRI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL RETURNABLE ACCUMULATED
------------------ PAID-IN SHARES HELD RETAINED TRANSLATION TOTAL
SHARES AMOUNT CAPITAL IN ESCROW EARNINGS ADJUSTMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1994 4,289,000 $43,000 $16,439,000 $4,672,000 $21,154,000
Net income 1,203,000 1,203,000
Shares issued in connection with the:
Acquisition of Ricwil, Inc. 185,000 2,000 1,298,000 1,300,000
Public stock offering 180,000 2,000 1,139,000 1,141,000
Shares returnable from escrow pursuant
to Ricwil purchase agreement (125,000) (877,000) (877,000)
Unrealized translation adjustment 19,000 19,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1995 4,529,000 47,000 18,876,000 (877,000) 5,875,000 19,000 23,940,000
Net income 2,373,000 2,373,000
Shares returned from escrow due to
Ricwil settlement (5,000) (2,000) (909,000) 877,000 (34,000)
Unrealized translation adjustment (56,000) (56,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1996 4,524,000 45,000 17,967,000 8,248,000 (37,000) 26,223,000
Net income 3,230,000 3,230,000
Shares issued in connection with the
acquisition of Eurotech 31,000 214,000 214,000
Shares issued in connection with the
acquisition of Midwesco 2,124,000 22,000 16,718,000 16,740,000
Shares held by Midwesco retired
at time of Midwesco acquisition (1,718,000) (17,000) (13,518,000) (13,535,000)
Stock options exercised 1,000 3,000 3,000
Unrealized translation adjustment (21,000) (21,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1997 4,962,000 $50,000 $21,384,000 $11,478,000 ($58,000) $32,854,000
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE> 37
MFRI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $3,230,000 $2,373,000 $1,203,000
Adjustments to reconcile net income to
net cash flows from operating activities:
Provision for depreciation and amortization 1,810,000 1,335,000 902,000
Deferred income taxes (189,000) 52,000 (266,000)
Foreign currency translation adjustment (21,000) (56,000) 19,000
Change in operating assets and liabilities, net of
effects of purchased businesses:
Accounts receivable (463,000) (1,010,000) (1,416,000)
Income taxes receivable 177,000 (265,000) (23,000)
Inventories 64,000 (1,774,000) (161,000)
Prepaid expenses and other assets 512,000 (1,151,000) (1,405,000)
Accounts payable (1,417,000) (766,000) (990,000)
Compensation and payroll taxes 461,000 127,000 143,000
Other accrued liabilities 537,000 (4,000) (1,428,000)
---------------------------------------------------------------------------------------------------------
Net Cash Flows from Operating Activities 4,701,000 (1,139,000) (3,422,000)
---------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Change in restricted cash from Industrial Revenue Bonds 1,166,000 (5,046,000)
Acquisition of businesses, net of cash acquired (211,000) (690,000) (860,000)
Purchase of property and equipment (2,726,000) (2,259,000) (1,836,000)
---------------------------------------------------------------------------------------------------------
Net Cash Flows from Investing Activities (1,771,000) (7,995,000) (2,696,000)
---------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net payments on capitalized lease obligations (295,000) (151,000) (129,000)
Proceeds from issuance of Industrial Revenue Bonds 6,300,000
Borrowings under revolving, term, and mortgage loans 38,242,000 18,500,000 17,049,000
Repayment of bank debt and accrued interest (37,913,000) (15,550,000) (12,450,000)
Stock options exercised 3,000
Net proceeds from public offering of common stock 1,141,000
---------------------------------------------------------------------------------------------------------
Net Cash Flows from Financing Activities 37,000 9,099,000 5,611,000
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,967,000 (35,000) (507,000)
Cash and Cash Equivalents at Beginning of Year 449,000 484,000 991,000
---------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End ofYear $3,416,000 $449,000 $484,000
=========================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE> 38
MFRI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- BASIS OF PRESENTATION
MFRI, Inc. ("MFRI") was incorporated on October 12, 1993, and on January 28,
1994 became successor by merger to Midwesco Filter Resources, Inc. ("Midwesco
Filter"), and acquired on that date all of the assets of the Perma-Pipe
division of Midwesco, Inc. ("Perma-Pipe"), subject to specified liabilities, in
exchange for cash and stock of MFRI.
On December 30, 1996 MFRI acquired, through the merger of Midwesco, Inc.
("Midwesco") into MFRI, all of the assets of Midwesco's Thermal Care business
("Thermal Care") subject to specified liabilities including all liabilities
relating to three lawsuits arising from warranty obligations relating to
Perma-Pipe, Midwesco's rights under leases (primarily its Niles, Illinois lease
of the building that serves as the principal offices of MFRI and Midwesco and
as the manufacturing facility of Thermal Care), the deferred tax assets of
Midwesco, and 1,718,000 shares of the common stock of MFRI owned by Midwesco.
Midwesco was owned primarily by certain management stockholders of MFRI and
their families.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements of MFRI
include the consolidated accounts of MFRI and its wholly-owned subsidiaries
Midwesco Filter and Perma-Pipe and Perma-Pipe's subsidiaries, Perma-Pipe
Services, Ltd. ("PPSL"), Ricwil Piping Systems Company ("Ricwil") (subsequent
to September 30, 1994), and SZE Hagenuk GmbH of Hamburg,Germany ("SZE Hagenuk")
(subsequent to December 6, 1995) (collectively the "Company"). All significant
intercompany balances and transactions have been eliminated.
NATURE OF BUSINESS: Midwesco Filter is engaged principally in the
manufacture and sale of filter bags for use in industrial air pollution control
systems known as "baghouses". Baghouses are used in a wide variety of
industries in the United States and abroad to limit particulate emissions,
primarily to comply with environmental regulations. Perma-Pipe and its
subsidiaries are engaged in the engineering, designing and manufacturing of
specialty piping systems and leak detection and location systems. Thermal Care
is engaged in the engineering, designing and manufacturing of industrial
process cooling equipment, including chillers, cooling towers, pump and tank
assemblies, temperature controllers, and water treatment equipment.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION: Midwesco Filter, SZE Hagenuk and Thermal Care recognize
revenues at the date of shipment. Perma-Pipe and its subsidiaries, Ricwil and
PPSL, recognize revenues on contracts under the "percentage of completion"
method. The percentage of completion is determined by the relationship of
costs incurred to the total estimated costs of the contract.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from contract
penalty provisions and final contract settlements may result
<PAGE> 39
in revisions to costs and income and are recognized in the period in which the
revisions are determined. Claims for additional compensation due the Company
are recognized in contract revenues when realization is probable and the
amount can be reliably estimated.
USE OF ESTIMATES: The presentation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
OPERATING CYCLE: The length of Perma-Pipe and PPSL contracts vary, but are
typically less than one year. The Company includes in current assets and
liabilities amounts realizable and payable in the normal course of contract
completion unless completion of such contracts extends significantly beyond one
year.
CASH EQUIVALENTS: All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost of
inventories is determined using the first-in, first-out method for
substantially all inventories. Inventories consist of the following:
<TABLE>
<CAPTION>
January 31,
1997 1996
------------------------
<S> <C> <C>
Raw materials $12,443,000 $10,265,000
Work in process 2,011,000 960,000
Finished goods 2,790,000 1,980,000
----------- -----------
Total $17,244,000 $13,205,000
=========== ===========
</TABLE>
LONG-LIVED ASSETS: Property, plant and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to 30 years. Amortization of
assets under capital leases is included in depreciation and amortization.
Goodwill reflected in the consolidated financial statements relates to the
Company's fiscal 1994 acquisition of Perma-Pipe, its fiscal 1995 acquisition of
Ricwil, and its fiscal 1997 acquisition of Midwesco. The Company amortizes
goodwill on the straight-line basis over 40 years for the Perma-Pipe and Ricwil
acquisitions and 25 years for the Midwesco acquisition.
Patents are capitalized and amortized on the straight-line basis over a period
not to exceed the legal lives of the patents.
In fiscal 1997, the company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The statement requires the recognition of an impairment loss for an asset held
for use when the estimate of undiscounted
<PAGE> 40
future cash flows expected to be generated by the asset is less than its
carrying amount. Measurement of the impairment loss is based on fair value of
the asset. Generally, fair value will be determined using valuation techniques
such as the present value of expected future cash flows. It was the company's
past policy to measure an impairment loss for assets held for use based on
expected undiscounted future cash flows. Adoption of this statement will
result in recognition of a larger loss, based on discounted future cash flows,
in the year of impairment and lower depreciation charges over the remaining
life of the asset. Since adoption, no impairment losses have been recognized.
The recognition and measurement of impairment losses for long-lived assets to
be disposed of under SFAS No. 121 is consistent with the company's past
practice.
FOREIGN CURRENCY: The balance sheet accounts of PPSL and SZE Hagenuk are
translated into United States dollars at the balance sheet date exchange rate
and statement of operation items are translated at the average exchange rate
for the year; resulting balance sheet translation adjustments are reflected as
a separate component of stockholders' equity. PPSL generates and expends cash
in the functional currency of the United Kingdom. SZE Hagenuk's functional
currency is that of the Federal Republic of Germany.
NET INCOME PER COMMON SHARE: Net income per common share is computed by
dividing net income by the weighted average number of common shares
outstanding, including common stock equivalents which consist of stock options
and stock purchase warrants.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of cash and cash
equivalents, accounts receivable, restricted cash and accounts payable are
reasonable estimates of their fair value due to their short-term nature. The
carrying values of long-term obligations are a reasonable estimate of their
fair values as the interest rates approximate rates currently available to the
Company for debt with similar terms and remaining maturities.
RECLASSIFICATIONS: Certain previously reported amounts have been reclassified
to conform with the current period presentation.
STOCK OPTIONS: The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related
interpretations, in accounting for its employee stock options. Under APB 25,
because the exercise price of the stock option equals the market price of the
underlying stock on the issuance date, no compensation expense is recognized.
Pro forma net income and net income per share is presented in the stock option
note as if the alternative fair value method of acccounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), had been applied to options granted after
January 31, 1995.
NOTE 3 -- RELATED PARTY TRANSACTIONS
Prior to the Company's acqusition of Midwesco, Midwesco provided certain
services and facilities to the Company and the Company provided certain
services to Midwesco. Such services and facilities have been provided under
management services agreements approved by the Company's Independent Directors
(Note 13). Pursuant to such agreements, the Company reimbursed Midwesco
$600,000, $564,000 and $381,000 during the
<PAGE> 41
years ended January 31, 1997, 1996 and 1995, respectively and Midwesco
reimbursed the Company $35,000, $0 and $25,000 during the years ended January
31, 1997, 1996 and 1995, respectively. Management of the Company believes the
amounts paid and received under these agreements were comparable to those which
would have been paid and received under arms-length transactions.
NOTE 4 -- ACQUISITIONS
THERMAL CARE
On December 30, 1996, MFRI acquired, through merger of Midwesco into MFRI, the
Thermal Care business of Midwesco, for 406,000 shares of the Company's stock
(net of 1,718,000 shares previously owned by Midwesco and canceled in the
merger), valued at $7.88 per share or $3,204,000.
The acquisition has been accounted for as a purchase and the accounts of
Thermal Care have been included in the consolidated financial statements since
the date of acquisition, including income from operations ($137,000 - see Note
11), net income ($84,000) and net income per common share ($.02). The purchase
price was allocated to the assets and liabilities acquired, based on their
estimated fair values. The excess ($3,094,000) of the purchase price over the
fair value of net assets acquired has been recorded as goodwill and is being
amortized over a 25 year period on the straight line basis.
The following represents the unaudited proforma results of operations as if the
acquisition of Thermal Care had occurred on February 1, 1995. Included in the
proforma results for the year ended January 31, 1997 is a proforma pretax
provision of $400,000 (after tax $244,000) or $.05 per share for the estimated
ultimate cost of three lawsuits which had been considered in negotiating the
acquisition price of the Thermal Care Merger and which, upon the consummation
of the Thermal Care Merger, became the obligations of MFRI. Pursuant to the
agreement relating to the Thermal Care Merger, should MFRI spend more than an
aggregate of $400,000 in costs, expenses, judgements or settlements of such
lawsuits, additional amounts will be paid from a special escrow holding 66,890
shares of MFRI common stock, such escrow having been established as a part of
the Thermal Care Merger. Management believes that the liability recognized is
adequate and that the lawsuits' outcome should not have a material adverse
effect on the Company.
Year Ended January 31,
1997 1996
---------------------------------
Net sales $111,793,000 $105,613,000
Income after taxes before proforma
lawsuit provision 3,604,000 2,676,000
Income after taxes per common share before
proforma lawsuit provision .72 .54
Net Income 3,362,000 2,676,000
Net income per common share .67 .54
Weighted average common shares outstanding 4,997,000 4,949,000
SZE HAGENUK
On December 6, 1995, Perma-Pipe acquired for $690,000 cash the net assets of
the leak detection operations of SZE Hagenuk. The acquisition has been
accounted for as a purchase and the accounts of SZE Hagenuk have been included
in the consolidated financial statements since the date of acquisition.
RICWIL
On September 30, 1994, MFRI and a subsidiary acquired substantially all of the
assets, net of specified assumed liabilities, of Ricwil. The purchase price
consisted of $860,000 and up to 185,000 shares of MFRI common stock valued at
$1,300,000. The shares of common stock were issued at closing and held in
escrow subject to final determination of the purchase price. In the years
ended January 31, 1995 and 1996 final settlements regarding the purchase price
were reached, resulting in the return of 130,000 shares of common stock to the
Company.
<PAGE> 42
The acquisition was accounted as a purchase and the accounts of Ricwil have
been included in the consolidated financial statements since the date of
acquisition. The purchase price was allocated to the assets and liabilities
acquired, based on their estimated fair values. The excess ($2,835,000) of the
purchase price over the fair value of net assets acquired has been recorded as
goodwill and is being amortized over a 40 year period on the straight-line
basis.
NOTE 5 -- RETENTION RECEIVABLE
Retention of $1,068,000 and $545,000 at January 31, 1997 and 1996,
respectively, is included in the balance of trade accounts receivable.
NOTE 6 -- COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts at January 31 are as
follows:
1997 1996
----------- -----------
Costs incurred on uncompleted contracts $16,902,000 $15,132,000
Estimated earnings 4,201,000 3,203,000
Earned revenue 21,103,000 18,335,000
----------- -----------
Less billings to date 18,506,000 14,793,000
----------- -----------
Total $ 2,597,000 $ 3,542,000
=========== ===========
Classified as follows:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 2,807,000 $ 4,032,000
Billings in excess of costs and estimated
earnings on uncompleted contracts (210,000) (490,000)
----------- -----------
Total $ 2,597,000 $ 3,542,000
=========== ===========
NOTE 7 -- DEBT
Long-term debt at January 31 consists of the following:
1997 1996
------------------------
7.21% Unsecured senior notes due 2007 $15,000,000 $ -
Term bank loan 2,750,000
Revolving bank loan 67,000 7,750,000
Mortgage note and other 862,000 100,000
Industrial Revenue Bonds 6,300,000 6,300,000
Capitalized lease obligations (Note 8) 2,256,000 389,000
----------- -----------
24,485,000 17,298,000
Less current maturities 564,000 3,031,000
----------- -----------
Total $23,921,000 $14,267,000
=========== ===========
<PAGE> 43
The Company issued $15,000,000 of 7.21% unsecured senior notes due January 31,
2007 to institutional investors. $10,000,000 was received on December 20, 1996
and $5,000,000 on January 22, 1997. Level principal repayments are to be made
beginning January 31, 2001. Earlier principal payments can be made at the
Company's option. There are certain financial covenants to be met as long as
the notes are outstanding. At January 31, 1997, the Company was in compliance
with these covenants.
On December 19, 1996 the Company obtained a $5,000,000 revolving line of credit
maturing on March 31, 2000 and bearing interest, at the Company's option, at
either the prime rate (8.25% at January 31, 1997) or at the LIBOR rate for the
term of the loan plus a margin (1.50% at January 31, 1997) redetermined each
quarter based upon Company's interest coverage ratio. The loan agreement
includes certain financial covenants and is unsecured. At January 31, 1997, the
Company was in compliance with these covenants.
On May 8, 1996, the Company purchased for approximately $1.1 million a
10.3-acre parcel of land with a 67,000-square foot building adjacent to its
Midwesco Filter property in Winchester, Virginia. The purchase was financed
80% by a seven-year mortgage bearing interest at 8.38% and 20% by the
industrial revenue bonds described below.
On September 14, 1995, and October 18, 1995, respectively, Midwesco Filter and
Perma-Pipe issued Industrial Revenue Bonds, the proceeds of which are available
for capital expenditures related to manufacturing capacity expansions and
efficiency improvements during a three-year period commencing in the fourth
quarter of 1994 for Midwesco Filter in Winchester, Virginia ($3,150,000) and
Perma-Pipe in Lebanon, Tennessee ($3,150,000). While the bonds mature twelve
years from the date of issuance, the Company's agreement with a Trustee Bank
requires equal annual principal reductions sufficient to amortize the bonds in
full, beginning approximately four years after issuance. The bonds bear
interest at a variable rate, which approximated 5% at January 31, 1997,
including letters of credit and remarketing fees. Each bond indenture
established a trusteed project fund for deposit of the bond proceeds. The
trustee is authorized to make disbursements from the project fund upon
requisition from the Company to pay costs of capital expenditures which comply
with the requirements of the loan agreements. Pending such disbursements, the
trustee invests the balance of the project fund in investments defined by the
indenture and limited by applicable law. Such invested funds totaled
$3,880,000 at January 31, 1997 and $5,046,000 at January 31, 1996. The bonds
are fully secured by bank letters of credit which expire approximately two
years from issuance; the Company expects to arrange for renewal, reissuance or
extension of the letters of credit prior to expiration.
Maturities of long-term debt in each of the next five years are as follows:
1998 - $564,000; 1999 - $398,000; 2000 - $196,000; 2001 - $2,271,000; 2002 -
$2,292,000; thereafter $18,782,000.
<PAGE> 44
NOTE 8 -- LEASE INFORMATION
The following is an analysis of property under capitalized leases:
1997 1996
-----------------------
Building and improvements $1,594,000 $ -
Machinery and equipment 431,000
Furniture, fixtures and office equipment 310,000 149,000
Transportation equipment 1,294,000 578,000
---------- --------
3,629,000 727,000
Less accumulated amortization (1,963,000) (351,000)
---------- --------
$1,666,000 $376,000
========== ========
The Company's lease for the building and improvements is with a partnership
which is owned by certain management stockholders of MFRI; the lease expires in
December, 2007.
The future minimum lease payments under the capitalized leases are as follows:
1998 $ 749,000
1999 606,000
2000 370,000
2001 283,000
2002 283,000
Thereafter 1,351,000
----------
3,642,000
Less amount representing interest 1,386,000
----------
Present value of future minimum lease payments (Note 7) $2,256,000
==========
NOTE 9 -- INCOME TAXES
The following is a summary of domestic and foreign income before income taxes:
Domestic $5,087,000
Foreign 317,000
----------
$5,404,000
==========
Components of income tax expense are as follows:
Year Ended January 31,
1997 1996 1995
---------- ---------- ---------
Current:
Federal $1,835,000 $1,270,000 $926,000
Foreign 218,000 30,000 (14,000)
State and other 310,000 192,000 39,000
---------- ---------- --------
2,363,000 1,492,000 951,000
Deferred (189,000) (52,000) (266,000)
---------- ---------- --------
Total $2,174,000 $1,440,000 $685,000
========== ========== ========
<PAGE> 45
The difference between the provision for income taxes and the amount computed
by applying the federal statutory rate is as follows:
Year Ended January 31,
1997 1996 1995
---------------------------------
Tax at federal statutory rate $1,837,000 $1,296,000 $642,000
Foreign rate tax differential 86,000
State taxes, net of federal benefit 258,000 162,000 17,000
Other - net (7,000) (18,000) 26,000
---------- ---------- --------
Total $2,174,000 $1,440,000 $685,000
========== ========== ========
Components of the deferred income tax asset balance as of January 31, 1997 and
1996 are as follows:
1997 1996
-------------------------
Accrued commissions $1,397,000 $1,194,000
Allowance for doubtful accounts 67,000 53,000
Inventory valuation allowance 92,000 85,000
Vacation accruals 139,000 100,000
Insurance accruals 142,000 69,000
Inventory uniform capitalization 89,000 28,000
Sales reserve 158,000 128,000
Other 109,000 76,000
----------- ------------
Total $2,193,000 $1,733,000
=========== ============
Components of the deferred income tax liability balance as of January 31, 1997
and 1996 are as follows:
1997 1996
----------------------
Depreciation $ 946,000 $ 844,000
Foreign acquisition adjustments 106,000 240,000
Other 7,000 127,000
---------- ----------
Total $1,059,000 $1,211,000
========== ==========
<PAGE> 46
NOTE 10 -- EMPLOYEE RETIREMENT PLANS
PENSION PLAN
Midwesco Filter has a defined benefit plan covering its hourly rated employees.
The benefits are based on fixed amounts multiplied by years of service of
retired participants. The funding policy is to contribute such amounts as are
necessary to provide for benefits attributed to service to date and those
expected to be earned in the future. The amounts contributed to the plan are
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974. Midwesco Filter may contribute
additional amounts at its discretion.
