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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [NO FEE REQUIRED]
for the fiscal year ended December 31, 1996
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [NO FEE REQUIRED]
for the transition period from __________ to __________.
Commission file number: 0-23804
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Simpson Manufacturing Co., Inc.
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(Exact name of registrant as specified in its charter)
California 94-3196943
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4637 Chabot Drive, Suite 200, Pleasanton, CA 94588
(Address of principal executive offices)
Registrant's telephone number, including area code: (510)460-9912
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Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
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
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Indicate by check 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. / /
As of February 28, 1997, there were outstanding 11,456,196 shares of
the registrant's common stock, without par value, which is the only class
of common or voting stock of the registrant. As of that date, the aggregate
market value of the shares of common stock held by nonaffiliates of the
registrant (based on the closing price for the common stock on the Nasdaq
Stock Market on February 28, 1997) was approximately $108,264,815.
Documents Incorporated by Reference
The information called for by Part III is incorporated by reference to
the definitive Proxy Statement for the Annual Meeting of Stockholders of
the Company to be held May 15, 1997, which will be filed with the
Securities and Exchange Commission not later than 120 days after December
31, 1996.
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<PAGE>
PART I
ITEM 1. BUSINESS.
Background
Simpson Manufacturing Co., Inc. ("Simpson Manufacturing" or the "Company"),
through its subsidiary, Simpson Strong-Tie Company Inc. ("Simpson Strong-
Tie" or "SST"), designs, engineers and is a leading manufacturer of
wood-to-wood, wood-to-concrete and wood-to-masonry connectors, and through
its subsidiary, Simpson Dura-Vent Company, Inc. ("Simpson Dura-Vent" or
"SDV"), designs, engineers and manufactures venting systems for gas and
wood burning appliances. The Company has developed and uses substantially
automated manufacturing processes in the production of its products. The
Company markets its products to the residential construction, light
industrial and commercial construction, remodeling and do-it-yourself
("DIY") markets. The Company believes that Simpson Strong-Tie benefits from
strong brand name recognition among architects and engineers who frequently
specify in building plans the use of SST products, and that Simpson
Dura-Vent benefits from strong brand name recognition among contractors,
dealers, distributors and original equipment manufacturers ("OEMs") to
which SDV markets its products. The Company and its affiliates' products
are marketed in all 50 states of the United States, Europe, Canada,
Australia, Mexico, Chile, Argentina and Japan and many are protected by
patents.
The Company was organized in 1994 as a holding company of Simpson Holdings,
Inc. ("Holdings"). The Company and Holdings together own all of the
outstanding stock of SST and SDV. See "Item 1 - Business - 1994
Reorganization." The Company's began to manufacture wood-to-wood connectors
in 1956 and acquired the SDV product line in 1982. The Company's principal
business offices are located at 4637 Chabot Drive, Suite 200, Pleasanton,
California 94588, telephone (510) 460-9912.
Strong-Tie(registered trademark), Dura-Vent(registered trademark),
Dura/Connect(registered trademark), Dura-Plus(registered trademark),
Dura/Liner(registered trademark), Pellet Vent(registered trademark), Direct
Vent G.S. (registered trademark), Engineered Excellence(registered
trademark) and There Is No Equal(registered trademark)(when used with the
registered design) are registered trademarks of the Company's subsidiaries.
1994 Reorganization
In 1994, a reorganization was effected to consolidate all ownership in
Holdings, Simpson Strong-Tie and Simpson Dura-Vent into one entity (the
"1994 Reorganization"). Under the Company's prior incentive stock purchase
plans, each of Holdings, SST and SDV had previously issued shares of its
common stock to certain of its key employees. The employees purchased
shares by delivering notes payable to Holdings, SST and SDV, in principal
amounts representing the fair value of the shares when issued. Until the
1994 Reorganization, Holdings was owned principally by Simpson Investment
Company (which is principally owned and is managed by Barclay Simpson, the
Company's Chairman) and Thomas J Fitzmyers, the Company's President and
Chief Executive Officer, and Holdings owned 92.4% of SST and 92.0% of SDV
(the remainder having been held by employee-shareholders).
To permit the employee-shareholders of SST and SDV to own shares of Common
Stock that were expected to be publicly traded (rather than shares in a
private company, most of the stock of which is held by Holdings), the
Company was formed and offered to all shareholders of Holdings, SST and SDV
(other than Holdings itself) the opportunity to exchange their Holdings,
SST and SDV shares for shares of Company Common Stock. The shareholders
exchanged their shares in exchange ratios that were determined on the basis
of an independent appraisal of the businesses of Holdings, SST and SDV. As
a result of these transactions, the Company owns directly or indirectly all
of the outstanding stock of Holdings, SST and SDV.
Under applicable accounting rules, the 1994 Reorganization resulted in the
Company recording a one-time, non-cash charge related to compensation
expense in the amount of approximately $6.4 million in the first quarter of
1994. After giving effect to all components of the 1994 Reorganization,
including this one-time, non-cash compensation charge, shareholders' equity
increased by $1.1 million. This charge and equity contribution reflect
principally the changes in the value of the shares between their original
sale date and the value of the shares issued in the 1994 Reorganization.