The following table sets forth the plan's funded status and amounts recognized
in the Company's consolidated balance sheet at January 31, 1997 and 1996:
1997 1996
------------------------
Actuarial present value of:
Vested benefit obligation $ 758,000 $698,000
=========== ==========
Accumulated benefit obligation $ 782,000 $719,000
=========== ==========
Projected benefit obligation $ 782,000 $746,000
Plan assets at fair value 1,004,000 698,000
----------- ----------
Projected benefit obligation in excess of
plan assets 222,000 (48,000)
Unrecognized net transition obligation 4,000 5,000
Unrecognized prior service cost 104,000 112,000
Unrecognized net (gain) loss (278,000) (77,000)
----------- ----------
PREPAID (ACCRUED) PENSION COST $ 52,000 ($8,000)
=========== ==========
Net periodic pension expense for 1997, 1996 and 1995 includes the following
components:
1997 1996 1995
---------------------------------
Service cost - benefits earned
during the year $39,000 $32,000 $28,000
Interest cost on projected benefit obligation 53,000 48,000 39,000
Actual return on plan assets (224,000) (239,000) 39,000
Net amortization and deferral 172,000 212,000 (75,000)
---------- ---------- ---------
NET PENSION EXPENSE $40,000 $53,000 $31,000
========== ========== =========
Assumptions used in accounting for pension costs at January 31, 1997, 1996 and
1995, were: discount rate of 7.50%, 7.25%, and 7.5%, respectively, and a rate
of return on plan assets of 8.0% for each year.
Approximately 91% and 68% of the plan assets at January 31, 1997 and 1996, are
invested in corporate common stocks and bonds, with the remainder invested in
money market and mutual funds.
<PAGE> 47
401(K) PLAN
The employees of the Company participate in the MFRI, Inc. Employee Savings and
Protection Plan, which is applicable to all employees except certain employees
who are covered by collective bargaining agreement benefits. The plan allows
employee pretax payroll contributions up to 16% of total compensation. Prior
to February 1, 1995, the Company made contributions to this 401(K) Plan in an
amount equal to 25% of each participant's contribution, up to a maximum of 1%
of their salaries. Beginning February 1, 1995, the Company contribution was
increased to 50% of each participant's contribution, up to a maximum of 2% of
their salaries.
Contributions to the 401(K) Plan and its predecessors were $194,000, $180,000
and $133,000 for the years ended January 31, 1997, 1996 and 1995,
respectively.
NOTE 11 -- BUSINESS SEGMENT INFORMATION
The Company has three business segments; the filtration product business, the
piping systems product business and the industrial process cooling equipment
business. The industrial process cooling business equipment segment was
established with the acquisition of Midwesco in December, 1996. Intersegment
sales are not material. The following is information relevant to the Company's
business segments:
SEGMENT INFORMATION:
1997 1996 1995
-----------------------------------
SALES:
Filtration products $37,563,000 $36,590,000 $31,270,000
Piping system products 54,194,000 49,248,000 44,225,000
Industrial process cooling equipment 1,816,000
----------- ----------- -----------
TOTAL SALES $93,573,000 $85,838,000 $75,495,000
=========== =========== ===========
INCOME FROM OPERATIONS:
Filtration products $ 4,615,000 $ 4,086,000 $ 2,554,000
Piping system products 4,033,000 2,585,000 1,383,000
Industrial process cooling equipment 137,000
Corporate (2,389,000) (1,933,000) (1,553,000)
----------- ----------- -----------
TOTAL INCOME FROM OPERATIONS $ 6,396,000 $ 4,738,000 $ 2,384,000
=========== =========== ===========
IDENTIFIABLE ASSETS:
Filtration products $21,833,000 $18,538,000 $13,676,000
Piping system products 36,415,000 37,051,000 30,946,000
Industrial process cooling equipment 11,413,000
Corporate 5,667,000 3,396,000 3,295,000
----------- ----------- -----------
TOTAL IDENTIFIABLE ASSETS $75,328,000 $58,985,000 $47,917,000
=========== =========== ===========
<PAGE> 48
CAPITAL EXPENDITURES:
Filtration products $1,371,000 $ 937,000 $ 442,000
Piping system products 1,197,000 1,119,000 1,219,000
Industrial process cooling equipment 10,000
Corporate 148,000 203,000 175,000
---------- ------------ -----------
TOTAL CAPITAL EXPENDITURES $2,726,000 $ 2,259,000 $ 1,836,000
========== ============ ===========
DEPRECIATION AND AMORTIZATION:
Filtration products $ 477,000 $ 336,000 $ 252,000
Piping system products 1,049,000 880,000 606,000
Industrial process cooling equipment 14,000
Corporate 270,000 119,000 44,000
---------- ------------ -----------
TOTAL DEPRECIATION AND
AMORTIZATION $1,810,000 $ 1,335,000 $ 902,000
========== ============ ===========
Export sales totaled $9,785,000 for the year ended January 31, 1997 and were
less than 10% of consolidated net sales for the years ended January 31, 1996
and January 31, 1995. Foreign net sales and identifable assets were less than
10% of consolidated net sales and total assets, respectively, for all years
reported.
NOTE 12 -- SUPPLEMENTAL CASH FLOW INFORMATION
A summary of annual supplemental cash flow information follows:
<TABLE>
<CAPTION>
Year Ended January 31,
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Cash paid for:
Income taxes $ 2,225,000 $ 1,757,000 $1,032,000
Interest 1,076,000 928,000 410,000
Schedule of Noncash Investing and Financial Activities:
Fixed assets acquired under capital leases $ 643,000 $ 216,000 $ 287,000
=========== =========== ==========
Settlement of Ricwil acquisition
contingencies:
Fair value of assets acquired $(1,476,000)
Cost in excess of net assets acquired 889,000
Common stock redeemed 125,000
-----------
Liabilities reduced $ (462,000)
===========
Purchase of businesses:
Fair value of assets acquired
(net of cash received) $ 9,921,000 $ 1,140,000 $4,778,000
Cost in excess of net assets acquired 3,311,000 (110,000) 1,946,000
Cash paid (211,000) (690,000) (860,000)
Common stock issued (3,418,000) (423,000)
------------ ----------- ----------
Liabilities assumed $ 9,603,000 $ 340,000 $5,441,000
=========== =========== ==========
</TABLE>
<PAGE> 49
NOTE 13 -- STOCK OPTIONS
Under the 1989, 1993 and 1994 Stock Option Plans (Option Plans) 150,000,
100,000 and 250,000 shares of common stock, respectively, are reserved for
issuance to key employees of the Company and its affiliates as well as selected
advisors and consultants to the Company. In addition, under the 1994 Option
Plan, an additional one percent of shares of the Company's common stock
outstanding are added to the shares reserved for issuance each February 1,
beginning February 1, 1995. Option exercise prices will be no less than fair
market value for the common stock on the date of grant. The options granted
under the Option Plan may be either non-qualified options or incentive options.
Such options vest ratably over 4 years and are exercisable for up to ten years
from the date of grant.
The Company issued a stock purchase warrant to an investment banker in
connection with the Company's public sale of common stock. The warrant
entitles the holder to purchase 15,000 shares of common stock at $8.10 and may
be exercised through January 1999.
Pursuant to the 1990 Independent Directors' Stock Option Plan (Directors' Plan)
an option to purchase 10,000 shares of common stock is granted automatically to
each director who is not an employee of the Company ("Independent Director")
on the date the individual is first elected as a director of the Company. In
addition, on June 20, 1995, options to purchase 1,000 shares were granted to
each Independent Director and options to purchase 1,000 shares are to be
granted to each Independent Director annually thereafter. Option exercise
prices will be at fair market value of the common stock on the date of grant.
Such options vest ratably over 4 years and are exercisable up to ten years from
the date of the grant.
The following summarizes the changes in options and warrants under the plans:
<TABLE>
<CAPTION>
Year Ended January 31,
1997 1996
-----------------------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
-----------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 391,300 $6.60 291,700 $7.33
Granted 89,000 6.88 99,600 4.45
Exercised (750) 4.44
------- -------
Outstanding at end of year 479,550 6.65 391,300 6.60
======= =======
Options exercisable at year-end 271,525 206,525
Weighted average fair value of
options granted during the year $3.83 $2.49
</TABLE>
<PAGE> 50
The following table summarizes information concerning outstanding and
exercisable options and warrants at January 31, 1997:
<TABLE>
<CAPTION>
Exercise Price Options Outstanding Options Exercisable
- -------------- ------------------- -------------------
Number Weighted Average Weighted Average Number Weighted Average
Outstanding at Remaining Exercise Exercisable at Exercise
Jan. 31, 1997 Contractual Life Price Jan. 31, 1997 Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8.10 15,000 2.0 $8.10 15,000 $8.10
6.50 10,000 3.2 6.50 10,000 6.50
8.00 117,200 3.4 8.00 110,250 8.00
6.75 139,500 7.0 6.75 104,625 6.75
7.25 10,000 7.0 7.25 7,500 7.25
4.44 95,850 8.2 4.44 23,400 4.44
4.88 3,000 8.4 4.88 750 4.88
6.88 89,000 9.2 6.88 6.88
-------- -------
479,550 271,525
======== =======
</TABLE>
The weighted average fair value of options granted during fiscal 1997 and 1996
is estimated at $3.83 and $2.49 per share, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
-------------------
<S> <C> <C>
Expected volatility 43.00% 42.30%
Expected life in years 7 7
Risk-free interest rate 6.58% 6.95%
Dividend yield 0.0% 0.0%
</TABLE>
Had compensation cost for the Company's fiscal 1997 and 1996 grants for
stock-based compensation plans been recognized consistent with SFAS 123, the
Company's net income and earnings per share for fiscal 1997 and 1996 would
approximate the pro forma amounts below:
<TABLE>
<CAPTION>
1997 1996
----------------------
<S> <C> <C>
Net income - as reported $3,230,000 $2,373,000
Net income - pro forma 3,153,000 2,345,000
Net income per common share - as reported $0.70 $0.52
Net income per common share - pro forma $0.68 $0.52
</TABLE>
For the purpose of pro forma disclosure, the estimated compensation costs are
amortized to expense over the options vesting period, four years. Therefore,
because SFAS 123 is applicable only to options granted subsequent to January 31,
1995, its pro forma effect will not be fully reflected until fiscal 2000.
<PAGE> 51
NOTE 14 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended January 31, 1997 and 1996:
<TABLE>
<CAPTION>
Fiscal 1997
Three Months Ended
April July Oct. Jan.
30th 31st 31st 31st
---------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $18,813,000 $26,142,000 $25,326,000 $23,292,000
Gross Profit 4,112,000 6,034,000 6,150,000 5,509,000
Net Income 394,000 1,132,000 1,192,000 512,000
Per Share Data:
Net Income $0.09 $0.25 $0.26 $0.11
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996
Three Months Ended
April July Oct. Jan.
30th 31st 31st 31st
--------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $18,021,000 $21,858,000 $25,883,000 $20,076,000
Gross Profit 3,439,000 4,517,000 4,834,000 4,090,000
Net Income 322,000 759,000 897,000 395,000
Per Share Data:
Net Income $0.07 $0.17 $0.20 $0.09
</TABLE>
<PAGE> 52
Schedule II
MFRI, Inc. And Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
For the years ended January 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
(1) (2)
Balance at Charged to Charged to
beginning Costs and Other Deductions From Balance at End
DESCRIPTION of period Expenses Accounts Reserves of Period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1997:
Allowance for possible losses
in collection of trade
receivables $199,000 99,000 $10,000 (A) $38,000(B) $270,000
======== ======= ========= ======= ========
Year ended January 31, 1996:
Allowance for possible losses
in collection of trade
receivables $269,000 $84,000 ($137,000)(A) $17,000(B) $199,000
======== ======= ========= ======= ========
Year ended January 31, 1995:
Allowance for possible losses
in collection of trade
receivables $95,000 $88,000 $137,000 (A) $51,000(B) $269,000
======== ======= ========= ======= ========
</TABLE>
Note -- A Acquired with purchase of business or (reversed) as part of
settlement of purchase agrement
Note -- B Uncollectible accounts written off.
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MFRI, INC.
Date: April 30, 1997 By: /s/ David Unger
----------------------------------
David Unger,
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
registrant and in the capacities and on the date indicated.
DAVID UNGER* Director and Chairman of the )
Board of Directors (Principal )
Executive Officer) )
)
HENRY M. MAUTNER* Director ) April 30, 1997
)
GENE K. OGILVIE* Director )
)
FATI A. ELGENDY* Director )
)
BRADLEY E. MAUTNER* Director )
)
DON GRUENBERG* Director )
)
MICHAEL D. BENNETT* Vice President, Secretary and )
Treasurer (Principal Financial )
and Accounting Officer) )
)
ARNOLD F. BROOKSTONE* Director )
)
EUGENE MILLER* Director )
)
STEPHEN B. SCHWARTZ Director )
)
)
*By:/s/ David Unger Individually and as Attorney-in-Fact )
---------------- )
David Unger )
<PAGE> 54
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.+
- ----------- ----------------------------------------------------- ---------
2(a) Agreement for Merger, dated October 25, 1996, by and
between MFRI, Inc. and Midwesco, Inc. [Incorporated
by reference to Appendix A of the Company's Proxy
Statement dated November 12, 1996 relating to the
Special Meeting of Stockholders of MFRI, Inc. held
on December 16, 1996 (SEC File No. 1-18370)]
2(b) Agreement and Plan of Merger, as amended, dated
October 25, 1996, by and between MFRI, Inc. and
Midwesco, Inc. [Incorporated by reference to Exhibit
2.2 of the Company's Current Report on Form 8-K
dated December 30, 1996 (SEC File No. 0-18370)]
3(a) Certificate of Incorporation of MFRI, Inc.
[Incorporated by reference to Exhibit 3.3 to
Registration Statement No. 33-70298]
3(b) By-Laws of MFRI, Inc. [Incorporated by reference to
Exhibit 3.4 to Registration Statement No. 33-70298]
4(a) Specimen Common Stock Certificate [Incorporated by
reference to Exhibit 4 to Registration Statement No.
33-70794]
10(a) Management Services Agreement dated December 30,
1996 by and between MFRI, Inc. and Midwesco, Inc.
(formerly known as Midwesco-Illinois, Inc.)
10(b) 1989 Stock Option Plan, as amended [Incorporated by
reference to Exhibit 10(c) to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 31, 1990*]
10(c) 1993 Stock Option Plan [Incorporated by reference to
Exhibit 10.4 of Registration Statement No. 33-70794]
10(d) 1994 Stock Option Plan [Incorporated by reference to
Exhibit 10(c) to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1994 (SEC
File No. 0-18370)]
- -------------------------------
}Included only in manually signed original
*SEC File No. 33-31850
E-1
<PAGE> 55
EXHIBIT NO. DESCRIPTION PAGE NO.+
- ----------- ----------------------------------------------------- ---------
10(e) 1990 Independent Directors Stock Option Plan, as
amended [Incorporated by reference to Exhibit 10.8
to Registration Statement No. 33-70794)]
10(f) Form of Directors Indemnification Agreement
[Incorporated by reference to Exhibit 10.7 to
Registration Statement No. 33-70298]
10(g) Asset Purchase Agreement dated as of September 30,
1994 by and among Ricwil Piping Systems Limited
Partnership, The Ricwil Piping systems Company and
MFRI, Inc. [Incorporated by reference to Exhibit 2.1
to the Company's current report on Form 8-K dated
September 30, 1994 (SEC File No. 0-18370)]
10(h) Industrial Building Lease dated November 18, 1976 by
and between American National Bank and Trust Company
of Chicago, not personally but solely as Trustee,
and known as Trust No. 39340, and MFRI, Inc.
11 Statement regarding computation of per share earnings
21 Subsidiaries of MFRI, Inc.
23 Consent of Deloitte & Touche LLP
24 Power of Attorney executed by directors and officers
of the Company
DRW2366
- -----------------------
}Included only in manually signed original
*SEC File No. 33-31850
E-2
<PAGE> 1
EXHIBIT 10(a)
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is dated as of December 30, 1996, by and
between MFRI, INC., a Delaware corporation ("MFRI"), and MIDWESCO-ILLINOIS,
INC., an Illinois corporation ("New Midwesco").
W I T N E S S E T H:
WHEREAS, MFRI, Midwesco Filter Resources, Inc., a wholly-owned subsidiary of
MFRI, and Midwesco, Inc., an Illinois corporation ("Midwesco"), have heretofore
entered into that certain Management Services Agreement dated as of January 28,
1994;
WHEREAS, MFRI and Midwesco are parties to that certain Agreement and Plan of
Merger dated as of October 25, 1996, as amended (the "Agreement for Merger"),
pursuant to which Midwesco merged (the "Merger") with and into MFRI, all as set
forth in the Agreement for Merger;
WHEREAS, prior to the consummation of the Merger, Midwesco contributed
certain of its assets and liabilities to New Midwesco; and
WHEREAS, the parties hereto believe that the mutual rendering of services by
MFRI and New Midwesco to each other will be to the mutual benefit of each of
the parties hereto.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, MFRI and New Midwesco hereby agree as follows:
1. From and after the date hereof, New Midwesco will provide facilities and
services as reasonably requested by MFRI and its subsidiaries and New Midwesco
will provide such facilities and services as reasonably requested by MFRI and
its subsidiaries. In addition, the parties shall share the services of such of
their respective employees as they mutually agree. Notwithstanding the
foregoing, in no event shall either party be required to hire any additional
personnel or acquire any additional facilities or equipment to provide
facilities, equipment or services pursuant to this Agreement.
2. The party providing services, equipment and facilities will be reimbursed
by the party receiving such services, such equipment and such facilities on the
basis of an allocation of the costs for such shared employees, services and
facilities based on the cost accounting method used by MFRI and its
subsidiaries and New Midwesco. The respective compensation expense of shared
employees will be divided between the parties based upon the level of services
performed by such employees performed for each party.
3. Each quarter the parties shall prepare a schedule of the allocated costs
that such party has incurred on behalf of the other party and the party having
a debit balance shall pay to
<PAGE> 2
the party having a credit balance the amount owed. Once each year after the
close of the year, the parties shall prepare a schedule of all of the costs and
expenses as allocated for such year which schedule shall be subject to review
by independent auditors appointed by the parties to review the annual schedule.
The decision of the independent auditors with respect to the appropriate
allocation of costs shall be final. As soon as practicable after the review of
the annual schedule of cost and expenses by the independent auditors for any
year, the party, if any, having a debit balance for such year, shall pay any
amounts owed for such year to the other party.
4. New Midwesco acknowledges that, pursuant to the Agreement for Merger, MFRI
is successor to Midwesco's rights and obligations as tenant under that certain
Lease dated November 18, 1976, as amended March 1, 1992, by and between
Midwesco and certain affiliates of Midwesco and MFRI for the premises located
at 7720 Lehigh Avenue, Niles, Illinois, space in which New Midwesco utilizes,
and that for purposes of determining the costs allocated with respect to space
at such facility, such costs will be based to the extent applicable on the
amounts payable under said lease.
5. New Midwesco acknowledges that, pursuant to the Agreement for Merger, MFRI
is successor to Midwesco's rights and obligations as tenant under that certain
Lease dated June 1, 1995, by and among Midwesco and LaSalle National Trust,
N.A., as Trustee Under Trust Dated April 20, 1979 and known as Trust No.
26-5317-00 for the premises located at 6153 Mulford Court, Niles, Illinois,
space in which New Midwesco utilizes, and that for purposes of determining the
costs allocated with respect to space at such facility, such costs will be
based to the extent applicable on the amounts payable under said lease.
6. MFRI may make available to key employees of New Midwesco and its
affiliates (including directors and officers), advisors and consultants who
perform services for the benefit of MFRI, stock options under stock options
plans of MFRI to such persons and in such quantities and at such times as MFRI
shall determine, in its sole discretion, after consultation with New Midwesco.
7. This Agreement shall be for an initial term ending on January 31, 1998 and
thereafter shall continue on a year to year basis. Notwithstanding the
foregoing, this Agreement may be terminated by either party, without penalty,
upon not less than thirty (30) days prior written notice as of January 31 of
any year.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement as the date first
set forth above.
MFRI INC.,
a Delaware corporation
By: /s/ Michael D. Bennett
Its: Vice President
MIDWESCO-ILLINOIS, INC.,
an Illinois corporation
By: /s/ Michael D. Bennett
Its: Vice President
3
<PAGE> 1
EXHIBIT 10(h)
LEASE AMENDMENT
THIS LEASE AMENDMENT, made as of the 31st day of August, 1982, by and
between AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, as Trustee under
Trust Agreement dated September 15, 1976, and known as Trust No. 39340
("Landlord") and MIDWESCO, INC. (formerly known as Midwesco-Enterprise, Inc.),
an Illinois corporation ("Tenant");
WITNESSETH:
A. On November 18, 1976, Landlord and tenant entered into an industrial
building lease (the "Lease") whereby Landlord leased to Tenant and Tenant
leased from Landlord the real estate, and all improvements located thereon,
legally described in Exhibit "A" attached hereto (the "Premises");
B. Pursuant to Section 4.0 of the Lease, Tenant is required to pay to
Landlord, as annual rent for the Premises, an annual rent amount equal to
$220,000;
C. Tenant desires to remodel a portion of the premises by converting
approximately 3,000 square feet of shop space in the Premises to approximately
6,000 square feet of double decked office space;
D. Landlord and Tenant mutually desire to amend the Lease to permit
certain alterations to the Premises and to provide for an increased annual rent
to be paid by Tenant to Landlord.
NOW, THEREFORE, for and in consideration of the foregoing Recitals and the
mutual promises, covenants and agreements hereinafter set forth, the parties
hereto agree as follows:
1. Section 4.0 of the Lease is deleted in its entirety and the following
is substituted in lieu thereof:
<PAGE> 2
4.0 Rent.
A. For purposes of this Section 4.0, the following words and phrases
shall have the following meanings:
1. "Adjustment Date" shall mean February 1, 1983 and each February 1
thereafter falling within the term of the Lease.
2. "Adjustment Year" shall mean each 12 calendar month period falling
within the term of the Lease which period shall commence on an Adjustment Date
and end on the January 31st next following such Adjustment Date.
3. "CPI" shall mean the Consumer Price Index For All Urban Consumers,
applicable to the Chicago, Illinois area published by the United States
Department of Labor, Bureau of Labor Statistics. If the Consumer Price Index
is discontinued or is unavailable, Landlord will substitute a comparable index
reflecting changes in the cost of living or purchasing power of the consumer
dollar published by any other governmental agency, bank or other financial
institution, or any recognized authority.