Neither this accounting charge nor this equity contribution resulted in the
payment of any cash by the Company and neither is expected to recur in the
future. See Note 2 to the Consolidated Financial Statements contained
elsewhere herein.
<PAGE>
As part of the 1994 Reorganization, the employee-shareholders participated
as selling shareholders in the Company's initial public offering and used a
portion of the net proceeds received by them from the offering to repay all
notes payable to Holdings, SST or SDV previously incurred in connection
with incentive stock purchase plans or secured by the Company's Common
Stock. These debts aggregated approximately $4.3 million. In addition, on
completion of the offering, the Company granted under the Company's 1994
Stock Option Plan to most of the selling shareholders options to purchase
an aggregate of 497,471 shares of Common Stock (approximately equal to the
number of shares sold by them in the offering to pay debts described above
and related income taxes) at an exercise price equal to the $11.50 per
share initial public offering price. These options were immediately
exercisable.
Industry and Market Trends
Based on trade periodicals, participation in trade and professional
associations and communications with governmental and quasi-governmental
organizations and customers and suppliers, the Company believes that a
variety of events and trends have resulted in significant developments in
the markets that the Company serves. Some of these events and trends are
discussed below.
Recent natural disasters throughout the world have focused attention on
safety concerns relating to the structural integrity of homes and other
buildings. The January 1995 earthquake in Kobe, Japan, the 1994 earthquake
in Northridge, California, the 1989 Loma Prieta earthquake in Northern
California, Hurricanes Hugo in 1989 and Andrew in 1992 in the Southeast,
and other less cataclysmic natural disasters damaged and destroyed
innumerable homes and other buildings, resulting in heightened
consciousness of the fragility of some of those structures.
In recent years, architects, engineers, model code agencies, contractors,
building inspectors and legislators have continued efforts to improve
structural integrity and safety of homes and other buildings in the face of
disasters of various types, including seismic events, storms and fires.
Based on ongoing participation in trade and professional associations and
communications with governmental and quasi-governmental regulatory agencies
(see "Item 1 - Business - Regulation"), the Company believes that building
codes are being strengthened and that their enforcement is becoming more
rigorous. The Company's products are designed to respond to increasing
demand resulting from these trends.
The requirements of the Endangered Species Act, the Federal Lands Policy
Management Act and the National Forest Management Act have resulted in
increasingly limited amounts of timber available for harvest from public
lands. This has contributed to an increase in lumber prices and a
concomitant increase in the use of engineered wood products. Engineered
wood products, which substitute for strong, clear-grained lumber
historically obtained from logging older, large-diameter trees, have been
developed to conserve lumber. Engineered wood products frequently require
specialized connectors. Sales of SST's engineered wood connector products
have increased significantly in 1995 and 1996.
Concerns about energy conservation and air quality have led to increasing
recognition of the advantages of natural gas as a heating fuel, including
its abundance and clean burning characteristics. Use of natural gas for
home heating has been increasing in the United States. According to the
Census Bureau, the share of new houses heated with natural gas remained at
67%, the same as in 1994, but sales of gas fireplaces have increased in
recent years relative to those of traditional wood burning fireplaces.
Traditional wood burning fireplaces negatively affect both indoor and
outdoor air quality. In contrast, direct vent gas fireplaces draw air for
combustion from outdoors (through the double wall venting system) and
feature sealed glass doors that reduce indoor air contamination. In the
past, SDV products have not been sold into the traditional masonry and
manufactured fireplace market. The recent trend from wood to gas fireplaces
is viewed as a significant opportunity for SDV's gas venting products.
<PAGE>
Business Strategy
The Company designs, manufactures and sells products that are of high
quality and performance, easy to use and cost-effective for customers. The
Company provides rapid delivery of its products and prompt engineering and
sales support. Based on its communications with customers, engineers,
architects, contractors and other industry participants, the Company
believes that its products have strong brand name recognition, and the
Company seeks to continue to develop the value of its brand names through a
variety of strategies. These operating strategies are customer-driven.
Information provided by customers has led to the development of many of the
Company's products, and the Company expects that customer needs will
continue to shape the Company's product development, marketing and
services.
Specification in architects' and engineers' plans and drawings generally
determines which products will be used for particular purposes and
therefore is key to the use of Simpson Strong-Tie's products in
construction projects. SST encourages architects and engineers to specify
the installation of SST's products in projects they design and supervise,
and encourages acceptance of SST's products by construction contractors.
The Company maintains frequent contacts with architects, engineers and
contractors, as well as private organizations that provide information to
building code officials, both to inform them regarding the quality, proper
installation, capabilities and value of the Company's products and to
update them about product modifications and new products that may be useful
or needed. SST sponsors seminars to inform architects, engineers and
building officials on appropriate use and proper installation of SST's
products.
The Company sells its products through its four primary channels; dealer
distributors, contractor distributors, home centers, and OEM relationships.
The Company regularly evaluates its distribution coverage and service
levels provided by its distributors and from time to time modifies its
distribution strategy and implements changes to address weaknesses and
opportunities. The Company has various promotions and other programs to
evaluate distributor product mix and to encourage distributors to add to
their product offerings Company products that complement that mix and their
markets.
Through its efforts to increase specifications by architects and engineers,
and through increasing the number of products sold to particular
contractors, the Company seeks to increase sales to distributors that serve
building contractors. The Company continuously seeks to expand the number
of contractors served by each distributor through such sales efforts as
demonstrations of product cost-effectiveness and information programs.
The Company intends to continue to increase penetration of the DIY markets
by solicitation of home centers. The Company's Salespeople and Retail
Specialists maintain on-going contact with home centers to provide timely
product availability. To satisfy specialized requirements of the home
center market, the Company has developed extensive bar coding and
merchandising aides and has concentrated a portion of its research efforts
into the development of DIY products. The Company's direct sales to home
centers increased nearly 19% from 1995 to 1996.
The Company works closely with manufacturers of engineered wood products
and OEMs in developing and expanding the application and sales of SST's
engineered wood connector products and SDV's gas, wood and pellet stove
venting products. SST has relationships with several of the largest
manufacturers of engineered wood products, and SDV has OEM relationships
with several major gas fireplace and gas stove manufacturers.
The Company is expanding its established facilities outside California to
increase its presence and sales in markets east of the Rocky Mountains.
During the last five years, the Company has expanded or is planning to
expand nearly all of its manufacturing and warehouse facilities. Sales in
the 37 states east of the Rocky Mountains grew approximately 34% from 1994
to 1996 and represented approximately 49% of the Company's 1996 domestic
sales. In the last three years, SST has commenced manufacturing in England,
opened a warehouse facility in Western Canada and made an equity investment
in Germany. Subsequent to December 31, 1996, SST has also purchased the
remaining equity of Patrick Bellion, S.A. in France and acquired the
Isometric Group in Eastern Canada, The European investments are intended to
establish a presence in the European Community through companies with
existing customer bases and through servicing U.S.-based customers
operating there. The Company intends to continue to pursue and expand
operations outside the United States.
The Company's long-term strategy is to develop, acquire or invest in
product lines or businesses that complement the Company's existing product
lines, that can be marketed through its existing distribution channels,
that might benefit from use of the Simpson Strong-Tie and Simpson Dura-Vent
brand names, and that are responsive to needs of the Company's customers.
<PAGE>
Simpson Strong-Tie
Overview
Connectors produced by SST typically are steel devices that are used to
strengthen, support and connect joints in wood-frame construction. These
products enhance the safety and durability of the structures in which they
are installed and can save time and labor costs for the contractor. SST's
connector products increase structural integrity and improve structural
resistance to seismic, wind and other forces. Applications range from
building framing to deck construction to DIY projects. SST produces and
markets more than 1,300 standard connector products in addition to products
that it manufactures to custom specifications requested by architects and
engineers.
In the United States, connector usage developed faster in the West than
elsewhere due to the low cost and abundance of timber and to local
construction practices. Increasingly, the market has been influenced both
by a growing awareness that the devastation caused by seismic, wind and
other disasters can be reduced through improved building codes and
construction practices and by environmental concerns that contribute to the
increasing cost and reduced availability of wood. Most SST products are
listed by recognized building standards agencies as complying with model
building codes and are specified by architects and engineers for use in
projects they are designing or supervising. The engineered wood products
industry is developing in response to concerns about the availability of
wood, and the Company believes that SST is the leading supplier of
connectors for use with engineered wood products.
Products
Simpson Strong-Tie is a recognized brand name in the markets it serves.
Over one quarter of SST's 1996 revenues are derived from products that are
protected by patents. SST manufactures and markets three primary categories
of connector products: wood-to-wood, wood-to-concrete and wood-to-masonry.
In addition, Simpson Strong-Tie manufactures a line of connectors for steel
frame construction, the demand for which is likely to increase if the cost
of steel frame construction declines relative to the cost of wood frame
construction. SST also markets specialty screws and nails for proper
installation of certain of its connector products. For tying wood members
to the foundation, SST has designed and currently markets a line of anchor
bolts and the associated parts for aligning the anchor bolts, as well as
threaded rod, epoxy and mechanical anchors, which have seismic, retrofit
and remodeling applications for both new construction and DIY markets.
Almost all of Simpson Strong-Tie's products are listed by recognized model
building code agencies. To achieve such listings, SST conducts extensive
product testing, which is witnessed and certified by independent testing
engineers. The tests also provide the basis for publication of load ratings
for SST structural connectors, and this information is used by architects,
engineers, contractors and homeowners. The information is useful across the
range of applications of SST's products, from the deck being constructed by
a homeowner to a multistory structure being designed by an engineer in an
earthquake zone.
Simpson Strong-Tie manufactures connector products specifically designed
for use with engineered wood products, such as wood I-joists. With
increased timber costs and reduced availability of trees suitable for
making traditional solid sawn lumber, construction with engineered wood
products has increased substantially in the last three years. Over the same
period, SST's revenues from sales of engineered wood connectors through
dealer and contractor distributors and engineered wood product
manufacturers has also increased significantly.