B. Effective each Adjustment Date, Tenant's annual rate of rent for the
Adjustment Year in which such Adjustment Date falls shall be an amount equal to
(i) the annual rate of rent hereunder, in effect on a fraction, the day
immediately preceding such Adjustment Date, multiplied by a fraction, the
denominator of which is the CPI for the thirteenth month preceding such
Adjustment Date and the numerator of which is equal to the denominator plus
three-fifths of the increase in the CPI during the twelve months preceding the
date which is one month before the adjustment date, provided, however, that if,
on any Adjustment Date, the calculation described in this Section 4.0(B)
results in an annual rate of rent which is lets than the annual rate of rent
for the immediately preceding Adjustment Year, then the annual rate of rent for
the Adjustment Year in which such Adjustment Date falls shall be the annual
rate of rent for the immediately preceding Adjustment Year.
C. Tenant shall pay the rent provided for in Section 4.01(B) above, to or
upon the direction of David Unger and Henry Mautner, c/o David Unger and Henry
Mautner, 7720 North Lehigh Avenue Niles, Illinois, until otherwise notified in
writing by Landlord, in equal monthly installments, in advance, on the first
day of each calendar month failing within the term of the Lease. Such rent
shall be paid as aforesaid without demand, notice, deduction, set off, discount
or abatement and in lawful money of the United States.
2. Landlord hereby consents to the performance of the remodeling work
(the"Work") described in Recital C above on the following terms and conditions:
(a) The Work shall be performed at the sole cost and expense of
Tenant and Tenant hereby covenants and agrees to keep the Premises at
all times free and clear of all liens and encumbrances arising out of or
in connection with the performance of the Work; and .
<PAGE> 3
(b) The Work shall be performed in a good and workmanlike manner in
accordance with plans and specifications approved by Landlord.
3. This Lease Amendment shall be null and void and of no force or effect
unless and until such time as Equitable Life Insurance Company of Iowa, holder
of a first mortgage encumbering the Premises and the collateral assignee of the
Landlord's interest in the lease, executes and delivers the Consent to Lease
Amendment attached hereto as Exhibit "B".
4. The Lease, as hereinabove amended, shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Lease Amendment
as of the date first above written.
LANDLORD:
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO,
as Trustee aforesaid
By:
Title:
TENANT:
MIDWESCO, INC. (formerly known as
Midwesco-Enterprise, Inc.), an Illinois corporation
By:
Title:
<PAGE> 4
EXHIBIT "A"
LEGAL DESCRIPTION
THAT PART OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE NORTHWEST QUARTER
OF SECTION 29, TOWNSHIP 41 NORTH, RANGE 13 EAST OF THE 3RD PRINCIPAL MERIDIAN,
LYING WEST OF THE WEST LINE OF THE CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD,
AS ESTABLISHED BY DEED RECORDED OCTOBER 17, 1872, AS DOCUMENT 626/8, AND ALSO
WEST OF THE EASTERLY 60 FEET ACQUIRED BY TOWNSHIP DEDICATION, MAY 21, 1907, FOR
LEHIGH AVE., EXCEPT THE NORTH 33 FEET THEREOF, ALSO EXCEPT THE WEST 237.40 FEET
THEREOF, ALSO EXCEPTING THAT PORTION OF THE ABOVE DESCRIBED TRACT HERETOFORE
CONVEYED TO THE PUBLIC SERVICE COMPANY OF NORTHERN ILLINOIS, DESCRIBED AS THAT
PART OF THE SOUTH 2 CHAINS, WEST OF THE WEST LINE OF THE CHICAGO, MILWAUKEE AND
ST. PAUL RAILROAD RIGHT OF WAY IN THE NORTH 1/2 OF THE SOUTHEAST 1/4 OF THE
NORTHWEST 1/4 OF SECTION 29, TOWNSHIP 41 NORTH, RANGE 13 EAST OF THE 3RD
PRINCIPAL MERIDIAN, LYING EASTERLY OF A LINE PARALLEL TO THE WEST LINE OF SAID
SECTION AND 100 FEET WEST OF THE INTERSECTION OF THE WESTERLY LINE OF LEHIGH
AVE., AND THE NORTH LINE OF SAID TRACT, IN THE VILLAGE OF NILES, COOK COUNTY,
ILLINOIS.
<PAGE> 5
EXHIBIT "B"
CONSENT TO LEASE AMENDMENT
EQUITABLE LIFE INSURANCE COMPANY OF IOWA, an Iowa corporation, pursuant to
that certain Assignment recorded in the office of the Cook County, Illinois
Recorder of Deeds as Document No. 6503442, as collateral assignee of that
certain lease (the "Lease') dated November 18, 1976, by and between American
National Bank and Trust Company of Chicago, as Trustee under Trust Agreement
dated September 15, 197.6 and known as Trust No. 39340, as Landlord, and
Midwesco, Inc. (formerly known as Midwesco-Enterprise, Inc.), an Illinois
corporation, as Tenant, and as holder of a mortgage encumbering the premises
described on Exhibit A to the foregoing Lease Amendment, which mortgage is
recorded in the office of the Cook County, Illinois Recorder of Deeds as
Document No. 23743556, hereby consents to the execution and delivery of the
foregoing Lease Amendment and to the alteration of the premises thereby
contemplated.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA, an Iowa corporation
By:
Title:
<PAGE> 6
FIRST AMENDMENT TO INDUSTRIAL BUILDING LEASE
THIS FIRST AMENDMENT is made as of the 1st day of March, 1992, by and
between AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, not personally but
solely as Trustee, and known as Trust No. 39340 ("Landlord"), and MIDWESCO,
INC. (formerly known as Midwesco-Enterprise, Inc.), an Illinois corporation
("Tenant").
W I T N E SS E T H:
A. Landlord and Tenant entered into a certain lease dated November 18,
1976 (the "Lease"), whereby Landlord leased to tenant certain premises (the
"Premises") located at 7720 North Lehigh Avenue, Niles, Illinois for a lease
term expiring on December 31, 2001.
B. Landlord and Tenant desire to amend the Lease to extend the term of the
Lease by six years, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows.
1. Term. The term of the Lease is hereby extended for one additional term
of 6 years which shall expire on December 31, 2007, unless sooner terminated as
otherwise provided in the Lease. All of the terms and provisions of the Lease
shall apply during the term of the Lease, as hereby extended, except as
otherwise specifically set forth in this First Amendment.
2. Base Rent. Notwithstanding anything contained in Section 4.0 of the
Lease to the contrary, effective April 1, 1992 the annual base rent for the
Premises shall be $393,000, which amount shall be payable in monthly
installments of $32,750.
3. Binding Effect. The Lease, as hereby amended, shall continue in full
force and effect, subject to the terms and provisions thereof and hereof. This
First Amendment shall be binding upon and inure to the benefit of Landlord,
Tenant and their respective successors and permitted assigns.
4. Conflict. In the event of any conflict between the terms or provisions
of the Lease and the terms and provisions of this First Amendment, the terms
and provisions of this First Amendment shall govern and control.
<PAGE> 7
IN WITNESS WHEREOF, this First Amendment is executed as of the day
and year aforesaid.
LANDLORD:
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, not personally but solely
as Trustee under Trust Agreement dated September 15, 1976, and known as Trust
No. 39340
BY:
Title:
TENANT:
MIDWESCO, INC. (formerly known as Midwesco-Enterprise, Inc.), an Illinois
corporation
BY:
Title.
<PAGE> 8
SITE AGREEMENT NO. 41- Niles, Illinois
THIS AGREEMENT, made this 8th day of April, 1987, between AMERICAN
NATIONAL BANK AND TRUST COMPANY OF CHICAGO, not personally, but as Trustee
under Trust Agreement dated September 15, 1976 and known as Trust No. 39340
('Lessor'), and ROGERS RADIO CALL, INC., an Illinois corporation ("Lessee").
W I T N E S E T H:
That Lessor, for and in consideration of the covenants and agreements
hereinafter mentioned to be kept and performed by Lessee, has demised and
leased to Lessee a portion of the property legally described on Schedule I
attached hereto and made a part hereof ('Property'), which portion consists of
the real estate situated in the Village of Niles, in the County of Cook and
State of Illinois, described in Exhibit A and depicted in Exhibit B, both of
which are attached hereto and made a part hereof, together with all right,
title and interest of Lessor in and to all easements, privileges and other
appurtenances pertaining to said real estate (which real estate and the
foregoing right, title and interest of Lessor shall hereinafter collectively be
called the 'Promises'), and has granted and conveyed to Lessee certain
Easements (as such phrase is hereinafter defined) appurtenant to the Premises.
TO HAVE AND TO HOLD the Premises and the Easements, unto Lessee, for a
term (the "Term") commencing on the date of execution hereof and ending April
30, 2017, and for any Extended Terms (as such phrase is hereinafter defined).
AND Lessee, in consideration of the leasing of the Premises and the
granting of the Easements by Lessor, and of Lessor's representations herein,
does covenant and agree with Lessor as follows:
1. Lessee shall pay Lessor as rent for the Premises, for the Term, without
set-off, deduction or credit whatsoever, the amounts set forth in paragraph 2
hereof, all of which payments shall be made to Lessor at 7720 Lehigh Avenue,
Niles, Illinois 60648, Attention Henry M. Mautner, or such other place as the
Lessor may designate from time to time by notice to Lessee. Lessee's covenant
to pay rent shall be independent of every other covenant contained in this
agreement.
2. The rent payable by Lessee to Lessor shall be as follows:
$50,000.00 (the "Lump Sum Payment") on the earlier of (a) May
1, 1987 and (b) the later of (i) the date hereof and (ii) ten (10) days
after Lessee shall have obtained all necessary local, municipal,
county, state and federal approvals, licenses, variations, ordinance
amendments and permits, so as to permit construction on and use and
occupancy of the Promises for all of the purposes set forth in
paragraph 3 hereof (all of which approvals, licenses, variations,
ordinance amendments and permits shall hereinafter collectively be
called the ("Approvals"), and $600 per month thereafter through April
30, 1992; $1,200 per month for the period from May 1, 1992 through
April 30, 1997; $1,500 per
<PAGE> 9
month for the period from May 1, 1997 through April 30, 2002;
$1,800 per month for the period from May 1, 2002 through April 30,
2007; $2,100 per month for the period and $2,400 per month for the
period from May 1, 2012 through April 30, 2017.
Such monthly installments shall be payable one each in advance on the first day
of every calendar month during said period through the date of expiration of
the Term, or such earlier date as this agreement is terminated.
3. The Premises may be used only in connection with the operation of a
cellular mobile telephone system, a radio tower, radio equipment, antennas and
microwave and other dishes and for transmitting and receiving communications
signals, and, in connection therewith, for the installation, repair,
maintenance, operation, housing and removal of antennas, microwave and other
dishes, wires, transmitters, receivers, appliances, machinery, trade fixtures
and communications and other equipment (collectively, the "Equipment"), whether
freestanding or located on a tower or in buildings or other improvements to be
constructed upon or in the Premises, or for any other related purpose.
4.A. The Premises are not readily accessible to a public way, and
electric, telephone and other utility services are not available directly to
the Premises. Accordingly, Lessor shall and does hereby grant and convey to
Lessee, the following non-exclusive easements ("Easements"):
(i) an Easement over and across those portions of the Property described
on Exhibit A attached hereto and depicted on Exhibit B attached hereto as
"EASEMENT FOR INGRESS AND EGRESS I" and "EASEMENT FOR INGRESS AND EGRESS II"
(collectively, "Easement #1"), to provide suitable, adequate and direct access,
twenty-four (24) hours each and every day, seven (7) days each and every week,
for ingress and egress and passage of pedestrians, vehicles and construction
materials and equipment, to and from the Premises from and to the nearest
public way, and to provide parking and storage for service vehicles, equipment
and supplies during any time, from time to time, that Lessee is servicing,
maintaining or repairing the improvements and/or Equipment upon or in the
Premises; provided that Lessee's storage of vehicles, equipment and supplies on
Easement #1 shall be limited in duration to times when Lessee's Equipment is
being serviced; provided that Lessee's use of Easement #1 for storage purposes
shall not exceed 24 hours consecutively on any one occasion; and provided that
Lessee shall store such vehicles, equipment and supplies at Lessee's own risk;
(ii) an Easement upon, over, under and across those portions of the
Property described on Exhibit A attached hereto and depicted on Exhibit B
attached hereto as "EASEMENT FOR PUBLIC UTILITIES NO. ONE" and "EASEMENT FOR
PUBLIC UTILITIES NO. TWO", for the construction, installation, removal, repair,
relocation, replacement, maintenance and operation of electrical, telephone and
other communication facilities as may be required in connection with the
transmission and distribution of electricity, telephone and other
communications and sounds and signals; and
(iii) an Easement upon, over, under and across that portion of the
Property described on Exhibit A attached hereto and depicted on Exhibit B
attached hereto as "EASEMENT FOR
<PAGE> 10
CONSTRUCTION STAGING AREA", being an area thirty-five (35) feet by one hundred
twenty (120) feet, adjacent to the Premises, for temporary storage and use of
construction materials and equipment during any time, from time to time, that
Lessee is constructing, installing, removing, repairing or replacing
improvements or Equipment upon or in the Premises as permitted by this
agreement, and during the time of clean-up operations after completion of any
such construction, installation, removal, repairs or replacements; provided,
however, that Lessee shall not place any buildings or structures on the area
covered by such Easement; and provided that Lessee shall repair and restore the
area covered by such Easement after any such construction, installation,
removal, repairs or replacements to at least as good a condition as when Lessee
first entered upon the area covered by such Easement; and provided further that
Lessee's use of such Easement shall not exceed sixty (60) days consecutively
during any twelve (12) month period; and provided further that Lessee shall
store such construction materials and equipment at Lessee's own risk.
The Easements shall remain in effect during the Term and any Extended Terms.
Lessor shall maintain, in at least its present condition and repair, the areas
covered by the Easements ("Easement Areas") throughout the Term and any
Extended Terms. No additional rent or other consideration shall be payable by
reason of Lessor's grant of the Easements.
B. (i) Lessor represents that Lessee shall have free and unrestricted
access over Easement #1 for ingress and egress and passage of pedestrians,
vehicles and construction materials and equipment to and from the Premises
during the Term and any Extended Terms, twenty-four (24) hours each and every
day, seven (7) days per week, for the purpose of constructing, installing,
removing, repairing, replacing, maintaining and operating Lessee's improvements
and Equipment, and that Lessor shall not permit or suffer any interference with
such free and unrestricted access. Notwithstanding anything to the contrary
contained herein, if Lessor's performance of its obligations hereunder is
delayed due to a "Cause" (as hereinafter defined), Lessor shall have such
additional time to perform its obligations as is equal to the period of delay
resulting from the Cause.
(ii) Throughout the Term and any Extended Terms, Lessor shall provide snow
removal services, at least between the hours of 9:00 a.m. and 5:00 p.m., at
least on weekdays other than legal holidays, on concrete or asphalt paved
portions of Easement #1, as, when and where necessary to ensure that Lessee
shall have such free and unrestricted access to and from Premises from and to
an open public street, road or way. Throughout the Term and any Extended
Terms, Lessor shall provide Lessee with a telephone number which, if called by
Lessee, will ring at a location that is staffed by Lessor or its agents or
employees at least between the hours of 9:00 a.m. and 5:00 p.m., at least on
weekdays other than legal holidays. If Lessee calls such telephone number from
time to time and requests snow removal services from Lessor, Lessor will cause
such snow removal services to be provided so that the aforedescribed free and
unrestricted access will be restored within two (2) hours of the time of that
call. Notwithstanding anything to the contrary contained herein, if Lessor's
performance of its snow removal obligations is delayed due to a "Cause" (as
hereinafter defined), Lessor shall have such additional time to perform its
snow removal obligations as is equal to the period of delay resulting from the
Cause.
(iii) For purposes of this paragraph 4B, a "Cause" means any one or more
of the following: a strike, lockout or labor difficulty; explosion, sabotage,
accident, riot, or civil
<PAGE> 11
commotion; act of war; fire or other catastrophe; or any other cause beyond
Lessor's reasonable control; provided that a lack of funds on the part of
Lessor shall not be deemed to be a cause beyond Lessor's reasonable control.
C. At Lessee's request from time to time, and without further payment or
consideration, Lessor shall grant and convey to the electric and/or telephone
utility companies serving or authorized to serve the Premises, by and using
such forms of instrument or easement agreement as are then being used by such
companies, perpetual easements to use the Easement Areas described in
subparagraph 4A (ii) hereof for the purposes set forth in said subparagraph 4A
(ii), on such terms and conditions as are customarily contained in such forms
of instrument or easement agreement as are then being used by such companies;
and Lessor shall take any and all actions acceptable to Lessor in its
reasonable discretion and execute, acknowledge and deliver any and all
documents (acceptable to Lessor in its reasonable discretion) requested by such
companies or Lessee in order to accomplish the foregoing. Lessee shall
indemnify Lessor for any expense in connection with the foregoing.
5. Lessor represents that Lessor owns good and marketable title in fee
simple to the Premises and the Easement Areas described in paragraph 4A hereof,
free and clear of all liens and encumbrances except as set forth on Exhibit C
attached hereto and made a part hereof, and Lessor acknowledges that Lessee is
relying upon the foregoing in entering into this agreement and in expending
monies in connection herewith. Other than a mortgage on the Property, Lessor
shall not encumber or permit any encumbrances, liens or restrictions on the
title to the Premises or the Easement Areas other than those set forth on
Exhibit C hereto, except with the prior written approval of Lessee. Lessor
may, at its option, subordinate this agreement and Lessee's interest hereunder
to any mortgage, deed of trust, prime lease, or other lien hereafter placed on
the Premises; provided that Lessor shall first obtain and deliver to Lessee
from any future mortgagee, trustee, fee owner, prime lessor or any person
seeking to have an interest in the Premises superior to this agreement, a
written non-disturbance agreement providing that (a) as long as Lessee attorns
to the mortgagee, trustee, fee owner, prime lessor or other person, its
successors and assigns, this agreement shall be recognized by the mortgagee,
trustee, fee owner. prime lessor or other person, and that all of the rights of
Lessee, including, without limitation, Lessee's options to extend the Term of
this agreement, shall remain in full force and effect during the Term and any
Extended Term, and (b) as long as Lessee attorns to the mortgagee, trustee, fee
owner, prime lessor or other person, its successors or assigns, and performs
all of Lessee's obligations hereunder, Lessee shall not be named or joined in
any action or proceeding to foreclose or terminate the interest of Lessor or
enforce any such mortgage, deed of trust, prime lease or fee owner's rights, or
the rights of such other person, brought or filed by any such person. in the
event of foreclosure or any enforcement of any such mortgage, deed of trust,
prime lease or fee owner's rights, or the rights of such other person, Lessee's
rights hereunder shall expressly survive, and this agreement shall in all
respects continue in full force and effect; provided that Lessee performs all
its obligations hereunder and attorns to the mortgagee, trustee, purchaser at
the foreclosure sale, prime lessor, fee owner or other person. The
subordination of this agreement and Lessee's interest hereunder to any such
mortgage, trust deed, prime lease or other instrument is expressly conditional
upon Lessor obtaining and delivering to Lessee such non-disturbance agreement.
Provided such non-disturbance agreement is delivered to Lessee, Lessee agrees
to execute, if the same is required, any and all instruments in writing which
may be requested by Lessor to subordinate Lessee's rights under this agreement
to the lien of any such
<PAGE> 12
mortgage, deed of trust, prime lease or any other instrument, all as aforesaid.
6. A. Lessee shall pay directly all charges for heat, light, power,
telephone and other utilities used in connection with the Premises during the
Term and any Extended Terms. In connection with the foregoing, Lessee shall
also pay the cost of installation of any necessary separate meters. If Lessee
shall fail to pay any such charges when due, Lessor may pay the same, and
Lessee shall repay Lessor for any amounts so advanced within fifteen (15) days
after receipt of Lessor's statement therefor.
B. Lessee shall pay as additional rent during the Term and any Extended
Term any portion of the real estate taxes for the parcel of real estate owned
by Lessor of which the Premises are a part (which parcel is designated by
Permanent Tax Index Number 10-29-105-006-0000) directly attributable to
additional improvements included as part of the improvement portion of the
assessed valuation of said parcel for and by reason of improvements or
additions constructed or made by Lessee on the Premises; provided that Lessee
and its agents, in Lessee's name or in the name of Lessor, shall have the right
at Lessee's expense to contest the amount and validity, in whole or in part, of
any tax or portion thereof for which Lessee is responsible pursuant to the
terms hereof, by appropriate proceedings diligently conducted. If any rebate
of such real estate taxes is made, the rebate shall be retained by or paid to
Lessee based on the proportion which the real estate taxes paid by Lessee bears
to the total amount of real estate taxes to which such rebate relates. Lessor
shall promptly forward to Lessee copies of all applicable assessment notices
and tax bills and other matters relating to the real estate taxes to the end
that Lessee is not prejudiced in exercising the rights granted hereunder.
C. Lessee shall pay all personal property taxes levied on the Equipment
installed by Lessee on the Premises.
7. Lessee shall have the right at any time during the Term and any
Extended Terms, at their own expense, to construct or make upon or in the
Premises any improvements or additions of whatever kind or description
necessary or convenient to the use of the Premises in accordance with paragraph
3 of this agreement, and to install Equipment, upon or in the Premises, and to
remove any such improvements, additions and Equipment so constructed, made or
installed. Upon completion of initial construction and installation of
improvements, additions and Equipment on the Premises, Lessee shall secure the
Promises by installing on the Premises at Lessee's expense a ten (10) foot tall
fence, or such smaller fence as may be the highest fence permitted under local
law. Any and all improvements or additions so constructed or made, and any and
all Equipment so installed, upon or in the Premises, shall remain personal
property notwithstanding the fact that any or all of same may be affixed or
attached to the Premises, and, during the Term and any Extended Terms, and upon
expiration thereof, or the termination of this agreement, shall belong to and
be removable by Lessee.