New Product Development
Simpson Strong-Tie commits substantial resources to engineering and new
product development. The majority of SST's products have been developed
through SST's internal research and development program. Of the 64 U.S. and
nine foreign patents that SST owns, 55 cover products that SST currently
manufactures and markets. SST typically develops ten to 15 new products
each year. SST's research and development expense for the three years ended
December 31, 1996, 1995 and 1994, was $1,025,000, $922,000 and $713,000,
respectively. As part of the new product development process, SST
engineers, in cooperation with sales and marketing staff, meet regularly
with architects, engineers, building inspectors, code officials and
customers. Several new products derived from existing product lines are
developed annually. SST has developed, and in 1996 introduced, a line of
powder-coat painted shelf brackets to be marketed primarily to do-it-
yourselfers. The Company believes that existing distribution channels are
receptive to product line extensions, thereby enhancing SST's ability to
enter new markets.
<PAGE>
Sales and Marketing
Simpson Strong-Tie's sales and marketing programs are implemented through
SST's branch system. SST currently maintains branches in Northern and
Southern California, Texas, Ohio and England. Each branch is served by its
own sales force as well as manufacturing, warehouse and office facilities.
Each branch is responsible for a broad geographic area. Branch managers
have significant autonomy, which includes setting sales and marketing
strategies. Each branch is an independent profit center with a cash profit
sharing bonus program based on its own performance. At the same time, the
branches closely integrate their manufacturing activities to enhance
product availability. Branch sales forces are supported by sales and
marketing managers in the home office in Pleasanton, California. The sales
force maintains close working relationships with customers, develops new
business, calls on architects, engineers and building officials and
participates in a range of educational seminars.
Simpson Strong-Tie sells its products through an extensive distribution
system comprising dealer distributors supplying thousands of retail
locations nationwide, contractor distributors (primarily on the West
Coast), home centers (including more than 1,800 stores across the United
States), manufacturers of engineered wood products, and specialized
contractors such as roof framers. SST's sales in 1996 through dealer
distributors and contractor distributors amounted to approximately 60% of
its total sales. SST's DIY and dealer products are used to build projects
such as decks, patio covers and shelf and bench systems. In 1996, SST
completed an agreement with a Japanese trading partner to distribute its
products in Japan. SST has also received C-Mark equivalency clearance from
the Japanese building code authorities, which is expected to facilitate
acceptance of its products into that market. The Company believes that
SST's increasing diversification into new and growing markets has reduced
its vulnerability to construction industry cycles. In addition to its
branches, SST operates manufacturing and/or warehouse facilities in
Florida, Illinois, Canada and France.
Simpson Strong-Tie dedicates substantial resources to customer service.
Every year, SST produces numerous publications and point-of-sale marketing
aids to serve specifiers, distributors, retailers and users. These
publications include SST's general catalog, as well as various specific
catalogs, such as those for its epoxy products and the engineered wood and
plated truss industries. The catalogs and publications describe the
products and provide load and installation information. SST publishes a
newsletter, Connector Update, providing technical, installation and other
information, as well as publications addressing seismic and hurricane
conditions and the DIY market. To serve Spanish-speaking users in the U.S.
and elsewhere, SST employs bilingual salespeople and prints some of its
publications in the Spanish language. Additionally, SST publishes a catalog
in French for the Canadian market.
Simpson Strong-Tie's engineers not only design and test products, but also
provide engineering support for customers. This support might range from
the discussion of a load value in a catalog to testing a unique application
for an existing product. SST's sales force communicates with customers in
each of its marketing channels, through its publications, through seminars
and through frequent calls.
Based on its communications with customers, Simpson Strong-Tie believes
that its products are essential to its customers' businesses, and it is
SST's policy to ship products ordered within a few days of receiving the
order. Many of SST's customers are contractors that require rapid delivery
of needed products. Home centers and dealers also require superior service,
because of fluctuating demand. To satisfy these requirements, SST maintains
high inventory levels, has redundant manufacturing capability and some
multiple dies to produce the same parts, and maintains computer sales and
inventory control and forecasting capability throughout its nationwide
network of factories and warehouses. The Company also has special programs
for contractors intended to ensure the prompt and reliable manufacture and
delivery of custom products.
Simpson Strong-Tie believes that dealer and home center sales of SST
products are significantly greater when the bins and racks at large dealer
and home center locations are adequately stocked with appropriate products.
Various retailers carry varying numbers of different SST products and SST's
Retail Specialists are engaged in ongoing efforts to inform retailers about
other SST products that can be used in their specific markets and to
encourage them to add these products to better meet their customers' needs.
Achieving these objectives requires teamwork and significant inventory
commitments between SST and the distributors and retailers. Retail
Specialists are playing a significant role in keeping the racks full and
extending the product lines at the large dealer and home center level. They
help retailers order product, set up merchandising systems, stock shelves,
hold product seminars and provide SST with daily information that is used
to improve service and product mix.
<PAGE>
Simpson Dura-Vent
Overview
Simpson Dura-Vent's venting systems are used to vent gas furnaces and water
heaters, gas fireplaces and stoves, wood burning stoves and pellet stoves.