8. Lessee shall keep the Premises in good condition and repair in
accordance with applicable federal, state and municipal laws, and, at the
expiration of the Term and any Extended Terms, or such earlier date as this
agreement is terminated, Lessee will remove (to the ground level on the date
hereof) all above-ground improvements, additions and Equipment constructed,
made or installed by Lessee, will place the Premises in a reasonably level and
non-hazardous condition, and will otherwise yield up the Premises in at least
as good a condition as when the
<PAGE> 13
same were entered upon by Lessee, loss by casualty and ordinary wear and tear
excepted.
9. Lessee and its agents may apply to the appropriate governmental
authorities and public utilities for any Approvals and easements required of or
deemed necessary or useful by Lessee for its use of the Premises, or in order
to construct or make improvements or additions, or to install Equipment, upon
or in the Premises. Lessor shall join in any such applications as requested by
Lessee and shall cooperate fully with Lessee in connection with the foregoing
and, upon request of Lessee, shall take any and all actions and execute,
acknowledge and deliver any and all documents and instruments reasonably
requested by Lessee (including, without limitation, the grant of utility
easements), provided that none of the foregoing actions, documents or
instruments shall impose any liability on Lessor. Lessee shall pay directly
any costs in connection with the foregoing. Lessee shall pay all license,
permit and inspection fees required in connection with its use of the Premises
or the conduct of its business thereon. Notwithstanding anything to the
contrary contained herein, Lessee shall not apply for any zoning change the
effect of which will interfere with the current use of the Property or make the
current use of the Property non-conforming under the applicable law, and no
aspect of any zoning change granted in connection with Lessee's initial
construction and installation of improvements, additions and/or Equipment upon
or in the Premises shall rely on any other portion of the Property to satisfy
zoning requirements applicable to the Premises.
10. This agreement and Lessee's obligations under this agreement are
contingent upon the occurrence of the following events on or before April 30,
1987: Lessee shall have received the Approvals and easements referred to in
paragraphs 2, 4C and 9 hereof. If by said date one or more of such events
shall not have occurred, then at Lessee's option, which shall be exercised, if
at all, on or before April 30, 1987, Lessee may waive such contingencies and
thereby continue this agreement in full force and effect, or Lessee may
terminate this agreement effective on or before said date by notice to Lessor.
Upon such termination by Lessee, this agreement, the Term and all of Lessee's
obligations contained herein shall forthwith terminate and end on the date
specified in such notice; provided that if Lessee terminates this agreement
pursuant to this paragraph 10, Lessor shall refund the Lump Sum Payment to
Lessee within ten (10) days after Lessee's notice of termination, but Lessor
shall be entitled to retain all other rent theretofore paid by Lessee.
Notwithstanding anything to the contrary contained herein, upon such
termination, Lessee shall indemnify Lessor for any liabilities arising prior to
such termination due to Lessee's acts or omissions on the Premises or the
Easement Areas.
11. Lessee Shall indemnify and hold harmless Lessor, Lessor's
beneficiaries, any mortgagee of the Premises and/or the Easement Areas
("Mortgagee") and the Premises and the Easement Areas from and against all
liens or claims for lien for material or labor by reason of any work done
and/or material furnished Lessee in connection with the construction by Lessee
of any improvements or additions upon or in the Premises. If any such lien or
claim for lien is filed against the Premises or the Easement Areas, or any part
thereof, by reason of the construction of any improvements or additions by
Lessee, Lessor shall give notice thereof to Lessee and demand that Lessee
remove such lien or claim for lien, and if the same is not removed within
thirty (30) days after Lessee receives such notice and demand, then (and only
then) Lessor may (unless within such thirty (30) day period Lessee furnishes to
Lessor a surety bond protecting Lessor against such lien), without inquiring
into the validity thereof, remove the same at its own expense, and Lessee shall
repay Lessor for any amounts so advanced within fifteen (15) days
<PAGE> 14
after receipt of Lessor's statement therefor.
12. Lessee shall, at its own expense, during the Term and any Extended
Terms, insure Lessor, Lessor's beneficiaries from time to time, and any
Mortgagee whose existence has been made known to Lessee by a notice from
Lessor, by an endorsement on a blanket policy or policies or otherwise, with a
company or companies authorized to do business in the State of Illinois against
any liability which may be incurred by Lessor, Lessor's beneficiaries or any
such mortgagee on account of death, bodily injury or property damage which may
be sustained by any person or persons or their property who or which might at
any time be in or about the Premises. Said policy or policies of insurance
shall provide coverage on an occurrence basis and shall be in limits of not
less than One Million Dollars ($1,000,000.00), in the event of either bodily
injury or death, or property damage, or both, as the result of any one accident
or occurrence. Lessee shall deliver certificates therefor to Lessor upon
request. The certificate shall contain a statement to the effect that should
said policy or policies be canceled prior to the expiration date therof, the
issuing company or companies will endeavor to mail thirty (30) days written
notice to the certificate holder. In the event Lessee shall fail to procure
such public liability insurance or pay the premiums therefor or deliver said
certificates therefor to Lessor upon request, Lessor may procure such insurance
and pay the premiums therefor, and Lessee shall repay Lessor for any amounts so
advanced within fifteen (15) days after receipt of Lessor's statement therefor.
In addition, Lessee shall, at its own expense, obtain the following: (a)
automobile liability insurance in limits of not less than One Million Dollars
($1,000,000.00); (b) workman's compensation as required by Illinois law; and
(c) umbrella liability insurance in limits of not less than Four Million
Dollars.
13. Lessee and Lessor shall each be responsible for maintaining insurance
covering their own property, whether or not located on the Premises. Lessor
and Lessee each hereby waive any and all rights of recovery, claim, action, or
cause of action, each may have against the other, its agents, officers or
employees, on account of any loss or damage occasioned to Lessor or Lessee, as
the case may be, their respective property, the Premises or any improvements
thereon or therein, or any personal property of such party thereon or therein,
or the Easement Areas, by reason of fire, the elements or any other cause which
customarily is insured against under the terms of standard .all risk' property,
fire and extended coverage insurance policies, regardless of cause or origin,
including negligence of the other party hereto, its agents, officers or
employees. Each party hereto, on behalf of its respective insurance companies
insuring its property against any such loss, does hereby waive any right of
subrogation that such companies may have against the other party hereto. The
parties hereto covenant with each other that, to the extent such insurance
endorsement is available, they will each obtain, for the benefit of the other,
an explicit waiver of any such right of subrogation from its respective
insurance companies.
14. Lessee may terminate this agreement by thirty (30) days' notice to
Lessor accompanied by a termination fee equal to the greater of (a) Five
Thousand Dollars ($5,000.00) and (b) an amount equal to three (3) months rent
at the then current rate, and upon such termination the Term and all
obligations of the Lessee contained herein shall forthwith terminate and end on
the date specified in such notice. If Lessee terminates this agreement
pursuant to this paragraph 14, Lessor shall be entitled to retain all rent
theretofore paid by Lessee. Notwithstanding anything to the contrary contained
herein, upon such termination, Lessee shall indemnify Lessor, Lessor's
beneficiaries and any Mortgagees for any liabilities arising prior to
<PAGE> 15
such termination due to the acts or omissions of Lessee and its agents and
employees on the Premises or the Easement Areas.
15. Lessee shall have the right, without the consent of Lessor, to assign
this agreement and the Easements contained herein or sublet all or any part of
the Premises for any use permitted by paragraph 3 hereof. In addition, Lessee
shall have the right, without the consent of Lessor, to assign or otherwise
transfer this agreement, the Easements contained herein, and each, every and
all of Lessee's rights, privileges and obligations hereunder, in consideration
of or as additional security for any financing or equipment leasing arrangement
into which Lessee may enter which may affect Lessee's interest hereunder, and
any such assignment or transfer shall not constitute a default under this
agreement. Further, Lessee shall have the right to record, register or file
such evidence of any such assignment or transfer as may be required in
conjunction with any such financing or equipment leasing arrangement, and such
recording, registration or filing shall not constitute a default under this
agreement. An assignment to a person, firm or corporation which, at the time
of such assignment, has a smaller net worth than Lessee then has shall not
release Lessee of its obligations under this lease, except an assignment to a
corporation into which or with which Lessee merges or consolidates. Lessee
shall, within a reasonable time after any assignment, transfer or subletting,
notify Lessor of the name and address of the assignee, transferee or sublessee;
and Lessee shall, within a reasonable time after any assignment or transfer,
provide Lessor with a copy of an instrument whereby the assignee or transferee
has assumed Lessee's obligations under this agreement.
16. Lessor, on behalf of itself and all persons, corporations and other
entities claiming by, through or under Lessor, covenants and agrees with Lessee
that as long as Lessee pays the rent herein reserved and performs all of
Lessee's obligations hereunder, subject only to the right of Midwesco, Inc., an
Illinois corporation, as Tenant of the Property under a certain lease dated
November 18, 1976 between said corporation as Tenant and Lessor hereunder as
Landlord, to concurrent use of the Easement Areas, Lessee shall have quiet and
peaceful enjoyment and possession of the Premises and the Easement Areas
throughout the Term and any Extended Terms, free from claims by any person,
corporation or other entity claiming by, through or under Lessor or any person,
corporation or other entity claiming under title paramount to Lessor, and shall
be entitled to exercise all of Lessee's rights hereunder (including, without
limitation, Lessee's options to extend the Term of this agreement) during the
Term and any Extended Terms.
17. Lessee will, from time to time, upon ton (10) days' prior request by
Lessor, execute, acknowledge and deliver to Lessor a certificate of Lessee
stating that this agreement is unmodified and in full force and effect (or, if
there have been modifications, that this agreement is in full force and effect
as modified, and setting forth such modifications) and the dates to which rent
and additional rent have been paid, and either stating that to the knowledge of
Lessee no default exists hereunder or specifying each such default of which
Lessee has knowledge. Lessor will, from time to time, upon ten (10) days'
prior request by Lessee, execute, acknowledge and deliver to Lessee a
certificate of Lessor stating that this agreement is unmodified and in full
force and effect (or, if there have been modifications, that this agreement is
in full force and effect as modified, and setting forth such modifications) and
the dates to which rent and additional rent have been paid, and either stating
that to the knowledge of Lessor no default exists hereunder or specifying each
such default of which Lessor has knowledge. Any such certificate of Lessee or
Lessor may be relied upon by any person or entity.
<PAGE> 16
18. A. If Lessee shall default in the payment of any installment of the
rent hereby reserved and any such default shall continue for a period of ten
(10) days after written notice thereof is received by Lessee, or if Lessee
shall default in the performance of any other obligation herein contained to be
performed by Lessee and any such default shall continue for a period of thirty
(30) days after written notice thereof is received by Lessee (provided,
however, that if the default reasonably cannot be cured within thirty (30)
days, said thirty (30) day period shall be extended for such additional time as
is reasonably necessary to cure the default), or if Lessee is adjudicated a
bankrupt or a trustee is appointed for Lessee after a petition for
reorganization or arrangement has been filed by or against Lessee under the
Bankruptcy Act of the united States, or a receiver is appointed for Lessee's
business or property (and the order of adjudication or for the appointment of a
trustee or receiver has not been vacated within sixty (60) days after the entry
thereof), then upon ten (10) days' notice to Lessee (which notice shall not be
required if Lessee is adjudicated a bankrupt or a trustee is appointed for
Lessee after a petition for reorganization or arrangement has been filed
against Lessee under the Bankruptcy Act of the United States, or a receiver is
appointed for Lessee's business or property and the order of adjudication or
for the appointment of a trustee or receiver has not been vacated within sixty
(60) days after the entry thereof), the right of Lessee to possession of the
Promises may be terminated and the mere retention of possession thereafter by
Lessee shall constitute a forcible detainer of the Promises, and if the Lessor
so elects, but not otherwise, and upon notice of such election, this agreement
shall thereupon terminate, and upon termination of Lessee's right of possession
as aforesaid, whether this agreement be terminated or not, Lessee agrees to
surrender possession of the Premises immediately. Lessor hereby expressly
waives any and all right to distrain for rent due and any and all landlord's
liens or claim of such upon any or all property of Lessee and Lessee's Related
Parties, on the Premises or the Easement Areas.
B. Concurrently with the execution of this agreement, Lessor's
beneficiaries have executed an instrument entitled "Consent to Site Agreement
By Lessor's Beneficiaries" whereby said beneficiaries recognize and consent to
the terms of this agreement and agree that they will not take any action or
suffer any action to be taken which does in any way impair or limit the
performance by Lessor of its obligations under this agreement, or which does in
any way impair or limit the exercise by Lessee of its rights under this
agreement. Lessor hereby agrees that any breach by any of Lessor's
beneficiaries, or by any of their respective heirs, executors, administrators,
personal representatives, successors or assigns, of any of the covenants
contained in said instrument shall constitute a breach by Lessor of its
obligations under this agreement.
19. If any suit or action shall be brought to enforce any of the terms,
covenants or conditions of this agreement, to restrain any breach of this
agreement, to recover any rent under this agreement, to terminate this
agreement or to recover possession of the Premises, the party not prevailing in
such suit or action shall be liable to the prevailing party for the prevailing
party's costs and expenses, including, without limitation, court costs and
reasonable attorneys' fees, the amount of which shall be fixed by the court and
shall be made a part of any judgment rendered. Each party shall pay all costs
and expenses, including, without limitation, court costs and reasonable
attorneys' fees, incurred or sustained by the other party in any litigation in
which the other party, without its fault, becomes involved or concerned by
reason of this agreement.
20. All notices to be given under this agreement shall be in writing and
shall be delivered in person or mailed by United States registered or certified
mail, postage prepaid,
<PAGE> 17
return receipt requested, addressed to Lessor, if intended for it, at the
address for payment of rent, and addressed to Lessee, if intended for it, at
Cellular One, 840 East State Parkway, Schaumburg, Illinois, 60173 Attention:
Business Manager, and shall be deemed given when personally delivered, or on
the date indicated on a return receipt that delivery was made or refused.
Either party hereto may change the place for notice to it by like written
notice to the other.
21. Each party hereto represents that it has full power and authority to
enter into this agreement and to perform the covenants and obligations herein
contained. Each person executing this agreement represents that he or she is
duly authorized to execute this agreement.
22. This agreement and all the rights, covenants and obligations contained
in this agreement shall inure to the benefit of-and be binding upon Lessor,
Lessor's beneficiaries from time to time, Lessee, and their respective heirs,
executors, administrators, personal representatives, successors and assigns as
permitted by this agreement.
23. A. In any case where the approval or consent of Lessor is required
under this agreement, and if Lessor consists of more than one person or entity,
an approval or consent by any of the persons or entities comprising Lessor
shall be sufficient, and Lessee may rely upon such approval or consent. In
furtherance thereof, each of the persons and entities comprising Lessor does
hereby irrevocably make, constitute and appoint each of the other persons and
entities comprising the Lessor, acting alone, as its, his or her agent and true
and lawful attorney-in-fact, for and in its, his or her name, place and stead
to approve, authorize, sign, execute, acknowledge and deliver any and all
documents, instruments and certificates in connection with approvals or
consents from time to time required, requested or otherwise to be given under
this agreement, hereby conferring upon said attorney the most comprehensive
powers possible to be given in connection with the foregoing, and hereby
ratifying all that said attorney lawfully shall do or cause to be done by
virtue of the power of attorney hereby conferred.
B. In any case where the approval or consent of either party hereto is
required under this agreement, such party shall not unreasonably delay or
withhold its approval or consent.
24. This agreement represents the entire, integrated agreement of the
parties hereto. No alteration, amendment or addition to this agreement shall
be binding upon any party hereto unless contained in a writing signed by the
parties. If any clause, phrase, provision or portion of this agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable under applicable law, such event shall not affect, impair or
render invalid or unenforceable the reminder of this agreement, nor any other
clause, phrase, provision or portion hereof, nor shall it affect the
application of any clause, phrase, provision or portion hereof to other persons
or circumstances. Changes in the number, gender and grammar of terms and
phrases herein, where necessary to conform this agreement to the circumstances
of Lessor and Lessee, shall in all cases be assumed as though in each case
fully expressed herein. This agreement shall be construed in accordance with
the laws of the State of Illinois.
25. Lessee shall have options to extend the Term of this agreement for two
(2) additional periods of ten (10) years each (the "Extended Terms') upon
giving written notice to Lessor of Lessee's exercise of any such option at
least one hundred twenty (120) days prior to the expiration of the original
Term or any Extended Term; provided that neither such option shall be
<PAGE> 18
exercisable if, at the time of exercise or at the time any such Extended Term
is to commence, Lessee is in default under this agreement and has failed to
cure such default within the time permitted under paragraph 18 of this
agreement; and provided that the second option to extend shall cease to exist
if Lessee does not exercise the first option to extend. All of the terms and
provisions of this agreement shall be effective during each Extended Term,
except that the monthly rent payable during the first Extended Term shall be as
follows:
$2,700 per month for the period from May 1, 2017 through April 30, 2022;
and
$3,000 per month for the period from May 1, 2022 through April 30, 2027;
and the monthly rent payable during the second Extended Term shall be as
follows.
$3,300 per month for the period from May 1, 2027 through April 30, 2032;
and
$3,600 per month for the period from may 1, 2032 through April 30, 2037.
The word "Term" as used in this agreement shall include the Extended Terms when
and as Lessee's options to extend shall be exercised.
26. As additional security for the performance of Lessee's obligations
under this agreement, Lessee has concurrently with the execution of this
agreement deposited with Lessor the sum of Three Thousand Dollars ($3,000) (the
"Security Deposit"). Lessor may apply any part or all of the Security Deposit
for the purpose of curing any defaults of Lessee under this agreement if (and
only if) Lessee has failed to cure any such default within the time permitted
under paragraph 18 of this agreement. Lessee shall pay to Lessor within ten
(10) days after receipt of Lessor's written notice a sum of money to replenish
such amounts as are properly applied by Lessor from the Security Deposit so
that, at all times during the Term and any Extended Terms, the Security Deposit
will equal the aforesaid sum. At the expiration or earlier termination of this
agreement, if Lessee is not then in default hereunder, Lessor shall return to
Lessee the Security Deposit, less such amounts, if any, as have been properly
applied by Lessor to cure any defaults of Lessee hereunder. Lessor shall keep
the Security Deposit in an interest-bearing "money market account", or a
similar interest-bearing demand deposit account, of the type available from
major banks. The interest earned on the Security Deposit shall be paid to
Lessee not less often than annually.
27. If there occurs a casualty which partially or completely destroys the
improvements, additions and/or Equipment constructed, made or installed upon or
in the Premises, such event shall not relieve Lessee of the obligation to pay
rent hereunder.
IN WITNESS WHEREOF, the parties have executed this agreement the day and
year first above written.
LESSOR: LESSEE:
<PAGE> 19
AMERICAN NATIONAL BANK AND ROGERS RADIOCALL, INC.
TRUST COMPANY OF CHICAGO,
not personally, but as Trustee
under Trust Agreement dated BY
September 15, 1976 and known
as Trust No. 39340
By Attest
Its
Attest:
Its
CONSENT BY MIDWESCO, INC. ("MIDWESCO")
For and in consideration of Ten Dollars ($10.00) and other valuable
consideration, the receipt, adequacy and sufficiency of which is hereby
acknowledged, MIDWESCO, being a Tenant under a Lease dated November 18, 1976
between American National Bank and Trust Company of Chicago, as Trustee under
Trust No. 39340 ("American"), as Landlord, and MIDWESCO as Tenant, and having
an interest in the Premises and/or the Easement Areas (as such phrases are
defined in the foregoing Site Agreement No. 41 - Niles, Illinois dated April 8,
1987, between American, as Lessor, and Rogers Radiocall, Inc., as Lessee ("Site
Agreement") described in the foregoing Site Agreement, hereby recognizes and
consents to the terms of the foregoing Site Agreement; and agrees that it will
not take any action, or suffer any action to be taken by any person or entity
controlled by MIDWESCO, which does in any way impair or limit the performance
by the Lessor (under the foregoing Site Agreement,:) of the Lessor's
obligations under the foregoing Site Agreement, or which does in any way impair
or limit the exercise by the Lessee (under the foregoing Site Agreement) of the
Lessee's rights under the Site Agreement. The provisions hereof shall be
binding upon MIDWESCO, its successors and assigns, and its and their respective
employees, agents, directors and shareholders.
IN WITNESS WHEREOF, MIDWESCO, INC. has executed this instrument this 8th
day of April, 1987.
MIDWESCO, INC.
By
Its
Attest
Its
<PAGE> 20
This instrument prepared by
Stephen M. Dorfman
Altheimer & Gray
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE> 21
NOTARY ACKNOWLEDGMENT FOR AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO
STATE OF ILLINOIS)
) SS.
COUNTY OF C 0 0 K)
I, Loretta M. Sovienski, a Notary Public in and for the said County, in the
State aforesaid, DO HEREBY CERTIFY that __________________, Assistant Vice
President of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, and
________________, Assistant Secretary thereof, personally known to me as the
same persons whose names are subscribed to the foregoing instrument as such
Assistant Vice President and Assistant Secretary respectively, appeared before
me this day in person and acknowledged that they signed and delivered said
instrument as their own free and voluntary act, and as the free and voluntary
act of said Bank, for the uses and purposes therein set forth; and said
Assistant Secretary did also then and there acknowledge that he as custodian of
the corporate seal of said bank did affix said corporate seal of said Bank to
said instrument as his own free and voluntary act, and as the free and
voluntary act of said Bank for the uses and purposes therein set forth.
GIVEN under my hand and Notarial Seal this 9th day of April A.D. 1987.
Notary Public
My Commission Expires:
NOTARY ACKNOWLEDGMENT FOR ROGERS RADIOCALL, INC.