SDV's metal vents, chimneys and chimney liner systems exhaust the products
of combustion to the exterior of the building and have been designed for
ease of assembly and safe operation and to achieve a high level of
performance. SDV produces and markets several hundred different venting
products and systems.
In recent years, the abundant supply and clean burning characteristics of
natural gas have gained public recognition, resulting in increased market
share for gas appliances in the new construction and the appliance
replacement markets. SDV's sales of Type B Gas Vents grew in 1996, after a
decline of less than one percent during 1995. In addition, concern over
energy conservation and environmental air quality has resulted in increased
use of gas stoves and fireplaces rather than the traditional wood burning
stoves and fireplaces. As a result, new venting systems, such as Direct-
Vent, have been developed to address changes in appliance technology.
Simpson Dura-Vent's objective is to expand market share in all channels of
distribution, by entering expanding markets that address energy and
environmental concerns. SDV's strategy is to capitalize on its strengths in
new product development and its established distribution network and to
continue its commitment to superior quality and service. SDV operates
manufacturing and warehouse facilities in Northern California and
Mississippi.
Products
Simpson Dura-Vent is a leading supplier of double-wall Type B Gas Vent
systems, used for venting gas furnaces, water heaters, boilers and
decorative gas fireplaces. According to the Gas Appliance Manufacturers'
Association ("GAMA"), a total of 4.8 million gas water heaters and
2.9 million gas furnaces were sold in 1996. SDV believes that there is
significant potential in the gas fireplace market, because of the large
number of fireplaces sold in the new construction market, the relative ease
of installing side-wall vented gas fireplaces for the remodeling market and
the trend from wood to gas as a result of environmental concerns and ease
of operation.
Simpson Dura-Vent's Type B Gas Vent product line features heavy-duty
quality construction and a twist-lock design that provides for fast and
easy job-site assembly compared to conventional snap together designs. The
twist-lock design has broader applications and has been incorporated into
SDV's gas, pellet and direct vent product lines.
Simpson Dura-Vent has introduced a patented flexible vent connector,
Dura/Connect, for use between the gas appliance flue outlet and the
connection to the Type B Gas Vent installed in the ceiling. Dura/Connect
eliminates the difficult and time consuming process of cutting, crimping
and fitting galvanized steel vent connectors. Marketed to home centers and
hardware stores, Dura/Connect offers a simple twist, bend and connect
installation for water heaters and gas furnaces.
The wood stove industry has responded to air quality concerns with
substantial reductions in wood stove particulate emissions. In 1985,
Simpson Dura-Vent introduced Dura-Plus, a patented chimney system for use
with wood burning stoves. The Dura-Plus chimney is used with Environmental
Protection Agency ("EPA") approved wood stoves. The Dura-Plus safety valve
design provides enhanced fire safety in the event of a creosote chimney
fire. Dura-Plus chimney is available in kits, and is sold through retail
fireplace specialty shops and home centers. The growing gas fireplace
market has evolved into two basic types of fireplace: top-vent fireplaces
that are vented with the standard Type B Gas Vent and direct-vent
fireplaces that use a special double-wall venting system. Since 1993, SDV
has provided direct-vent gas fireplace venting systems under OEM contracts
with several major fireplace manufacturers in the United States. SDV's
direct-vent system is designed not only to exhaust the flue products, but
also to draw in outside air for combustion, an important feature in modern
energy-efficient home construction. The direct-vent gas fireplace systems
provide ease of installation, permitting horizontal through-the-wall
venting or standard vertical through-the-roof venting. Sales of Direct-Vent
have been robust. In 1996, the SDV expanded its Direct-Vent product line to
include both co-axial and co-linear direct vent systems for venting gas
stoves and gas inserts into existing masonry chimneys or existing factory-
built metal chimneys.
<PAGE>
Since early 1995, nearly all wood stove manufacturers have introduced
direct vent gas stoves. SDV has entered into OEM and distribution
relationships with several of these manufacturers to supply Direct Vent
venting products. In 1994, SDV introduced Direct Vent G.S., a decorative
direct vent system for venting free standing gas stoves. The recent trend
from wood to gas stoves, while increasing competition for wood and pellet
appliance venting products, is viewed as a significant opportunity for
SDV's gas venting products.
Sales and Marketing
Simpson Dura-Vent's sales organization consists of a director of sales and
marketing, a marketing communications manager, regional sales managers, and
independent representative agencies. Simpson Dura-Vent markets venting
systems for both gas and wood burning appliances through wholesale
distributors in the United States, Canada and Australia to the HVAC
(heating, ventilating and air conditioning) and PHC (plumbing, heating and
cooling) contractor markets, and to fireplace specialty shop distributors.
These customers sell to contractor and DIY markets. SDV also markets
venting products to home center and hardware store chains. SDV has entered
into OEM relationships with several major gas fireplace and gas stove
manufacturers, which SDV believes are leaders in the direct-vent gas
appliance market. Approximately 56% of SDV's sales in 1996 were through
HVAC and PHC distributors, with most of the balance through fireplace
specialty shop distributors, OEMs and home centers.
Simpson Dura-Vent responds to technological changes occurring in the
industry through new product development and has developed a reputation for
quality and service to its customers. To reinforce the image of quality,
SDV produces extensive sales support literature and advertising materials.
Recognizing the difficulty that customers and users may have in
understanding new, complex venting requirements, SDV publishes a venting
handbook to assist contractors, building officials and retail outlets with
the science of proper venting. Advertising and promotional literature has
been designed to be used by distributors and their customers, as well as
home centers and hardware chains.
Manufacturing Process
The Company has concentrated on making its manufacturing processes as
efficient as possible without sacrificing the flexibility necessary to
service the needs of its customers.
Simpson Strong-Tie has developed substantially automated manufacturing
processes. SST's innovative manufacturing systems and techniques have
allowed it to control manufacturing costs, even while developing both new
products and products that meet customized requirements and specifications.
SST's development of specialized manufacturing processes also has permitted
increased operating flexibility and enhanced product design innovation.
Simpson Strong-Tie is committed to helping people build safer structures
economically through the design, engineering and manufacturing of
structural connector and related products. To this end, SST has developed a
quality management system that employs numerous quality-control procedures,
such as computer-generated work orders, constant review of parts as they
are produced and frequent quality testing. In 1996, this quality management
system was registered under ISO 9001, an internationally recognized set of
quality-assurance standards. ISO registration is a significant asset in
doing business with European companies, and it is becoming increasingly
important to U.S. companies as well.
Most of SST's products are produced with a high level of automation, using
progressive dies run in automatic presses making parts from coiled sheet
steel often in excess of 100 strokes per minute. SST produces 500 million
product pieces per year. Over half of SST's products are individually bar
coded, particularly the products which are sold to home centers. SST has
significant press capacity and has some multiple dies for its high volume
products because of the need to produce the product close to the customer
and to provide backup capacity. The balance of production is accomplished
through a combination of manual, blanking and numerically controlled (NC)
processes which include robotic welders, lasers and turret punches. SST
believes it is the only manufacturer in the connector industry using NC
turret punches to manufacture a large variety of standard and special
products. This capability allows SST to produce products with little
redesign or set-up time, facilitating rapid turnaround for customers. New
tooling is also highly automated. Dies are designed and produced using
computer aided design (CAD) and computer aided machinery (CAM) systems.
CAD/CAM capability enables SST to create rapidly multiple dies and design
them to high standards. SST is constantly reviewing its product line to
reduce manufacturing costs and increase automation.
Simpson Dura-Vent's plants located in Vacaville, California, and Vicksburg,
Mississippi, have been equipped with automated manufacturing machinery,
including high-speed automatic pipe lines and automatic elbow lines. SDV
bar codes all of its standard products. SDV believes it has developed
rigorous quality control systems and has creatively designed products and
shipping containers that limit product damage.
Regulation
The Company is committed to helping people build safer structures
economically. The Company's products must conform to certain quality
standards governing their design, installation and performance.
Simpson Strong-Tie's product lines are subject to Federal, state, county,
municipal and other governmental and quasi-governmental regulations that
affect product design, development, testing, applications, marketing,
sales, installation and use. Most SST products are recognized by building
code and standards agencies. Agencies that recognize Company products
include the International Conference of Building Officials ("ICBO"),
Building Officials and Code Administrators International ("BOCA"), Southern
Building Code Congress International ("SBCCI"), The National Evaluation
Service, the City of Los Angeles, Dade County, Florida, and the California
Division of Architecture. These and other code agencies adopt various
testing and design standards and incorporate them into their related
building codes. For example, ICBO requirements are codified in the Uniform
Building Code. The Uniform Building Code generally applies to construction
in the Western United States. To be recognized by ICBO, SST products must
conform to Uniform Building Code requirements. SST considers this
recognition to be a significant marketing tool and devotes considerable
effort to obtaining appropriate approvals for its products. SST believes
that architects, engineers, contractors and other customers are less likely
to purchase structural products that lack the appropriate code approval or
acceptance, at least if code-accepted competitive products are available.
SST's management actively participates in industry related professional
associations to keep abreast of regulatory changes and to provide
information to regulatory agencies.
Simpson Dura-Vent operates under a complex regulatory environment that
includes appliance and venting performance standards related to safety,
energy efficiency and air quality. Gas venting regulations are contained in
the National Fuel Gas Code ("NFGC"), while safety and performance
regulations for wood burning appliances and chimney systems are contained
in a National Fire Protection Association standard ("NFPA 211"). Standards
for testing gas vents and chimneys are developed by testing laboratories
such as Underwriter's Laboratories ("UL") in compliance with the American
National Standards Institute.
Clean air standards for both gas and wood burning appliances are regulated
by the EPA. Energy efficiency standards are regulated by the Department of
Energy ("DOE") under the authority of the National Appliance Energy
Conservation Act. Minimum appliance efficiency standards might be adopted
that could negatively affect Type B Gas Vent sales. Although any standards,
if adopted, would probably be implemented over a period of years. While the
Company does not believe that the adoption of such standards is likely at
this time, if such standards were to be adopted, they could result in the
reduction or elimination of these sales, which could materially and
adversely affect SDV's and the Company's operating results and financial
condition.