STATE OF ILLINOIS )
)SS.
COUNTY OF
1, Peter B. Loughman, a Notary Public in and for the County and State
aforesaid DO HEREBY CERTIFY that_________________, personally known to me to be
the ______________ of ROGERS RADIOCALL, INC., an Illinois corporation, and,
personally known to me to be the ________________ of said corporation, and
personally known to me to be the same persons whose names are subscribed to the
foregoing instrument, appeared before me this day in person and severally
acknowledged that as such ________ and _______, respectively, of ROGERS
RADIOCALL, INC., they signed and delivered the said instrument, pursuant to
authority given by the Board of Directors of said corporation, as their free
and voluntary act, and as the free and voluntary act and deed of said
corporation, for the uses and purposes therein set forth.
GIVEN under my hand and official seal this 9th day of April, 1987.
<PAGE> 22
NOTARY ACKNOWLEDGMENT FOR MIDWESCO, INC.
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK)
I, Peter B. Loughman, Notary Public in and for the County and State
aforesaid DO HEREBY CERTIFY that _________________ , personally known to me to
be the __________ of MIDWESCO, INC. an Illinois corporation, and __________,
personally known to me to be the ____________ of said corporation, and
personally known to me to be the same persons whose names are subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that as such _______________ and ______________ respectively, of MIDWESCO, INC.
they signed and delivered the said instrument, pursuant to authority given by
the Board of Directors of said corporation, as the free and voluntary act and
deed of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and official seal this 8th day of April, 1987.
<PAGE> 23
SCHEDULE 1
LOT 1 IN DANLEY MACHINE CORPORATION'S SUBDIVISION OF PART OF THE NORTH 1/2 OF
THE SOUTH EAST 1/4 OF THE NORTH WEST 1/4 OF SECTION 29, TOWNSHIP 41 NORTH,
RANGE 13, EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS.
<PAGE> 24
EXHIBIT A
Common address, if any, of Premises:
7720 North Lehigh, Niles, Illinois
Number of square feet of Premises (excluding Easement Areas and appurtenances):
One Thousand Nine Hundred Twenty (1,920)
Legal Descriptions:
REAL ESTATE DESCRIPTION
THAT PART OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE NORTHWEST
QUARTER OF SECTION TWENTY-NINE, TOWNSHIP FORTY-ONE NORTH, RANGE THIRTEEN, EAST
OF THE THIRD PRINCIPAL MERIDIAN, LYING WEST OF THE SOUTHWESTERLY LINE OF THE
CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD, AS ESTABLISHED BY DEED RECORDED
OCTOBER 17, 1872 AS DOCUMENT NO. 62678, AND ALSO WEST OF THE EASTERLY 60.0 FT.
ACQUIRED BY TOWNSHIP DEDICATION, MAY 21, 1907, FOR LEHIGH AVENUE, BOUNDED AND
DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF A LINE 132.0 FT. NORTH
OF AND PARALLEL TO THE SOUTH LINE OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF
THE NORTHWEST QUARTER OF SAID SECTION TWENTY-NINE, AND THE SOUTHWESTERLY LINE
OF SAID LEHIGH AVENUE, SAID LINE BEING 60.0 FT. SOUTHWESTERLY OF AND PARALLEL
TO THE SOUTHWESTERLY LINE OF SAID CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD;
THENCE WEST ALONG SAID 132.0 FT. NORTH PARALLEL LINE A DISTANCE OF 100.0 FT.
TO A POINT; THENCE SOUTH ON A LIKE PARALLEL TO THE WEST LINE OF SAID SECTION
TWENTY-NINE HAVING AN ASSUMED BEARING OF SOUTH 00 DEGREES-27'-07" EAST A
DISTANCE OF 5.0 FT. TO THE POINT OF BEGINNING; THENCE SOUTH ALONG SAID
PARALLEL LIKE A DISTANCE OF 60.0 FT.; THENCE SOUTH 89 DEGREES-32'-53" WEST A
DISTANCE OF 32.0 FT.; THENCE NORTH 00 DEGREES-27'-07" WEST A DISTANCE OF 60.0
FT.; THENCE NORTH 89 DEGREES-32'-53" EAST A DISTANCE OF 32.0 FT. TO THE POINT
OF BEGINNING, ALL IN COOK COUNTY, ILLINOIS.
EASEMENT FOR INGRESS AND EGRESS I
THAT PART OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE NORTHWEST QUARTER
OF SECTION TWENTY-NINE, TOWNSHIP FORTY-ONE NORTH, RANGE THIRTEEN, EAST OF THE
THIRD PRINCIPAL MERIDIAN, LYING WEST OF THE SOUTHWESTERLY LINE OF THE CHICAGO,
MILWAUKEE AND ST. PAUL RAILROAD, AS ESTABLISHED BY DEED RECORDED OCTOBER 17,
1872 AS DOCUMENT NO. 6267B, AND ALSO WEST OF THE EASTERLY 60.0 FT. ACQUIRED BY
TOWNSHIP DEDICATION, MAY 21, 1907, FOR LEHIGH AVENUE, BOUNDED AND DESCRIBED AS
FOLLOWS: COMMENCING AT THE INTERSECTION OF A LINE 132.0 FT. NORTH OF AND
PARALLEL TO THE SOUTH LINE OF THE NORTH HALF OF THE
<PAGE> 25
SOUTHEAST QUARTER OF THE NORTHWEST QUARTER OF SAID SECTION TWENTY-NINE,
AND THE SOUTHWESTERLY LINE OF SAID LEHIGH AVENUE, SAID LINE BEING 60.0 FT.
SOUTHWESTERLY OF AND PARALLEL TO THE SOUTHWESTERLY LINE OF SAID CHICAGO,
MILWAUKEE AND ST. PAUL RAILROAD; THENCE WEST ALONG SAID 132.0 FT. NORTH
PARALLEL LINE A DISTANCE OF 132.0 FT. TO A POINT; THENCE SOUTH ON A LIKE
PARALLEL TO THE WEST LINE OF SAID SECTION TWENTY-NINE HAVING AN ASSUMED BEARING
OF SOUTH 00 DEGREES-27'-07" EAST A DISTANCE OF 30.17 FT. TO THE POINT OF
BEGINNING; THENCE SOUTH 90 DEGREES-00'-00" WEST A DISTANCE OF 181.87 FT.;
THENCE NORTH 00 DEGREES- 21'-43" WEST A DISTANCE OF 139.03 FT.; THENCE NORTH
88 DEGREES-41'-24" EAST A DISTANCE OF 267.68 FT. TO THE SOUTHWESTERLY LINE OF
SAID LEHIGH AVENUE; THENCE NORTH 22 DEGREES-46'-08" WEST ON SAID SOUTHWESTERLY
LINE A DISTANCE OF 21.49 FT.; THENCE SOUTH 88 DEGREES-4l'-24" WEST A DISTANCE
OF 279.49 FT.; THENCE SOUTH 00 DEGREES-2l'-63" EAST A DISTANCE OF 178.57 FT.;
THENCE NORTH 90 DEGREES-00'- 00" EAST A DISTANCE OF 201.90 FT.; THENCE NORTH 00
DEGREES-27'-07" WEST A DISTANCE OF 20.0 FT. TO THE POINT OF BEGINNING, ALL IN
COOK COUNTY, ILLINOIS.
EASEMENT FOR INGRESS AND EGRESS II
THAT PART OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE NORTHWEST
QUARTER OF SECTION TWENTY-NINE, TOWNSHIP FORTY-ONE NORTH, RANGE THIRTEEN, EAST
OF THE THIRD PRINCIPAL MERIDIAN, LYING WEST OF THE SOUTHWESTERLY LINE OF THE
CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD, AS ESTABLISHED BY DEED RECORDED
OCTOBER 17, 1872 AS DOCUMENT NO. 62678, AND ALSO WEST OF THE EASTERLY 60.0 FT.
ACQUIRED BY TOWNSHIP DEDICATION, MAY 21, 1907, FOR LEHIGH AVENUE, BOUNDED AND
DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF A LINE 132.0 FT. NORTH
OF AND PARALLEL TO THE SOUTH LINE OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF
THE NORTHWEST QUARTER OF SAID SECTION TWENTY-NINE, AND THE SOUTHWESTERLY LINE
OF SAID LEHIGH AVENUE, SAID LINE BEING 60.0 FT. SOUTHWESTERLY OF AND PARALLEL
TO THE SOUTHWESTERLY LINE OF SAID CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD;
THENCE WEST ALONG SAID 132.0 FT. NORTH PARALLEL LINE A DISTANCE OF 132.0 FT.
TO THE POINT OF BEGINNING; THENCE SOUTH ON A LINE PARALLEL TO THE WEST LINE OF
SAID SECTION TWENTY-NINE HAVING AN ASSUMED BEARING OF SOUTH 00 DEGREES-27'-07"
EAST A DISTANCE OF 30.17 FT.; THENCE SOUTH 90 DEGREES-00'-00- WEST A DISTANCE
OF 20.00 FT.; THENCE NORTH 00 DEGREES-27'-07"- WEST A DISTANCE OF 142.73 FT.;
THENCE NORTH 88 DEGREES-4l'-24"- EAST A DISTANCE OF 20.00 FT.; THENCE SOUTH 00
DEGREES-27'-07" EAST A DISTANCE OF 113.02 FT. TO THE POINT OF BEGINNING, ALL
IN COOK COUNTY, ILLINOIS.
EASEMENT FOR PUBLIC UTILITIES NO. ONE
THAT PART OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE NORTHWEST QUARTER
OF SECTION TWENTY-NINE, TOWNSHIP FORTY-ONE NORTH, RANGE THIRTEEN, EAST OF THE
THIRD PRINCIPAL MERIDIAN, LYING WEST OF THE SOUTHWESTERLY LINE OF THE CHICAGO,
MILWAUKEE AND ST.
<PAGE> 26
PAUL RAILROAD, AS ESTABLISHED BY DEED RECORDED OCTOBER 17, 1872 AS DOCUMENT
NO. 62678, AND ALSO WEST OF THE EASTERLY 60.0 FT. ACQUIRED BY TOWNSHIP
DEDICATION, MAY 21, 1907, FOR LEHIGH AVENUE, BOUNDED AND DESCRIBED AS
FOLLOWS: BEGINNING AT THE INTERSECTION OF A LINE 132.0 FT. NORTH OF AND
PARALLEL TO THE SOUTH LINE OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE
NORTHWEST QUARTER OF SAID SECTION TWENTY-NINE, AND THE SOUTHWESTERLY LINE OF
SAID LEHIGH AVENUE, SAID LINE BEING 60.0 FT. SOUTHWESTERLY OF AND PARALLEL TO
THE SOUTHWESTERLY LINE OF SAID CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD;
THENCE WEST ALONG SAID 132.0 FT. NORTH PARALLEL LINE FOR A DISTANCE OF 132.0
FT.; THENCE SOUTH ON A LIKE PARALLEL TO THE WEST LINE OF SAID SECTION
TWENTY-NINE HAVING AN ASSUMED BEARING OF SOUTH 00 DEGREES- 27'-07" EAST A
DISTANCE OF 29.45 FT.; THENCE SOUTH 89 DEGREES-32'-53" WEST A DISTANCE OF 10.0
FT.; THENCE NORTH 00 DEGREES-27'-07" WEST A DISTANCE OF 39.28 FT.; THENCE NORTH
88 DEGREES-33'-27" EAST A DISTANCE OF 137.93 FT. TO SAID SOUTHWESTERLY LIKE OF
LEHIGH AVENUE; THENCE SOUTH 22 DEGREES-46'-08" EAST A DISTANCE OF 10.74 FT. TO
THE POINT OF BEGINNING, ALL IN COOK COUNTY, ILLINOIS.
EASEMENT FOR PUBLIC UTILITIES NO. TWO
THAT PART OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE NORTHWEST
QUARTER OF SECTION TWENTY-NINE, TOWNSHIP FORTY-ONE NORTH, RANGE THIRTEEN, EAST
OF THE THIRD PRINCIPAL MERIDIAN, LYING WEST OF THE SOUTHWESTERLY LINE OF THE
CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD, AS ESTABLISHED BY DEED RECORDED
OCTOBER 17, 1872 AS DOCUMENT NO. 62678, AND ALSO WEST OF THE EASTERLY 60.0 FT.
ACQUIRED BY TOWNSHIP DEDICATION, MAY 21, 1907, FOR LEHIGH AVENUE, BOUNDED AND
DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF A LINE 132.0 FT. NORTH
OF AND PARALLEL TO THE SOUTH LINE OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF
THE NORTHWEST QUARTER OF SAID SECTION TWENTY-NINE, AND THE SOUTHWESTERLY LINE
OF SAID LEHIGH AVENUE, SAID LINE BEING 60.0 FT. SOUTHWESTERLY OF AND PARALLEL
TO THE SOUTHWESTERLY LINE OF SAID CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD;
THENCE WEST ALONG SAID 132.0 FT. NORTH PARALLEL LINE A DISTANCE OF 100.0 FT.
TO A POINT; THENCE SOUTH ON A LINE PARALLEL TO THE WEST LINE OF SAID SECTION
TWENTY-NINE HAVING AN ASSUMED BEARING OF SOUTH 00 DEGREES-27'-07" EAST A
DISTANCE OF 65.0 FT. TO THE POINT OF BEGINNING; THENCE FROM SAID POINT OF
BEGINNING CONTINUING SOUTH 00 DEGREES-27'-07" EAST A DISTANCE OF 67.0 FT. TO
THE SOUTH LINE OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE NORTHWEST
QUARTER OF SAID SECTION TWENTY-NINE; THENCE WEST ALONG SAID SOUTH LINE OF THE
NORTH HALF A DISTANCE OF 10.0 FT.; THENCE NORTH 00 DEGREES-27'-07" WEST A
DISTANCE OF 67.14 FT.; THENCE NORTH 89 DEGREES-32'-53" EAST A DISTANCE OF 10.0
FT. TO THE POINT OF BEGINNING, ALL IN COOK COUNTY, ILLINOIS.
<PAGE> 27
EASEMENT FOR CONSTRUCTION STAGING AREA
THAT PART OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE NORTHWEST
QUARTER OF SECTION TWENTY-NINE, TOWNSHIP FORTY-ONE NORTH, RANGE THIRTEEN, EAST
OF THE THIRD PRINCIPAL MERIDIAN, LYING WEST OF THE SOUTHWESTERLY LINE OF THE
CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD, AS ESTABLISHED BY DEED RECORDED
OCTOBER 17, 1872 AS DOCUMENT NO. 62678, AND ALSO WEST OF THE EASTERLY 60.0 FT.
ACQUIRED BY TOWNSHIP DEDICATION, 14AY 21, 1907, FOR LEHIGH AVENUE, BOUNDED AND
DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF A LINE 132.0 FT. NORTH
OF AND PARALLEL TO THE SOUTH LINE OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF
THE NORTHWEST QUARTER OF SAID SECTION TWENTY-NINE, AND THE SOUTHWESTERLY LINE
OF SAID LEHIGH AVENUE, SAID LINE BEING 60.0 FT. SOUTHWESTERLY OF AND PARALLEL
TO THE SOUTHWESTERLY LINE OF SAID CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD;
THENCE WEST ALONG SAID 132.0 FT. NORTH PARALLEL LINE A DISTANCE OF 100.0 FT.
TO A POINT; THENCE SOUTH ON A LINE PARALLEL TO THE WEST LINE OF SAID SECTION
TWENTY-NINE HAVING AN ASSUMED BEARING OF SOUTH 00 DEGREES-27'-07" EAST A
DISTANCE of 65.0 FT. TO A POINT; THENCE SOUTH 89 DEGREES-32'-53" WEST A
DISTANCE OF 32.0 FT. TO THE POINT OF BEGINNING; THENCE FROM SAID POINT OF
BEGINNING SOUTH 89 DEGREES-32'-53" WEST A DISTANCE OF 120.0 FT.; THENCE NORTH 00
DEGREES-27'-07"- WEST A DISTANCE OF 35.0 FT.; THENCE NORTH 89 DEGREES-32'-53"
EAST A DISTANCE OF 120.0 FT.; THENCE SOUTH 00 DEGREES-27'-07" EAST A DISTANCE
OF 35.0 FT. TO THE POINT OF BEGINNING, ALL IN COOK COUNTY, ILLINOIS.
<PAGE> 28
EXHIBIT B
(PLAT OF SURVEY AND/OR SITE PLAN TO BE INSERTED BY LESSEE, ROGERS RADIOCALL,
INC.)
<PAGE> 29
EXHIBIT C
Liens and encumbrances to which the Premises and the Easement Areas are
subject:
(a) Current general real estate taxes not yet due and payable; and
(b) Mortgage dated December 1, 1976 recorded December 10, 1976 with the
Recorder of Deeds of Cook County, Illinois, as Document 23743556, as
amended and assigned, and the following related security documents:
Assignment of Rents recorded as Document 23743557, as amended and
assigned, and Financing Statement filed as Document 76 U 65191.
<PAGE> 30
CONSENT TO SITE AGREEMENT BY LESSOR'S BENEFICIARIES
For and in consideration of Ten Dollars (S10.00) and other valuable
consideration, the receipt, adequacy and sufficiency of which is hereby
acknowledged, DAVID UNGER and HENRY M. MAUTNER, being the beneficiaries under
the provisions of the Trust Agreement dated September 15, 1976 and known as
Trust No. 39340, pursuant to which AMERICAN NATIONAL RANK AND TRUST COMPANY OF
CHICAGO, the Lessor under that certain "Site Agreement No. 41-Niles, Illinois"
dated April 8 , 1987 ("Site Agreement'), is Trustee, hereby recognize and
consent to the terms of the Site Agreement; and agree that they will not take
any action or suffer any action to be taken which does in any way impair or
limit the performance by the Lessor (under the Site Agreement) of the Lessor's
obligations under the Site Agreement, or which does in any way impair or limit
the exercise by the Lessee (under the Site Agreement) of the Lessee's rights
under the Site Agreement. The provisions hereof shall be binding upon the
aforesaid beneficiaries and their respective heirs, executors, administrators,
personal representatives, successors and assigns.
It is specifically understood and agreed by Lessee, as confirmed by
Lessee's execution of the Site Agreement to which this Consent is attached,
that by executing this Consent the undersigned
(a) do not assume or agree to perform any duties or obligations of
Lessor under such Site Agreement, or assume any liability resulting
from the failure of the Lessor to perform any such duties or
obligations, all such obligations and liability being hereby
expressly disclaimed by the undersigned, and
(b) do not assume any personal liability for breach by the undersigned
of any of the covenants contained in this Consent, except for
injunctive relief as described below.
By executing the Site Agreement to which this Consent is attached, Lessee
agrees that Lessee's sole and exclusive remedy against the undersigned for any
breach by them of their covenants under this Consent shall be to seek
injunctive relief restraining the conduct by the undersigned which constitutes
such breach by the undersigned, and in no event shall the undersigned be
subject to any claim for monetary damages or financial relief on account of any
such acts, nor shall any such relief be granted, all such claims for monetary
damages and financial relief being hereby unconditionally and irrevocably
waived by Lessee. However, the breach by any of the undersigned of any of the
covenants contained in this Consent shall constitute a breach by the Lessor of
its obligations under the Site Agreement.
IN WITNESS WHEREOF, the aforesaid beneficiaries have executed this
instrument on the 8th day of April, 1987.
DAVID UNGER
HENRY MAUTNER
<PAGE> 31
NOTARY ACKNOWLEDGEMENT FOR BENEFICIARY OF LESSOR
STATE OF ILLINOIS)
) SS.
COUNTY OF )
1, Peter B. Loughman, a Notary Public in and for the said County and State
aforesaid DO HEREBY CERTIFY that the foregoing instrument was acknowledged
before me this April 8, 1987 by DAVID UNGER, personally known to me to be the
individual who executed the above instrument.
Notary Public
My Commision Expires:
NOTARY ACKNOWLEDGEMENT FOR BENEFICIARY OF LESSOR
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
I, Peter B. Loughman, a Notary Public in and for the said County and State
aforesaid DO HEREBY CERTIFY that the foregoing instrument was acknowledged
before me this April 8, 1987 by HENRY M. MAUTNER, personally known to me to be
the individual who executed the above instrument.