The standards and regulations contained in the NFGC and NFPA 211 are
ultimately adopted by national building code organizations such as ICBO,
BOCA and SBCCI. In turn, the various building codes are adopted by local
municipalities, resulting in enforcement through the building permit
process. Safety, air quality and energy efficiency requirements are
enforced by local air quality districts and municipalities by requiring
proper UL, EPA and DOE labels on appliances and venting systems.
Competition
The Company faces a variety of competition in all of the markets in which
it participates. This competition ranges from subsidiaries of large
national corporations to small regional manufacturers.
<PAGE>
SST competes with numerous companies and its competitors generally are
privately held businesses. Most of the competitors tend to be more regional
than SST, but one distributes its products nationally. While price is an
important factor, SST competes primarily on the basis of high quality,
broad product line, technical support, service, field support and
innovative products.
The venting industry is highly competitive. Many of SDV's competitors have
greater financial and other resources than SDV. SDV's principal competitors
include the Selkirk Metalbestos Division of Eljer Industries Inc., American
Metal Products Co. (a subsidiary of Masco Corp.), Metal-Fab, Inc., Hart &
Cooley, Inc. and the Air Jet Division of General Products Co. The Company
believes that Metal-Fab, Inc., Hart & Cooley, Inc. and Air Jet tend to be
more regional than SDV, and that they have smaller shares of the national
market than SDV.
Raw Materials
The principal raw material used by the Company is steel, including
stainless steel, and is generally ordered to specific American Society of
Testing and Materials ("ASTM") standards. Other raw materials include
aluminum, aluminum alloys and ceramic and other insulation materials, which
are used by SDV, and cartons, which are used by both SST and SDV. The
Company purchases raw materials from a variety of commercial sources. The
Company's practice is to seek cost savings and enhanced quality by
purchasing from a limited number of suppliers. The loss of a major source
of raw materials might interrupt or delay the Company's manufacturing
operations, but the Company does not believe that any such interruption or
delay would be substantial, because all of the raw materials used by the
Company are available from other sources, and any such interruption would
be ameliorated by the Company's use of inventories of raw materials and
finished goods. The steel industry is highly cyclical and prices for the
Company's raw materials are influenced by numerous factors beyond the
Company's control, including general economic conditions, competition,
labor costs, import duties and other trade restrictions. If material cost
increases occur, the Company might not be able to increase its product
prices in corresponding amounts without materially and adversely affecting
its sales and profits. See "Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Patents and Proprietary Rights
The Company's subsidiaries own 76 U.S. and foreign patents, of which 58
cover products that they currently manufacture and market. Its subsidiaries
have filed ten U.S. and eight foreign patent applications that are
currently pending. These patents and patent applications cover various
design aspects of the subsidiaries' products as well as the processes used
in their manufacture.
The Company's subsidiaries are continuing to develop new potentially
patentable products, product enhancements and product designs. Although the
Company's subsidiaries do not intend to apply for additional foreign
patents covering existing products, the Company is developing an
international patent program to protect new products that its subsidiaries
may develop. The Company's ability to compete effectively with other
companies depends in part on its subsidiaries' ability to maintain the
proprietary nature of their technologies. Although the Company's
subsidiaries own patents in the United States and Canada, there can be no
assurance as to the degree of protection afforded by these patents, or the
likelihood that pending patent applications will be issued. Furthermore,
there can be no assurance that others will not independently develop the
same or similar technology, develop around the patented aspects of any of
the subsidiaries' products or proposed products, or otherwise obtain access
to the subsidiaries' proprietary technology.
The Company's subsidiaries have registered 49 trademarks in the U.S. and 30
in foreign countries, have nine trademark registration applications pending
in the U.S. and 22 such applications pending in foreign countries, and use
several other trademarks that they have not yet attempted to register.
Seasonality and Cyclicality
The Company's sales are seasonal, with peak sales activity normally
occurring in the second and third quarters. The fluctuation in sales
activity is attributable principally to the buying patterns of construction
contractors and retailers, which are influenced by weather conditions
affecting construction. More generally, the construction industry is
subject to significant volatility as a result of fluctuations in interest
rates, the availability of credit to builders and developers, inflation
rates and other economic factors and trends, none of which are within the
Company's control. The Company's recent revenue trends have not followed
the pattern of the construction industry, but either seasonal or cyclical
declines in commercial and residential construction may reduce the demand
for the Company's products. The Company cannot provide any assurance that
its business will not be adversely affected by future negative economic or
construction industry performance or that future declines in construction
activity or the demand for the Company's products will not have materially
adverse effects on the Company and its business and financial condition.
See "Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<PAGE>
Acquisitions and Strategic Investments
The Company's future growth, if any, may depend to a some extent on its
ability to penetrate new markets, both domestically and internationally.
See "Item 1 - Business - Business Strategy" and "Item 1 - Business -
Industry and Market Trends." Therefore, the Company may in the future
pursue acquisitions of product lines or businesses. Acquisitions involve
numerous risks, including difficulties in the assimilation of the
operations and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering
markets in which the Company has little or no direct prior experience, and
the potential loss of key employees of the acquired company. In addition,
future acquisitions by the Company may result in potentially dilutive
issuances of equity securities, the incurring of additional debt and
amortization expenses related to goodwill and intangible assets, which
could adversely affect the Company's profitability.