<PAGE> 32
INDUSTRIAL BUILDING LEASE
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I. Grant and Term . . . . . . . . . . . . . . . . 1
1.0 Grant . . . . . . . . . . . . . . . . . . . . . 1
1.1 Term . . . . . . . . . . . . . . . . . . . . . . 1
II. Possession . . . . . . . . . . . . . . . . . . . 1
2.0 Possession . . . . . . . . . . . . . . . . . . . 1
III. Purpose . . . . . . . . . . . . . . . . . . . . 1
3.0 Purpose . . . . . . . . . . . . . . . . . . . . 1
3.1 Uses Prohibited . . . . . . . . . . . . . . . . 1
3.2 Prohibition of Use . . . . . . . . . . . . . . . 1
IV. Rent . . . . . . . . . . . . . . . . . . . . . . 2
4.0 Rent . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Interest on Late Payments. . . . . . . . . . . . 2
V. Impositions . . . . . . . . . . . . . . . . . . 2
5.0 Payment By Tenant . . . . . . . . . . . . . . . 2
5.1 Alternative Taxes. . . . . . . . . . . . . . . . 2
5.2 Deposits . . . . . . . . . . . . . . . . . . . . 2
5.3 Evidence of Payment . . . . . . . . . . . . . . 2
5.4 Right to Contest . . . . . . . . . . . . . . . . 2
VI. Insurance . . . . . . . . . . . . . . . . . . . 2
6.0 Kinds and Amounts . . . . . . . . . . . . . . . 2
6.1 Form of Insurance . . . . . . . . . . . . . . . 3
6.2 Mutual Waiver of Subrogation Rights . . . . . . 3
VII. Damage or Destruction . . . . . . . . . . . . . 3
7.0 Tenant's Obligation to Rebuild . . . . . . . . . 3
7.1 Preconditions to Rebuilding . . . . . . . . . . 3
7.2 Payment for Rebuilding . . . . . . . . . . . . . 3
7.3 Excess Receipts by Depositary . . . . . . . . . 4
7.4 Failure to Rebuild . . . . . . . . . . . . . . . 4
VIII. Condemnation . . . . . . . . . . . . . . . . . . 4
8.0 Taking of Whole . . . . . . . . . . . . . . . . 4
8.1 Partial Taking . . . . . . . . . . . . . . . . . 4
IX. Maintenance and Repairs . . . . . . . . . . . . 4
9.0 Maintenance . . . . . . . . . . . . . . . . . . 4
9.1 Alterations . . . . . . . . . . . . . . . . . . 4
X. Assignment and Subletting . . . . . . . . . . . 4
10.0 Consent Required . . . . . . . . . . . . . . . . 4
10.1 Merger or Consolidation . . . . . . . . . . . . 5
10.2 Voting Control of Tenant . . . . . . . . . . . . 5
10.3 Other Transfer of Lease . . . . . . . . . . . . 5
XI. Liens and Encumbrances . . . . . . . . . . . . . 5
11.0 Encumbering Title . . . . . . . . . . . . . . . 5
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C>
11.1 Liens and Right to Contest . . . . . . . . . . . 5
XII. Utilities . . . . . . . . . . . . . . . . . . . 5
12.1 Utilities . . . . . . . . . . . . . . . . . . . 5
XIII. Indemnity and Waiver . . . . . . . . . . . . . . 5
13.0 Indemnity . . . . . . . . . . . . . . . . . . . 5
13.1 Waiver of Certain Claims . . . . . . . . . . . . 5
XIV. Rights Reserved to Landlord . . . . . . . . . . 6
14.1 Rights Reserved to Landlord . . . . . . . . . . 6
XV. Quiet Enjoyment . . . . . . . . . . . . . . . . 6
15.0 Quiet Enjoyment . . . . . . . . . . . . . . . . 6
XVI. Subordination or Superiority . . . . . . . . . . 6
16.0 Subordination or Superiority . . . . . . . . . . 6
XVII. Surrender . . . . . . . . . . . . . . . . . . . 6
17.0 Surrender . . . . . . . . . . . . . . . . . . . 6
17.1 Removal of Tenant's Property . . . . . . . . . . 6
17.2 Holding Over . . . . . . . . . . . . . . . . . . 6
XVIII. Remedies . . . . . . . . . . . . . . . . . . . . 7
18.0 Defaults . . . . . . . . . . . . . . . . . . . . 7
18.1 Remedies Cumulative . . . . . . . . . . . . . . 8
18.2 No Waiver . . . . . . . . . . . . . . . . . . . 8
18.3 Confession of Judgment . . . . . . . . . . . . . 8
XIX. Security Deposit . . . . . . . . . . . . . . . . 8
19.0 Security Deposit . . . . . . . . . . . . . . . . 8
XX. Miscellaneous . . . . . . . . . . . . . . . . . 9
20.0 Tenant's Statement . . . . . . . . . . . . . . . 9
20.1 Estoppel Certificates . . . . . . . . . . . . . 9
20.2 Landlord's Right to Cure . . . . . . . . . . . . 9
20.3 Amendments Must be in Writing . . . . . . . . . 9
20.4 Notices . . . . . . . . . . . . . . . . . . . . 9
20.5 Short Form Lease . . . . . . . . . . . . . . . . 9
20.6 Time of Essence . . . . . . . . . . . . . . . . 9
20.7 Relationship of Parties . . . . . . . . . . . . 9
20.8 Captions . . . . . . . . . . . . . . . . . . . . 9
20.9 Severability . . . . . . . . . . . . . . . . . . 9
20.10 Law Applicable . . . . . . . . . . . . . . . . . 9
20.11 Covenant Binding on Successor . . . . . . . . . 9
20.12 Brokerage . . . . . . . . . . . . . . . . . . . 9
20.13 Landlord Means Owner . . . . . . . . . . . . . 10
20.14 Lender's Requirements . . . . . . . . . . . . 10
20.15 Signs . . . . . . . . . . . . . . . . . . . . 10
XXI. Exculpatory Clause . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 34
INDUSTRIAL BUILDING LEASE
THIS LEASE is made this 18th day of November, 1976 by and between American
National Bank & Trust Company of Chicago, not personally but solely as Trustee
under Trust Agreement dated September 15, 1976, (hereinafter sometimes referred
to as "Landlord") and Midwesco-Enterprise, Inc. an Illinois corporation
(hereinafter sometimes referred to as "Tenant"), who hereby mutually covenant
and agree as follows:
I. GRANT AND TERM
1.0 Grant. Landlord for and in consideration of the rents herein
reserved and the covenants and agreements herein contained on the part of the
Tenant to be performed, hereby lets from Landlord, the real estate consisting
of approximately 353,498 square feet in area commonly known as 7720 N. Lehigh
Avenue, Niles, Illinois, and legally described on an exhibit which is attached
hereto, identified as Exhibit A, and made a part hereof by this reference,
together with all improvements now located thereon (consisting of approximately
107,000 square feet in floor area), or to be located thereon during: the term
of this Lease, together with all appurtenances belonging to or in any way
pertaining to the said premises (such real estate, improvements and
appurtenances hereinafter sometimes jointly or severally, as the context
requires, referred to as "Leased Premises").
1.1 Term. The term of this Lease shall commence on December 10,
1976 (hereinafter sometimes referred to as "Commencement Date") and shall end
on December 31, 2001, unless sooner terminated as herein set forth.
II. POSSESSION
2.0 Possession. Except as otherwise expressly provided herein
(or written instrument signed by Landlord or Landlord's agent or Landlord's
beneficiary, beneficiaries or their assent if Landlord is an Illinois land
trust) Landlord shall deliver possession of the Leased Premises to Tenant on or
before the Commencement Date in their condition as of the execution and
delivery hereof, reasonable wear and tear excepted. If Landlord gives
possession prior to the Commencement Date to enable Tenant to fit the Leased
Premises to its use, such occupancy shall be subject to all the terms and
conditions of this Lease (except that Tenant shall not be required to pay rent
during such occupancy). If Landlord shall be unable to deliver possession of
the Leased Premises on the Commencement Date by reason of the fact that work
required to be done by Landlord hereunder, if any, has not been completed for
any reason, or because a prior tenant has failed to deliver up possession of
the Leased Premises or for any other cause beyond the control of Landlord.
Landlord shall not be subject to any liability for the failure to give
possession on said date, nor shall the validity of this Lease or the
obligations of Tenant hereunder be in any way affected. Under such
circumstances, unless the delay is the fault of Tenant, rent and other charges
hereunder shall not commence until the later of the date possession of the
Leased Premises is given or the Commencement Date.
III. PURPOSE
3.0 Purpose. The Leased Premises shall be used and occupied only
for the purpose of manufacturing, sales, distribution, administration and
warehouse purposes.
3.1 Uses Prohibited. Tenant will not permit the Leased Premises
to be used in any
<PAGE> 35
manner which would render the insurance thereon void. Tenant shall not use or
occupy the Leased Premises, or permit the Leased Premises to be used or
occupied, contrary to any statute, rule, order, ordinance, requirement or
regulation applicable thereto: or in any manner which would violate any
certificate of occupancy affecting the same; or which would cause structural
injury to the improvements: or cause the value or usefulness of the Leased
Premises, or any part thereof, to diminish; or which would constitute a public
or private nuisance or waste.
3.2 Prohibition of Use. If the use of the Leased Premises should
at any time during the Lease term be prohibited by law or ordinance or other
governmental regulation, or prevented by injunction, this Lease shall not be
thereby terminated nor shall Tenant be entitled by reason thereof to surrender
the Leased Premises or to any abatement or reduction in rent, nor shall the
respective obligations of the parties hereto be otherwise affected.
IV. RENT
4.0 Rent. Beginning with the Commencement Date, Tenant shall pay
to, or upon the order of David Unger and Henry Mautner until otherwise notified
in writing by Landlord, as rent for the Leased Premises, at such place or
places as Landlord may designate in writing from time to time and in default of
such designation then at the office of the Landlord, c/o David Unger & Henry
Mautner, 7720 N. Lehigh Avenue, Niles, Illinois, an annual rental of Two
Hundred Twenty Thousand and no/100 Dollars (220,000.00), payable monthly in
advance installments of Eighteen Thousand Three Hundred Thirty-Three and
34/100 Dollars ($18,333.34). If Tenant occupies the Leased Premises for the
purpose of conducting business therein prior to the Commencement Date, Tenant
shall pay rent on a pro rata basis from the date of occupancy to the
Commencement Date. All payments of rent shall be made without deduction, set
off, discount or abatement in lawful money of the United States.
4.1 Interest on Late Payments. Each and every installment of rent
and each and every payment of other charges hereunder which shall not be paid
when due, shall bear interest at the rate of twelve percent (12%) per annum
from the date when the same is payable under the terms of this Lease until the
same shall be paid.
V. IMPOSITIONS
5.0 Payment by Tenant. Tenant shall pay as additional rent for
the Leased Premises, all taxes and assessments, general and special, water
rates and all other impositions, ordinary and extraordinary, of every kind and
nature whatsoever, which may be levied, assessed or imposed upon the Leased
Premises, or any part thereof, or upon any improvements at any time situated
thereon, accruing or becoming due and payable during the term of the Lease
("Impositions"): provided, however, that the general taxes levied against the
Leased Premises shall be prorated between Landlord and Tenant as of the
Commencement Date for the first year of the Lease term and as of the expiration
date of the Lease term for the last year of the Lease term (on the basis of
Landlord's reasonable estimate thereof). Tenant may take the benefit of the
provisions of any statute or ordinance permitting any assessment to be paid
over a period of years, and Tenant shall be obligated to pay only those
installments falling due during the term of this Lease.
<PAGE> 36
5.1 Alternative Taxes. If at any time during the term of this
Lease the method of taxation prevailing at the commencement of the term hereof
shall be altered so that any new tax, assessment, levy, imposition or charge,
or any part thereof, shall be measured by or be based in whole or in part upon
the Lease or Leased Premises, or the rent, additional rent or other income
therefrom and shall be imposed upon the Landlord, then all such taxes,
assessments, levies, impositions or charges, or the part thereof, to the extent
that they are so measured or based, shall be deemed to be included within the
term Impositions for the purposes hereof to the extent that such Impositions
would be payable if the Leased Premises were the only property of Landlord
subject to such Impositions, and Tenant shall pay and discharge the same as
herein provided in respect to the payment of Impositions. There shall be
excluded from Impositions all federal and state income taxes, federal excess
profit taxes, franchise, capital stock and federal or state estate or
inheritance taxes of Landlord.
5.2 Deposits. As security for the obligations contained in this
Article V, Tenant shall deposit monthly with Landlord, or such other entity as
Landlord may designate, on the first day of each and every month of the Lease
term, a sum equal to one-twelfth (1/12) of the last ascertainable amount (or at
Landlord's election, a sum equal to one-twelfth (1/12) of the Landlord's
estimate of the current amount of Impositions which monthly deposit shall be
held by Landlord in such accounts as may be authorized by then current state or
federal banking laws, rules or regulations and which monthly deposits shall be
used as a fund to be applied, to the extent thereof to the payment of
Impositions as the same become due and payable. The existence of said fund
shall not limit or alter Tenant's obligation to pay Impositions (respecting
which the fund was created; provided, however, that said fund shall be fully
utilized for the payment of Impositions). The amount of the fund shall be
re-adjusted annually, on the first day of the month after the tax bills showing
the actual amount of the taxes (are issued in each year of the Lease term, to
reflect the actual amount of Impositions). Tenant shall not be entitled to
interest on said fund.
5.3 Evidence of Payment. Tenant shall deliver to Landlord
duplicate receipts or photostatic copies thereof showing the payments of all
Impositions, within thirty (30) days after the respective payments evidenced
thereby.
5.4 Right to Contest. Tenant shall not be required to pay any
Imposition or charge upon or against the Leased Premises, or any part thereof,
or the improvements at any time situated thereon, so long as the Tenant shall
in good faith and with due diligence, contest the same of the validity thereof
by appropriate legal proceeding which shall have the effect of preventing the
collection of the Imposition or charge so contested; provided that, pending any
such legal proceedings Tenant shall give Landlord such security as may be
deemed satisfactory to Landlord to insure payment of the amount of the
Imposition or charge, and all interest and penalties thereon. If, at any time
during the continuance of such contest, the Leased Premises or any part thereof
is, in the judgment of Landlord, in imminent danger of being forfeited or lost,
Landlord may use such security for the payment of such Imposition.
VI. INSURANCE
6.0 Kinds and Amounts. As additional rent for the Leased
Premises, Tenant shall procure and maintain policies of insurance, at its own
cost and expense, insuring:
(a) The improvements at any time situated upon the Leased Premises
against loss or damage by fire, lightning, wind storm, hail storm,
aircraft, vehicles, smoke, explosion, riot
<PAGE> 37
or civil commotion as provided by the Standard Fire and Extended
Coverage Policy other risks of direct physical loss as insured
against and under Special Extended Coverage Endorsement. The
insurance coverage shall be for not less than 100% of the full
replacement cost of such improvements with all proceeds of insurance
payable to Landlord. The full replacement cost of improvements shall
be determined every three (3) years by an insurance appraiser selected
by Landlord and paid for by Tenant. The insurance appraiser shall
submit a written report of his appraisal and if said report shows that
the improvements are not insured as herein required, Tenant shall
promptly obtain such additional insurance as is required.
(b) Landlord and Tenant from all claims, demands or actions for injury
to or death of any person in an amount of not less than $500,000.00,
for injury to or death of more than one person in any one occurrence
in an amount of not less than $1,000,000.00, and for damage to
property in an amount of not less than $200,000.00 made by, or on
behalf of, any person or persons, firm or corporation arising from,
related to or connected with the Leased Premises. Said insurance shall
comprehend full coverage of the indemnity set forth in Section 13.0
hereof;
(c) Item omitted from lease
(d) Tenant from all workmen's compensation claims; and
(e) Landlord and Tenant against breakage of all plate glass utilized
in the improvements on the Leased Premises.
(f) Landlord from loss of rents during the period while the Leased
Premises are unrentable due to a fire or other Casualty (for the
maximum period for which such insurance is available) but the purchase
of such rent insurance shall not relieve Tenant from the primary
obligation to pay rent during any such period of untenantability.
(g) Flood insurance whenever, in the judgment of Landlord, such
protection is necessary and it is available.
6.1 Form of Insurance. The aforesaid insurance shall be in
companies and in form, substance and amount (where not stated above)
satisfactory to Landlord and any mortgagee of Landlord, and shall contain
standard mortgage clauses satisfactory to Landlord's mortgagee. The aforesaid
insurance shall not be subject to cancellation except after at least thirty
(30) days' prior written notice to Landlord and any mortgagee of Landlord. The
original insurance policies (or certificates thereof satisfactory to Landlord)
together with satisfactory evidence of payment of the premiums thereon, shall
he deposited with Landlord at the Commencement Date and renewals thereof not
less than thirty (30) days prior to the end of the term of each such coverage.
If Landlord is an Illinois land trust the insurance referred to in subsections
6.0(b), (c) and (e) hereof shall also insure the beneficiary or beneficiaries
thereof.
6.2 Mutual Waiver of Subrogation Rights. Whenever (a) any loss,
cost, damage or expenses resulting from fire, explosion or any other casualty
or occurrence is incurred by either of the parties to this Lease, or anyone
claiming by, through or under it in connection with the Leased Premises, and
(b) such party is then covered in whole or in part by insurance with respect to
such
<PAGE> 38
loss, cost damage or expense, then the party so insured hereby releases the
other party from any liability it may have on account of such loss, cost,
damage or expense to the extent of any amount recovered by reason of such
insurance and waives any right of subrogation which might otherwise exist in or
accrue to any person on account thereof, provided that such release of
liability and waiver of the right of subrogation shall not be operative in any
case where the effect thereof is to invalidate such insurance coverage or
increase the cost thereof (provided that in the case of increased cost the
other party shall have the right, within thirty (30) days following written
notice, to pay such increased cost, thereupon keeping such release and waiver
in full force and effect).
VII. DAMAGE OR DESTRUCTION
7.0 Tenant's Obligation to Rebuild. In the event of damage to, or
destruction of any improvements on the Leased Premises, or of the fixtures and
equipment therein, by fire or other casualty, Tenant shall promptly, at its
expense, repair, restore or rebuild the same to the condition existing prior
to the happening of such fire or other casualty. Rent shall not be reduced or
abated during the period of such repair, restoration or rebuilding even if the
improvements are not tenantable.
7.1 Preconditions to Rebuilding. Before Tenant commences such
repairing, restoration or rebuilding involving an estimated cost of more than
Ten Thousand Dollars ($10.000.00), plans and specifications therefor, prepared
by a licensed architect satisfactory to Landlord shall be submitted to Landlord
for approval and Tenant shall furnish to Landlord (a) an estimate of the cost
of the proposed work. certified to by said architect: (b) satisfactory evidence
of sufficient contractor's comprehensive general liability insurance covering
Landlord,builder's risk insurance. and workmen's compensation insurance; (c) a
performance and payment bond satisfactory in form and substance to Landlord:
and (d) such other security as Landlord , require to insure payment for the
completion of all work free and clear of liens.
7.2 Payment for Rebuilding. Provided that the insurer does not
deny liabilty as to the insureds, all sums arising by reason of loss under the
insurance referred to in subsection 6.0(a), shall be available to Tenant for
the work. Tenant shall depos it with the Depositary (as hereinafter defined)
any excess cost of the work over the amount held by the Depositary as proceeds
of the insurance within thirty (30) days from the date of the determination of
the cost of the work by the architect in accordance with subsection 7.1(a) or,
if the insurer has denied liability as to the insureds, then Tenant shall
deposit the full amount of the work with the Depositary. Tenant shall
diligently pursue the repair or rebuilding of the improvements in a good and
workmanlike manner using only high quality union workmen and materials. The
Depositary shall pay out construction funds from time to time on the written
direction of the architect provided that the Depositary and Landlord shall
first be furnished with waivers of lien, contractors, and subcontractors sworn
statements and other evidence of cost and payments so that the Depositary can
verify that the amounts disbursed from time to time are represented by
completed and in-place work, and that said work is free and clear of mechanics
liens. No payment made prior to the final completion of the work shall exceed
ninety percent (90%) of the value of the work completed and in place from time
to time. At all times the undisbursed balance remaining in the hands of
Depositary shall be at least sufficient to pay for the rest of completion of
the work free and clear of liens; any deficiency shall be paid into the
Depositary by Tenant. Depositary, as used herein, shall be any first mortgagee
of the Leased Premises, or the Landlord if there is no first mortgage of the
Leased Premises or if such first mortgagee has refused to act as Depositary.
<PAGE> 39
7.3 Excess Receipts by Depositary. Any excess of money received
from insurance remaining with the Depositary after the repair or rebuilding of
improvements, if there be no default by Tenant in the performance of the
Tenant's covenants and agreements hereunder, shall be paid to Tenant.
7.4 Failure to Re-build. If Tenant shall not enter upon the
repair or rebuilding of the improvements within a period of ninety (90) days
after damage or destruction by fire or otherwise, and prosecute the same
thereafter with such dispatch as may be necessary to complete the same within a
reasonable period after said damage or destruction occurs, not to exceed one
hundred eighty (180) days from the date of commencement of such repair or
rebuilding, then, in addition to whatever other remedies Landlord may have
either under this Lease, at law or in equity, the money received by and then
remaining in the hands of the Depositary shall be paid in and retained by
Landlord as security for the continued performance and observance by Tenant of
the Tenant's covenants and agreements hereunder, or Landlord may terminate this
Lease and then be paid and retain the amount so held as liquidated damages
resulting from the failure on the part of Tenant to comply with the provisions
of this Article.
VIII. CONDEMNATION
8.0 Taking of Whole. If the whole of the Leased Premises shall be
taken or condemned for a public or quasi-public use or purpose by any competent
authority or if such a portion of the Leased Premises including, however, a
portion of the improvements, shall be so taken that an a result thereof the
balance cannot be used for the some purpose as expressed in Article Ill, then
in either of such events, the Lease term shall terminate upon delivery of
possession to the condemning authority, and any award, compensation or damages
(hereinafter sometimes called the "award"), shall be paid to and be the sole
property of Landlord whether such award shall be made as compensation for
diminution of the value of the leasehold or the fee of the Leased Premises or
otherwise and Tenant hereby assigns to Landlord all of Tenant's right, title
and interest in and to any and all such award. Tenant shall continue to pay
rent until the Lease term is terminated and any taxes and/or insurance premiums
paid by Tenant, or any tax and insurance premium deposits with Landlord, shall
be adjusted between the parties.
8.1 Partial Taking. If only a part of the Leased Premises shall
be so taken or condemned, and as a result thereof the balance of the Leased
Premises can be used for the same purpose as expressed in Article III, this
Lease shall not terminate and Tenant, at its sole cost and expense, shall
repair and restore the Leased Premises and all improvements thereon. Tenant
shall promptly and diligently proceed to make a complete architectural unit of
the remainder of the improvements first complying with the procedure set forth
in Section 7.1. For such purpose the amount of the award relating to the
improvements shall be deposited with the Depositary (as defined in Section 7.2
hereof) which shall disburse such award to apply on the cost of said repairing
or restoration in accordance with the procedure set forth in Section 7.2. If
Tenant does not make a complete architectural unit of the remainder of the
improvements within a reasonable period after such taking or condemnation, not
to exceed one hundred eighty (180) days then, in addition to whatever other
remedies Landlord may have either under this Lease, at law or in equity, the
money received by and then remaining in the custody of the Depositary shall. at
Landlord's election be paid to and retained by Landlord as liquidated damages
resulting from the failure of Tenant to comply with the provisions of this
Section Any portion of such award as may not have to be expended for such
repairing or restoration shall be paid to Landlord. There shall be no
abatement or reduction in any
<PAGE> 40
rental because of such taking or condemnation.
IX. MAINTENANCE AND REPAIRS
9.0 Maintenance. Tenant shall keep and maintain the entire
exterior and interior of the Leased Premises, specifically including without
limitation, heating, ventilating and air conditioning equipment, the parking
area and the roof, in good condition and repair, in full compliance with all
health and police regulations in force and in conformity with the rules and
regulations of fire underwriters or underwriters' fire prevention engineers.
As used herein, each and every obligation of Tenant to keep, maintain and
repair shall include, without limitation, all ordinary and extraordinary
nonstructural and structural repairs and replacements. Tenant shall further
keep and maintain the improvements at any time situated upon the Leased
Premises and all sidewalks and areas adjacent thereto, safe, secure, clean and
sanitary, specifically including but not by limitation, snow and ice clearance
and planting and replacing flowers and landscaping, and conforming with the
lawful and valid requirements of any governmental authority having jurisdiction
over the Leased Premises.
9.1 Alterations. Tenant shall not create any openings in the roof
or exterior walls, nor shall Tenant make any alterations or additions to the
Leased Premises without Landlord's prior written consent. Tenant shall made
all additions, improvements, alterations and repairs, nonstructural and
structural, on the Leased Premises and on and to the appurtenances and
equipment thereof, required by any such governmental authority or which may be
made necessary by the act or neglect of any person, firm or corporation (public
or private), including supporting the streets and alleys adjoining the Leased
Premises. All work done pursuant to this Article IX shall be performed in
accordance with Section 7.1. Upon completion of any work by or on behalf of
Tenant, Tenant shall provide Landlord with such documents as Landlord may
require (including, without limitation sworn contractor's statements and
supporting lien waivers) evidencing payment in full for such work.
X. ASSIGNMENT AND SUBLETTING
10.0 Consent Required. Tenant shall not, without Landlord's prior
written consent, (a) assign, convey or mortgage this Lease or any interest
under it; (b) allow any transfer thereof or any lien upon Tenant's interest by
operation of any business; (c) sublet the Leased Premises or any part thereof,
or (d) use by anyone other than Tenant. Landlord attests that it will not
unreasonably withhold its consent to any or sublease, provided that if Tenant
requests Landlord's consent to an assignment of the Lease or to a sublease of
all or a substantial portion of Leased Premises, Landlord may, in lieu of
granting such consent or reasonably withholding the same, terminate this Lease,
effective on the effective date of such assignment or on the commencement date
specified in the sublease, as the case may be, to which Landlord's consent is
requested. No such termination shall be effective unless consented to in
writing, by any first mortgagee. No permitted assignment or subletting shall
relieve Tenant of Tenant's covenants and agreements hereunder and Tenant shall
continue to be liable as a principal and not as a guarantor or surety, to the
same extent as though no assignment or subletting had been made.
10.1 Merger or Consolidation. Tenant may, without Landlord's
consent, assign this Lease to any corporation resulting from a merger or
consolidation of the Tenant upon the following conditions: (a) that the total
assets and net worth of such assignee after such consolidation or merger
<PAGE> 41
shall be equal to or more than that of Tenant immediately prior to such
consolidation or merger; (b) that Tenant is not at such time in default
hereunder; (c) that such successor shall execute an instrument in writing fully
assuming all of the obligations and liabilities imposed upon Tenant hereunder
and deliver the same to Landlord. If the aforesaid conditions are satisfied,
Tenant shall be discharged from any further liability hereunder.
10.2 Voting Control of Tenant. If Tenant is a corporation, the
shares of which, at the time of the execution of this Lease or during the term
hereof are or shall be held by fewer than 100 persons, firms, or corporations,
and if at any time during the term of this Lease, the persons, firms or
corporations who own a minority or controlling number of its shares at the time
of the execution of this Lease or following Landlord's consent to a transfer of
such shares, ceases to own such shares (except as a result of transfer by
bequest or inheritance) and such cessation shall not first have been approved
in writing, by Landlord then such cessation shall, at the option of Landlord,
be deemed a default by Tenant under this Lease.
10.3 Other Transfer of Lease. Tenant shall not allow or permit any
transfer of this Lease, or any interest hereunder, by operation of law, or
convey, mortgage, pledge, or encumber this Lease or any interest herein.
XI. LIENS AND ENCUMBRANCES
11.0 Encumbering Title. Tenant shall not do any act which shall in
any way encumber the title of Landlord in and to the Leased Premises, nor shall
the interest or estate of Landlord in the Leased Premises be in any way subject
to any claim by way of lien or encumbrance, whether by operation of law or by
virtue of any express or implied contract by Tenant. Any claim to, or lien
upon, the Leased Premises arising from any act or omission of Tenant shall
accrue only against the leasehold estate of Tenant and shall be subject and
subordinate to the paramount title and rights of Landlord in and to the Leased
Premises.
11.1 Liens and Right to Contest. Tenant shall not permit the
Leased Premises to become subject to any mechanics', laborers' or materialmen's
lien on account of labor or material furnished to Tenant or claimed to have
been furnished to Tenant in connection with work of any character performed or
claimed to have been performed on the Leased Premises by, or at the direction
or sufferance of, Tenant; provided. however, that Tenant shall have the right
to contest in good faith and with reasonable diligence, the validity of any
such lien or claimed lien if Tenant shall give to Landlord such security as may
be deemed satisfactory to Landlord to insure payment thereof and to prevent any
sale, foreclosure, or forfeiture of the Leased Premises by reason of
non-payment thereof; provided further, however, that on final determination of
the lien or claim for lien. Tenant shall immediately pay any judgment
rendered, with all proper costs and charges, and shall have the lien released
and any judgment satisfied.
XII. UTILITIES
12.0 Utilities. Tenant shall purchase all utility services,
including but not limited to fuel, water, sewer and electricity from the
utility or municipality providing such service and shall pay for such services
when such payments are due.
<PAGE> 42
XIII. INDEMNITY AND WAIVER
13.0 Indemnity. Tenant will protect, indemnify and save harmless
Landlord (if Landlord is an Illinois land trust, the term "Landlord", for the
purpose of this Article XIII only, shall include the Trustee, its agents, its
beneficiary or beneficiaries and their agents) from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses including without limitation, reasonable attorneys' fees and
expenses) imposed upon or incurred by or asserted against Landlord by reason of
(a) any accident, injury to or death of persons or loss of or damage to
property occurring on or about the Leased Premises or any part thereof or the
adjoining properties, sidewalks, curbs, streets or ways, or resulting from any
act or omission of Tenant or anyone claiming by, through, or under Tenant; (b)
any failure on the part of Tenant to perform or comply with any of the terms of
this Lease: or (c) performance of any labor or services or the furnishing of
any materials or other property in respect of the Leased Premises or any part
thereof. In case any action, suit, or proceeding is brought against Landlord
by reason of any such occurrence, Tenant will, at Tenant's expense, resist and
defend such action, suit or proceeding, or cause the same to be resisted and
defended by counsel approved by Landlord.
13.1 Waiver of Certain Claims. Tenant waives all claims it may
have against Landlord for damages or injury to person or property sustained by
Tenant or any persons claiming through Tenant or by any occupant of the Leased
Premises, or by any other person, resulting from any part of the Leased
Premises or any of its improvements, equipment or appurtenances becoming out of
repair, or resulting from any accident on or about its improvements, equipment
or appurtenances becoming out of repair, or resulting from any accident on or
about the Leased Premises or resulting directly or indirectly from any act or
neglect of any person, including Landlord to the extent permitted by law. This
Section 13.1 shall include, but not by way of limitation, damage caused by
water, snow, frost, steam, excessive heat or cold, sewage, gas, odors, or
noise, or caused by bursting or leaking of pipes or plumbing fixtures, and
shall apply equally whether any such damage results from the act or neglect of
Tenant or of any other person, including Landlord to the extent permitted by
law, and whether such damage be caused by or result from any thing or
circumstance above mentioned or referred to, or to any other thing or
circumstance whether of a like nature or of a wholly different nature. All
personal property belonging to Tenant or any occupant of the Leased Premises
that is in or on any part of the Leased Premises shall be there at the risk of
Tenant or of such other person only, and Landlord shall not be liable for any
damage thereto or for the theft or misappropriation thereof.
XIV. RIGHTS RESERVED TO LANDLORD
14.0 Rights Reserved to Landlord. Without limiting any other
rights reserved or available to Landlord under this Lease, at law or in equity,
Landlord, on behalf of itself and its agents (and its beneficiary or
beneficiaries and their agents if Landlord is an Illinois land trust) reserves
the following rights, to be exercised at Landlord's election:
(a) To change the street address of the Leased Premises;
(b) To inspect the Leased Premises and to make repairs, additions
or alterations to the Leased Premises;
(c) To show the Leased Premises to prospective purchasers,
mortgagees, or other
<PAGE> 43
persons having a legitimate interest in viewing the same, and,
at any time within one (1) year prior to the expiration of the
Lease term, to persons wishing to rent the Leased Premises;
(d) During the last year of the Lease term, to place and maintain
the usual "For Rent" signs on the Leased Premises; and
(e) During the last ninety (90) days of the Lease term, if during
or prior to that time Tenant vacates the Leased Premises, to
decorate, remodel, repair, alter or otherwise prepare the
Leased Premises for new occupancy.
Landlord may enter upon the Leased Premises for any and all of the said
purposes and may exercise any and all of the foregoing rights hereby reserved
without being deemed guilty of an eviction or disturbance of Tenant's use or
possession of the Leased Premises, and without being liable in any manner to
Tenant.
XV. QUIET ENJOYMENT
15.0 Quiet Enjoyment. So long as Tenant is not in default under
the covenants and agreements of this Lease, Tenant's quiet and peaceable
enjoyment of the Leased Premises shall not be disturbed or interfered with by
Landlord or by any person claiming by, through or under Landlord.
XVI. SUBORDINATION OR SUPERIORITY
16.0 Subordination or Superiority. The rights and interest of
Tenant under this Lease shall be subject and subordinate to any first mortgage
or trust deed creating a first mortgage that may be placed upon the Leased
Premises by Landlord and to any and all advances to be made thereunder, and to
the interest thereon, and all renewals, replacements and extensions thereof, if
the mortgagee or trustee named in said mortgages or trust deeds shall elect to
subject and subordinate the rights and interest of Tenant under this Lease to
the lien of its mortgage or deed of trust and shall agree to recognize this
Lease of Tenant in the event of foreclosure if Tenant is not in default. Any
such mortgagee or trustee may elect to give the rights and interest of Tenant
under this Lease priority over the lien of its mortgage or deed of trust. In
the event of either such election and upon notification by such mortgagee or
trustee to Tenant to that effect, the rights and interest of Tenant under this
Lease shall be deemed to be subordinate to, or to have priority over, as the
case may be, the lien of said mortgage or trust deed, whether this Lease is
dated prior to or subsequent to the date of said mortgage or trust deed.
Tenant shall execute and deliver whatever instruments may be required for such
purposes, and in the event Tenant fails so to do within ten (10) days after
demand in writing. Tenant does hereby make, constitute and irrevocably appoint
Landlord as its attorney in fact and in its name, place, and stead so to do.
XVII. SURRENDER
17.0 Surrender. Upon the termination of this Lease whether by
forfeiture, lapse of time or otherwise, or upon the termination of Tenant's
right to possession of the Leased Premises, Tenant will at once surrender and
deliver up the Leased Premises, together with all improvements thereon, to
Landlord in good condition and repair, reasonable wear and tear excepted. Said
improvements
<PAGE> 44
shall include all plumbing, lighting, electrical, heating, cooling, and
ventilating fixtures and equipment and other articles of personal property used
in the operation of the Leased Premises (as distinguished from operations
incident of the business of Tenant; articles of personal property incident to
Tenant's business are hereinafter referred to as "Trade Fixtures"). All
additions, hardware, non-Trade Fixtures and improvements, temporary or
permanent, in or upon the Leased Premises placed there by Tenant shall become
Landlord's property and shall remain upon the Leased Premises upon such
termination of this Lease by lapse of time or otherwise, without compensation
or allowance or credit to Tenant, unless Landlord requests their removal in
writing at or before the time of such termination of this Lease. If Landlord
so requests removal of said additions, hardware, non-Trade Fixtures and all
improvements and Tenant does not make such removal at said termination of this
Lease, or within ten (10) days after such request, whichever is later, Landlord
may remove the same and deliver the same to any other place of business of
Tenant or warehouse the same, and Tenant shall pay the cost of such removal,
delivery and warehousing to Landlord on demand.
17.1 Removal of Tenant's Property. Upon the termination of this
Lease by lapse of time, Tenant may remove Tenant's Trade Fixtures provided,
however, that Tenant shall repair any injury or damage to the Leased Premises
which may result from such removals. If Tenant does not remove Tenant's Trade
Fixtures from the Leased Premises prior to the end of the term, however ended,
Landlord may, at its option, remove the same and deliver the same to any other
place of business of Tenant or warehouse the same, and Tenant shall pay the
cost of such removal (including the repair of any injury or damage to the
Leased Premises resulting from such removal), delivery and warehousing to
Landlord on demand, or Landlord may treat such Trade Fixtures as having been
conveyed to Landlord with this Lease as a Bill of Sale, without further payment
or credit by Landlord to Tenant.
17.2 Holding Over. Any holding over by Tenant of the Leased
Premises after the expiration of this Lease shall operate and be construed to
be a tenancy from month to month only, at the same monthly rate of rent and
other charges payable hereunder for the Lease term, or at the election of
Landlord expressed in a written notice to Tenant, otherwise holding over shall
constitute a renewal of the Lease for one (1) year at the same rental at which
all of the covenants and agreements contained in this Lease. If Tenant
continues to hold over any written demand by Landlord for possession at the
expiration of the Lease or after termination by either of a month to month
tenancy created pursuant to this Section, or after termination of the Lease or
of double the rate of rent payable hereunder immediately prior to the
expiration or other termination of the Lease of Tenant's right to possession.
Nothing contained in this Section 17.2 shall be construed to give Tenant the
right to hold over at any time and Landlord may exercise any and all remedies
at law or in equity to recover possession of the Leased Premises.
XVIII. REMEDIES
18.0 Defaults. Tenant further agrees that any one or more of the
following events shall be considered events of default as said term is used
herein, that is to any, if
(a) Tenant shall be adjudged an involuntary bankrupt, or a decree or
order approving, as properly filed, a petition or answer filed against
Tenant asking recognition of Tenant under the Federal bankruptcy law
as now or hereafter amended, or under the laws of any State, shall be
entered, and any such decree or judgment or order shall not have been
vacated or set
<PAGE> 45
aside within sixty (60) days from the date of the entry or granting
thereof; or
(b) Tenant shall file or admit the jurisdiction of the court and the
material allegations contained in, any petition in bankruptcy, or any
petition pursuant or purporting to be pursuant to the Federal
bankruptcy laws as now or hereafter amended, or Tenant shall institute
any proceedings or shall give its consent to the institution of any
proceedings for any relief of Tenant under any bankruptcy or
insolvency laws or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganization, arrangements,
composition or extension: or
(c) Tenant shall make any assignment for the benefit of creditors or
shall apply for or consent to the appointment of a receiver for Tenant
or any of the property of Tenant; or
(d) The Leased Premises are levied upon by any revenue officer or
similar officer, or
(e) A decree or order appointing a receiver of the property of Tenant
shall be made and such decree or order shall not have been vacated or
set aside within sixty (60) days from the date of entry or granting
thereof, or
(f) Tenant shall abandon the Leased Premises or vacate the same
during the tem hereof; or
(g) Tenant shall default in any monthly payments of rent or in any
other payment required to be made by Tenant hereunder when due as
herein provided and such default shall continue for ten (10) days
after notice thereof in writing to Tenant.; or
(h) Tenant shall fail to contest the validity of any lien or claimed
lien and give security to Landlord to insure payment thereof, or
having commenced to contest the same and having given such security,
shall fail to prosecute such contest with diligence, or shall fail to
have the some released and satisfy any judgment rendered thereon, and
such default continues for ten (10) days after notice thereof in
writing to Tenant; or
(i) Tenant shall default in any of the other covenants and agreements
herein contained to be kept, observed and performed by Tenant, and
such default shall continue for thirty (30) days after notice thereof
in writing to Tenant; or
(j) Tenant shall repeatedly be late in the payment of rent or other
charges required to be paid hereunder or shall repeatedly default in
the keeping, observing, or performing of any other covenants or
agreements herein contained to be kept,. observed or performed by
Tenant (provided notice of such payment or other defaults shall have
been given to Tenant, but whether or not Tenant shall have timely
cured any such payment or other defaults of which notice was given).
Upon the occurrence of any one or more of such events of default, Landlord may
at its election terminate this Lease or terminate Tenant's right to possession
only, without terminating the Lease. Upon termination of this Lease or of
Tenant's right to possession, Landlord may re-enter the Leased Premises with or
without process of law using such force as may be necessary, and remove all
persons, fixtures, and chattels therefrom and Landlord shall not be liable for
any damages resultant therefrom. Upon termination of the Lease, or upon any
termination of the Tenant's right to
<PAGE> 46
possession without termination of the Lease, the Tenant shall surrender
possession and vacate the Leased Premises immediately, and deliver possession
thereof to the Landlord, and hereby grants to the Landlord the full and free
right, without demand or notice of any kind to Tenant (except as hereinabove
expressly provided for), to enter into and upon the Leased Premises in such
event with or without process of law and to repossess the Leased Premises as
the Landlord's former estate and to expel or remove the Tenant and any others
who may be occupying or within the Leased Premises without being deemed in any
manner guilty of trespass, eviction, or forcible entry or detainer without
incurring any liability for any damage resulting therefrom and without
relinquishing the Landlord's rights to rent or any other right given to the
Landlord hereunder or by operation of law. Upon termination of the Lease,
Landlord shall be entitled to recover as damages, all rent and other sums due
and payable by Tenant on the date of termination, plus (1) an amount equal to
the value of the rent and other sums provided herein to be paid by Tenant for
the residue of the stated term hereof, less the fair rental value of the Leased
Premises for the residue of the stated term (taking into account the time and
expenses necessary to obtain a replacement tenant or tenants, including
expenses hereinafter described relating to recovery of the premises,
preparation for reletting and for reletting itself), and (2) the cost of
performing any other covenants to be performed by Tenant. If the Landlord
elects to terminate the Tenant's right to possession only, without terminating
the Lease, the Landlord may, at the Landlord's option enter into the Leased
Premises, remove the Tenant's signs and other evidences of tenancy, and take
and hold possession thereof as hereinabove provided, without such entry and
possession terminating the Lease or releasing the Tenant, in whole or in part,
from the Tenant's obligations to pay the rent hereunder for the full term or
from any other of its obligations under this Lease. Landlord may, but shall be
under no obligation so to do, relet all or any part of the Leased Premises for
such rent and upon terms that shall be satisfactory to Landlord (including the
right to rent the Leased Premises for a term greater than that remaining under
the Lease term, and the right to relet the Leased Premises as a part of a
larger area, and the right to change the character of use made of the Leased
Premises). For the purpose of such reletting, Landlord may decorate or make
any repairs, changes, alterations or additions in or to the Leased Premises
that may be convenient. If Landlord does not relet the Leased Premises, Tenant
shall pay to Landlord on demand damages equal to the amount of the rent, and
other sums provided herein to be paid by Tenant for the remainder of the Lease
term. If the Leased Premises are relet and a sufficient sum shall not be
realized from such reletting after paying all of the expenses of such
decoration, repairs, changes, alternations, additions, the expenses of such
reletting and the collection of the rent accruing therefrom including, but not
by way of limitation, attorneys' fees and brokers' commissions, to satisfy the
rent herein provided to be paid for the remainder of the Lease term. Tenant
shall pay to Landlord on demand any deficiency and Tenant agrees that Landlord
may file suit to recover any sums falling due under the terms of this Section
from time to time. If Tenant shall default under subsection (1) hereof, and if
such default cannot with due diligence be cured within a period of thirty (30)
days, and if notice thereof in writing shall have been given to Tenant, and if
Tenant promptly commences to eliminate the cause of such default, then Landlord
shall not have the right to declare said term ended by reason of such default
or to repossess the Leased Premises without terminating the Lease so long as
Tenant is proceeding diligently and with reasonable dispatch to take all steps
and do all work required to cure such default and does so cure such default,
provided, however, that the curing of any default in such manner shall not be
construed to limit or restrict the right of Landlord to declare the term ended
or to repossess without terminating the Lease, and to enforce all of its right
and remedies hereunder for any other default no so cured.
18.1 Remedies Cumulative. No remedy herein or otherwise conferred
upon or reserved to Landlord shall be considered to exclude or suspend any
other remedy but the same shall be
<PAGE> 47
cumulative and shall he in addition to every other remedy given hereunder, or
now or hereafter existing at law or in equity or by statute, and every power
and remedy given by this Lease to Landlord may be exercised from time to Lime
and so often as occasion may arise or as may be deemed expedient
18.2 No Waiver. No delay or omission of Landlord to exercise any
right or power arising from any default shall impair any such right or power or
be construed to be a waiver of any such default or any acquiescence therein.
No waiver of any breach of any of the covenants of this Lease shall be
construed, taken or held to be a waiver of any other breach or waiver,
acquiescence in or consent to any further or succeeding breach of the same
covenant. The acceptance by Landlord of any payment of rent or other charges
hereunder after the termination by Landlord of this Lease or of Tenant's right
to possession hereunder shall not. in the absence of agreement in writing to
the contrary by Landlord, be deemed to restore this Lease or Tenant's right to
possession hereunder, as the case may be, but shall be construed as a payment
on account, and not in satisfaction, of damages due from Tenant to Landlord.
Section 18.3 Omitted
XIX. SECURITY DEPOSIT
19.0 Security Deposit. To secure the faithful performance by
Tenant of all of the covenants, conditions and agreements in this Lease set
forth and contained on the part of the Tenant to be fulfilled, kept, observed
and performed, including, but without limiting the generality of the foregoing,
such covenants, conditions and agreements in this Lease which become applicable
upon the termination of the same by re-entry or otherwise, Tenant has deposited
herewith the sum of $55,000 with David Unger & Henry Mautner as beneficiaries
of Landlord("Agent") as a Security Deposit on the understanding: (a) that such
deposit or any part or portion thereof not previously applied, or from time to
time, such one or more parts or portions thereof, may be applied to the curing
of any default that may then exist, without prejudice to any other remedy or
remedies which the Landlord may have on account thereof, and upon such
application Tenant shall pay Agent on demand the amount so applied which shall
be added to the Security Deposit so the same may be restored to its anginal
amount; (b) that should the Leased Premises be conveyed by Landlord or should
Agent cease to be the beneficiaries of Landlord, the deposit or any portion
thereof not previously applied may be turned over to Landlord's grantee or the
new agent, as the case may be, and if the same be turned over as aforesaid, the
Tenant hereby releases Landlord and Agent from any and all liability with
respect to the deposit and/or its application or return, and the Tenant agrees
to look to such grantee or agent, as the case may be, for such application or
return; (c) that Landlord shall have no personal liability with respect to said
sum and Tenant shall look exclusively to Agent or its successors pursuant to
subparagraph (b) hereof for return of said sum on the termination of this
lease; (d) that Agent or its successor shall not be obligated to hold said
deposit as a separate fund, but on the contrary may commingle the same with its
other funds; (e) that if Tenant shall faithfully fulfill, keep, perform and
observe all of the covenants, conditions, and agreement in this Lease set forth
and contained on the part of Tenant to be fulfilled, kept, performed and
observed, the sum deposited or the part or portion thereof not previously
applied, shall be returned to the Tenant without interest no later than thirty
(30) days after the expiration of the term of this Lease or any renewal or
extension thereof, provided Tenant has vacated the Leased Premises and
surrendered possession thereof to the Landlord at the expiration of said term
or any extension or renewal thereof as provided herein; and (f) that Agent on
behalf of itself and its successor, reserves the right, at its
<PAGE> 48
sole option, to return to Tenant said deposit or what may then remain thereof,
at any time prior to the date when Agent, or its successors is obligated
hereunder to return the same, but said return shall not in any manner be deemed
to be a waiver of any default of the Tenant hereunder then existing nor to
limit or extinguish any liability of Tenant hereunder.
XX. MISCELLANEOUS
20.0 Tenants's Statement. Tenant shall furnish Landlord annually
within ninety (90) days after the end of each of Tenant's fiscal years a copy
of its annual report and certified statement. It is mutually agreed that
Landlord may deliver a copy of such statements to the mortgagee, but otherwise
Landlord shall treat such statements and information contained therein as
confidential.
20.1 Estoppel Certificates. Tenant shall at any time and from time
to time upon not less than ten (10) days prior written request from Landlord
execute, acknowledge and deliver to Landlord, in form reasonably satisfactory
to Landlord and, or Landlord's mortgagee, a written statement certifying, if
true, that Tenant has accepted the Lease Premises that this Lease is unmodified
and in full force and effect or if there have been modifications that the same
is in full force and effect as modified and stating the modifications), that
the Landlord is not in default hereunder, the rate to which the rental and
other charges have been paid in advance, if any, or such other accurate
certification as may reasonably be required by Landlord or Landlord's
mortgagee, and agreeing to give copies to any mortgagee of Landlord of all
notices by Tenant to Landlord. It is intended that any such statement
delivered pursuant to this subsection may be relied upon by any prospective
purchaser or mortgagee of the Leased Premises.
20.2 Landlord's Right to Cure. Landlord may, but shall not be
obligated to, cure any default by Tenant (specifically including but not, by
way of limitations. Tenant's failure to obtain insurance, make repairs, or
satisfy lien claims, and whenever Landlord so elects, all costs and expenses
paid by Landlord in curing such default, including without limitation
reasonable attorneys' fees, shall be so much additional rent due on the next
rent date after such payment together with interest (except in the case of said
attorneys' fees) at the highest rate then payable by Tenant in the state in
which the Leased Premises are located or in the absence of such a maximum rate
at the rate of twelve percent (12%) per annum, from the date of the advance
to the date of repayment by Tenant to Landlord.
20.3 Amendment Must be in Writing. None of the covenants, terms or
conditions of this Lease, to be kept and performed by either party, shall in
any manner be altered, waived, modified, changed or abandoned except by a
written instrument, duly signed, acknowledged and delivered by the other party.
20.4 Notices. All notices to or demands upon Landlord or Tenant
desired or required to be given under any of the provisions hereof shall be in
writing. Any notices or demands from Landlord to Tenant shall be deemed to
have been duly and sufficiently given if a copy thereof has been mailed by
United States registered or certified mail in an envelope properly stamped and
addressed to Tenant as follows: Midwesco- Enterprise, Inc., 7720 N. Lehigh
Avenue, Niles, Illinois, attn: David Unger, President, or at such address as
Tenant may theretofore have furnished by written notice to Landlord, and any
notices or demands from Tenant to Landlord shall be deemed to have been duly
and sufficiently given if mailed by United States registered or certified mail
in an envelope properly stamped and addressed to Landlord as follows c/o David
Unger c/o Midwesco-Enterprise,
<PAGE> 49
Inc., address above or at such other address as Landlord may theretofore have
furnished by written notice to Tenant with a copy to any first mortgagee of the
Leased Premises as to the identity and address of which Tenant shall have
received written notice. The effective date of such notice shall be one (1)
day after delivery of the same to the United States Postal Service.
20.5 Short Form Lease. This Lease shall not be recorded, but the
parties agree, at the request of either of them, to execute a Short Form Lease
for recording, containing the name of the parties, the legal description and
the term of the Lease.
20.6 Time of Essence. Time is of the essence of this Lease, and
all provisions herein relating thereto shall be strictly construed.
20.7 Relationship of Parties. Nothing contained herein shall be
deemed or construed by the parties hereto, nor by any third party, as creating
the relationship of principal and agent or of partnership, or of joint venture
by the parties hereto, it being understood and agreed that no provision
contained in this Lease nor any acts of the parties hereto shall be deemed to
create any relationship other than the relationship of Landlord and Tenant.
20.8 Captions. The captions of this Lease are for convenience only
and are not to be construed as part of this Lease and shall not be construed as
defining or limiting in any way the scope or intent of the provisions hereof.
20.9 Severability. If any term or provision of this Lease shall to
any extent be held invalid or unenforceable, the remaining terms and provisions
of this Lease, at the option of the Landlord, shall not be affected thereby,
but each term and provision of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
20.10 Law Applicable. This Lease shall be construed and enforced in
accordance with the laws of the state where the Leased Premises are located.
20.11 Covenants Binding on Successors. All of the covenants,
agreements, conditions and undertakings contained in this Lease shall extend
and inure to and be binding upon the heirs, executors, administrators,
successors and assigns of the respective parties hereto, the same as if they
were in every case specifically named, and wherever in this Lease reference is
made to either of the parties hereto, it shall be held to include and apply to,
wherever applicable, the heirs, executors, administrators, successors and
assigns of such party. Nothing herein contained shall be construed to grant or
confer upon any person or persons, firm, corporation or governmental authority,
other than the parties hereto, their heirs, executors, administrators,
successors and assigns, any right, claim or privilege by virtue of any
covenant, agreement, condition or undertaking in this Lease contained.
20.12 Brokerage. Tenant warrants that it has had no dealings with
any broker or agent in connection with this Lease. Tenant covenants of pay,
hold harmless and indemnify Landlord from and against any and all cost, expense
or liability for any compensation, commissions and charges claimed by any other
broker or other agent with respect to this Lease or the negotiation thereof.
20.13 Landlord Means Owner. The term "Landlord" as used in the
Lease, so far as covenants of obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner or owners at the
time in question of the fee of the Leased Premises, and in the event
<PAGE> 50
of any transfer of the title to such fee, Landlord herein named (and in case of
any subsequent transfer or conveyances, the then grantor) shall be
automatically freed and relieved, from and after the date of such transfer or
conveyance, of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, provided that any funds in the hands of such Landlord or the then
grantor at the time of such transfer, in which Tenant has an interest, shall be
turned over to the grantee, and any amount then due and payable to Tenant by
Landlord or the then grantor under any provisions of this Lease, shall be paid
to Tenant.
Paragraph 20.14 Omitted.
20.15 Signs. Tenant shall install no exterior sign without
Landlord's prior written approval of detailed plans and specifications
therefor.
20.16 For purposes of this Lease, the term.'Leased Premises" shall
include the personal property and chattels described on Exhibit B hereto. At
all times during the Term of this Lease, Tenant, at its sole expense, shall
maintain such personal property and chattels in good working order and
condition and shall keep the same insured against loss by fire and other
casualties in amounts reasonably requested by Landlord and otherwise in
accordance with the provisions of Article VI of this Lease. Such personal
property and chattels shall at all times remain the sole property of Landlord,
subject to the right of Tenant to use the same in accordance with the
provisions of this Lease. The obligation of Tenant to maintain such personal
property and chattels shall include the obligation to repair and replace the
same during the Term as necessary. On the termination of the Term of this
Lease, whether by lapse of time or otherwise, Tenant shall return such personal
property and chattels to Landlord in the same condition as existing on the date
hereof, ordinary wear and tear excepted.
The rights and interest of Tenant in and to such personal property and
chattels shall be subject and subordinate to the lien of any first mortgage
affecting the Leased Premises and to the lien granted by Landlord pursuant to
any Security Agreement applicable to such personal property and chattels and to
all advances made thereunder and interest thereon, and all renewals,
replacements and extensions thereof.
If Landlord is an Illinois Land Trust, the following Section 21.0 shall be
included in this Lease:
21.0 Exculpatory Clause. This Lease is executed by American
National Bank & Trust Company, not personally but as Trustee as aforesaid, in
the exercise of and power and authority conferred upon and vested in it as such
Trustee, and under the express direction of the beneficiaries of a certain
Trust Agreement dated September 15, 1976, and known as Trust Number 39340 to
all provisions of which Trust Agreement this Lease is expressly made subject.
It is expressly understood and agreed that nothing in this Lease contained
shall be construed as creating any liability whatsoever against said Trustee or
said beneficiaries, and in particular without limiting the generality of the
foregoing, there shall be no personal liability to pay any indebtedness
accruing hereunder or to perform any covenant, either express or implied herein
contained, to keep, preserve or acquiesce any property of said Trust, and that
all personal liability of said Trustee (and said beneficiaries to the extent
permitted by law), of every sort, if any, is hereby expressly waived by Tenant,
and by every person now or hereafter claiming any right or security hereunder;
and that so far as the parties hereto are concerned the owner of any
indebtedness of liability accruing hereunder
<PAGE> 51
shall look solely to the Trust Estate from time to time subject to the
provisions of said Trust Agreement for the payment thereof. It is further
understood and agreed that the said Trustee has no agents or employees and
merely holds naked legal title to the property herein described and has no
control over the management thereof or the income therefrom and has no
knowledge respecting rentals, leases or other factual matter with respect to
said premises, except as represented to it by the beneficiary or beneficiaries
of said Trust.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day
and year first above written.
AMERICAN NATIONAL BANK & TRUST
COMPANY OF CHICAGO, as Trustee
of Trust #39340
(If corporation,
affix seal here) Landlord
MIDWESCO-ENTERPRISE, INC.,
an Illinois corporation
(if corporation.
affix seal here) Tenant
ACKNOWLEDGMENTS
(If Tenant is an Individual or Partnership)
STATE OF
SS
COUNTY OF SS
I......................................................., a Notary Public in
and for said County, in the State aforesaid, do hereby certify
that......................................... , personally known to me to be
the same person(s) whose name(s) is/are subscribed to the foregoing instrument,
appeared before me this day in person and acknowledged that he/they signed,
sealed, and delivered the said instrument as his/their free and voluntary act
for the uses and purposes therein set forth.
<PAGE> 52
GIVEN under my hand and Notarial Seal this day of 19___
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notary Public
(If Tenant is a Corporation)
STATE OF ILLINOIS
SS
COUNTY OF COOK
I, Ruth A. Heinrich, a Notary Public in and for said County, in the State
aforesaid, do hereby certify that David Unger, personally known to me to be the
President of MIDWESCO-ENTERPRISE, INC, and Illinois corporation, duly
licensed to transact business in the State of Illinois, and personally known
to me to be the Secretary of said corporation and personally known to me to be
the same persons whose names are subscribed to the foregoing instrument,
appeared before me this day in person and severally acknowledged that they
signed and delivered the said instrument as President and Secretary of said
corporation, and caused the Corporate Seal of said corporation to be affixed
thereto, pursuant to authority given by the Board of Directors of said
corporation, as their free and voluntary act and as the free and voluntary act
and deed of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and Notarial Seal this 7th day of December, 1976.
Ruth A. Heinrich
Notary Public
STATE OF ILLINOIS
SS
COUNTY OF COOK
I, P. Johansen, a Notary Public in and for said County, in the State aforesaid.
do hereby certify that J. M. Whelan, personally known to me to be the Vice
President of American Bank & Trust Co. of Chicago, as Trustee of Trust #39340
and L. Woods, personally known to me to be the Asst. Secretary of thereof and
personally known to me to be the same persons whose names are subscribed to the
foregoing instrument, appeared before me this day in person and severally
acknowledged that they signed and delivered the said instrument as Vice
President and Asst. Secretary thereof, and caused the Corporate Seal thereof to
be affixed thereto, pursuant to authority given by the Board of Directors
thereof, as their free and voluntary act and as the free and voluntary act and
deed thereof, for the uses and purposes therein set forth.
GIVEN under my hand and Notarial Seal this Dec 08 1976.
Notary Public
<PAGE> 53
(If Landlord is an Individual or Partnership)
STATE OF
SS
COUNTY OF
I............................................................................
............. a Notary Public in and for said County. in the State aforesaid,
do hereby certify that............................................. ,
personally known to me to be the same person(s) whose name(s) is/are subscribed
to the foregoing instrument, appeared before me this day in person and
acknowledged that he/they signed, sealed and delivered the said instrument as
his/their free and voluntary act, for the uses and purposes therein set forth.
GIVEN under my hand and Notarial Seal this .................. day of ......
...............................
Notary Public
<PAGE> 54
EXHIBIT "A"
LEGAL DESCRIPTION
THAN THAT PART OF THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE NORTHWEST
QUARTER OF SECTION 29, TOWNSHIP 41 NORTH, RANGE 13 EAST OF THE 3RD PRINCIPAL
MERIDIAN, LYING WEST OF THE WEST LINE OF THE CHICAGO, MILWAUKEE AND ST. PAUL
RAILROAD, AS ESTABLISHED BY DEED RECORDED OCTOBER 17, 1872, AS DOCUMENT 62678,
AND ALSO WEST OF THE EASTERLY 60 FEET ACQUIRED BY TOWNSHIP DEDICATION, MAY 21,
1907, FOR LEHIGH AVE., EXCEPT THE NORTH 33 FEET THEREOF, ALSO EXCEPT THE WEST
237.40 FEET THEREOF, ALSO EXCEPTING THAN THAT PORTION OF THE ABOVE DESCRIBED
TRACT HERETOFORE CONVEYED TO THE PUBLIC SERVICE COMPANY OF NORTHERN ILLINOIS,
DESCRIBED AS THAN THAT PART OF THE SOUTH 2 CHAINS, WEST OF THE WEST LINE OF THE
CHICAGO, MILWAUKEE AND ST. PAUL RAILROAD RIGHT OF WAY IN THE NORTH 1/2 OF THE
SOUTHEAST 1/4 OF THE NORTHWEST 1/4 OF SECTION 29, TOWNSHIP 41 NORTH, RANGE 13
EAST OF THE 3RD PRINCIPAL MERIDIAN, LYING EASTERLY OF A LINE PARALLEL TO THE
WEST LINE OF SAID SECTION AND 100 FEET WEST OF THE INTERSECTION OF THE WESTERLY
LINE OF LEHIGH AVE., AND THE NORTH LINE OF SAID TRACT, IN THE VILLAGE OF NILES,
COOK COUNTY, ILLINOIS.
EXHIBIT "B"
1. One Wright 2-ton crane
2. One Robbins and Meyers 2-ton crane
3. Three Manning, Maxwell and Moore 20-ton cranes
4. One Michigan 10-ton crane
5. One Able-Howe 20-ton crane
6. One Shaw-Box 10-ton crane
7. One each-50 horsepower and 15 horsepower Gardener Denver air
compressors
8. One 30-ton Hydro Scale crane scale, and
9. One Columbus 30,000 pound platform floor scale
<PAGE> 1
Exhibit 11
MFRI, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 31, 1997 January 31, 1996 January 31, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net income $3,230,000 $2,373,000 $1,203,000
Weighted average number of common
shares outstanding:
Shares outstanding from beginning of
period 4,524,000 4,529,000 4,289,000
Issuances of common stock 51,000 232,000
Acquisition of treasury stock (43,000)
Common share equivalents:
Assumed exercise of common stock
options 52,000 14,000 15,000
---------- ---------- ----------
Weighted average common and
common share equivalents 4,627,000 4,543,000 4,493,000
========== ========== ==========
Net income per share $0.70 $0.52 $0.27
========== ========== ==========
</TABLE>
<PAGE> 2
Exhibit 11
MFRI, Inc. and Subsidiaries
Computation of Fully Diluted Earnings Per Common Share
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 31, 1997 January 31, 1996 January 31, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net income $3,230,000 $2,373,000 $1,203,000
Weighted average number of common
shares outstanding:
Shares outstanding from beginning of
period 4,524,000 4,529,000 4,289,000
Issuances of common stock 51,000 232,000
Acquisition of treasury stock (43,000)
Common share equivalents:
Assumed exercise of common stock
options 65,000 20,000 15,000
---------- ---------- ----------
Weighted average common and
common share equivalents 4,640,000 4,549,000 4,493,000
---------- ---------- ----------
Net income per share $ 0.70 $ 0.52 $ 0.27
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
MFRI, Inc. has the following wholly-owned subsidiaries:
1. Midwesco Filter Resources, Inc. (Delaware corporation)
2. Perma-Pipe, Inc. (Delaware corporation)
Subsidiaries which in the aggregate would not be a significant subsidiary have
been omitted.
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 333-21951 of MFRI, Inc. on Form S-3 of our report dated April 18, 1997,
appearing in the Annual Report on Form 10-K of MFRI, Inc. for the year ended
January 31, 1997, and to the reference to us under the heading "Experts" in the
Prospectus which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Chicago, Illinois
April 30, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of MFRI, INC., a Delaware corporation (the
"Corporation"), does hereby constitute and appoint DAVID UNGER, HENRY M.
MAUTNER, GENE K. OGILVIE, FATI A. ELGENDY, BRADLEY E. MAUTNER and MICHAEL D.
BENNETT, with full power to each of them to act alone, as the true and lawful
attorneys and agents of the undersigned, with full power of substitution and
resubstitution to each of said attorneys, to execute, file or deliver any and
all instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Corporation to comply with
the Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to the
Corporation's annual report on Form 10-K for the fiscal year ended January 31,
1997, including specifically, but without limitation of the general authority
hereby granted, the power and authority to sign his name as director or
officer, or both, of the Corporation, as indicated below opposite his
signature, to such annual report on Form 10-K or any amendments or papers
supplemental thereto; and each of the undersigned does hereby fully ratify and
confirm all that said attorneys and agents, or any of them, or the substitute
of any of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of this 30th day of April, 1997.
<TABLE>
<S> <C>
/s/ David Unger /s/ Arnold F. Brookstone
- -------------------------------------------- --------------------------------
DAVID UNGER, Director, Chairman of the ARNOLD F. BROOKSTONE, Director
Board of Directors and President
/s/ Henry M. Mautner /s/ Don Gruenberg
- -------------------------------------------- --------------------------------
HENRY M. MAUTNER, Director, Vice Chairman DON GRUENBERG, Director and
of the Board of Directors Vice President
/s/ Gene K. Ogilvie /s/ Bradley E. Mautner
- -------------------------------------------- --------------------------------
GENE K. OGILVIE, Director and Vice President BRADLEY E. MAUTNER, Director
and Vice President
/s/ Michael D. Bennett /s/ Eugene Miller
- -------------------------------------------- --------------------------------
MICHAEL D. BENNETT, Vice President, EUGENE MILLER, Director
Secretary and Treasurer
/s/ Fati A. Elgendy /s/ Stephen B. Schwartz
- -------------------------------------------- --------------------------------
FATI A. ELGENDY, Director STEPHEN B. SCHWARTZ, Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1997 AND THE STATEMENTS OF INCOME
AND CASH FLOWS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 3,416,000
<SECURITIES> 0
<RECEIVABLES> 18,759,000
<ALLOWANCES> 0
<INVENTORY> 17,244,000
<CURRENT-ASSETS> 45,249,000
<PP&E> 20,149,000
<DEPRECIATION> 5,095,000
<TOTAL-ASSETS> 75,328,000
<CURRENT-LIABILITIES> 17,405,000
<BONDS> 23,921,000
0
0
<COMMON> 50,000
<OTHER-SE> 32,804,000
<TOTAL-LIABILITY-AND-EQUITY> 75,328,000
<SALES> 93,573,000
<TOTAL-REVENUES> 93,573,000
<CGS> 71,768,000
<TOTAL-COSTS> 71,768,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 992,000
<INCOME-PRETAX> 5,404,000
<INCOME-TAX> 2,174,000
<INCOME-CONTINUING> 3,230,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,230,000
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