In addition, construction customs, standards, techniques and methods in
international markets differ from those in the United States. Laws and
regulations applicable in markets outside the United States are likely to
be unfamiliar to the Company and compliance may be substantially more
costly than the Company anticipates. As a result, it may become necessary
for the Company to redesign products or to invent or design new products in
order to compete effectively and profitably outside the United States or in
markets that are new to the Company in the United States. The Company has
only recently begun marketing outside the United States and expects that
significant time will be required for it to generate substantial sales or
any profits in Canadian, European and other markets.
Other significant challenges to conducting business in foreign countries
include, among other factors, local acceptance of the Company's products,
political instability, currency controls, changes in import and export
regulations, changes in tariff and freight rates, and fluctuations in
foreign exchange rates. There can be no assurance that the Company will be
able to penetrate these markets or that any such market penetration can be
achieved on a timely basis or profitably. If the Company is not successful
in penetrating these markets within a reasonable time, it will be unable to
recoup part or all of the significant investments it will have made in
attempting to do so.
In 1996, Simpson Strong-Tie International, Inc. purchased for approximately
$1.0 million the assets of the Builders Products Division of MiTek
Industries Ltd. ("MiTek") and entered into an agreement to supply MiTek
with connector products in the UK. In addition, during the first quarter of
1997 SST and its subsidiaries have also completed two other acquisitions.
The first is a purchase of three Canadian companies and a related U.S.
company, the Isometric Group, which manufacture and distribute a line of
mechanical anchors and related products. The acquisition price is
approximately $7.3 million plus an earnout based on future sales increases.
The second is the purchase, for approximately $1.7 million, of the
remaining 66% equity in Patrick Bellion, S.A., a French manufacturer of
connector products. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Sources of
Capital."
Environmental, Health, Safety and Regulatory Matters
The design, capacity and quality of most of the Company's products and
manufacturing processes are subject to numerous and extensive regulations
and standards promulgated by governmental, quasi-governmental and industry
organizations. Such regulations and standards are highly technical and
complex and are subject to frequent revision. The failure of the Company's
products or manufacturing processes to comply with any of such regulations
and standards could impair the Company's ability to manufacture and market
its products profitably and could materially and adversely affect the
Company's business and financial condition.
<PAGE>
The Company is subject to environmental laws and regulations governing
emissions into the air, discharges into water, and generation, handling,
storage, transportation, treatment and disposal of waste materials. The
Company is also subject to other Federal and state laws and regulations
regarding health and safety matters. The Company's manufacturing operations
involve the use of solvents, oils and other materials that are regarded as
hazardous or toxic and the use of complex and heavy machinery and equipment
that can pose severe safety hazards if not properly and carefully used.
Some of the Company's products also incorporate materials that are
hazardous or toxic in some forms (such as materials used in the galvanizing
process). The Company believes that it has obtained all material licenses
and permits required by environmental, health and safety laws and
regulations in connection with the Company's operations and that its
policies and procedures comply in all material respects with existing
environmental, health and safety laws and regulations. It is possible that
additional licenses or permits may be required, that the Company's policies
and procedures might not comply in all respects with all such laws and
regulations or even if they do, that employees might fail or neglect to
follow them in all respects, and that the Company's generation, handling,
use, storage, transportation, treatment or disposal of hazardous or toxic
materials, machinery and equipment might cause injury to persons or to the
environment. In addition, properties occupied by the Company may be
contaminated by hazardous or toxic substances and remedial action may be
required at some time in the future. It is also possible that materials in
certain of the Company's products could cause injury or sickness. Relevant
laws and regulations could also be changed or new ones could be adopted
that require the Company to obtain additional licenses and permits and
cause the Company to incur substantial expense. Any such event or
contamination could have a material adverse effect on the Company and its
liquidity, results of operations and financial condition.
At the Company's facilities in San Leandro, California, the Company found
several underground tanks and soil contamination resulting from activities
of one or more prior owners. The Company removed the tanks and took
remedial action to correct the soil contamination in accessible areas,
although the Company did not excavate contaminated soil beneath a 7,000
square foot building and has not conducted ground water monitoring. These
actions were fully reported to cognizant authorities, which have not
required further action. The Company may be required at some future time to
take additional monitoring or remedial action at this site, but the Company
believes that the expense of taking such action is not likely to be
material.
Hydrocarbon contamination was found at the Company's leased facility in
Vicksburg, Mississippi. The Company has been informed by the owner,
Vicksburg Investors (see "Item 2 - Properties"), that appropriate remedial
action was taken by a prior owner pursuant to an agreement with the current
owner and that further remedial action is not required at this time.
The capital costs of future compliance with laws and regulations affecting
the ongoing operations of the Company's manufacturing facilities cannot be
reasonably estimated at this time, but based on available information and
the Company's understanding of environmental laws as currently interpreted
and enforced, the Company believes that any such costs are not likely to
have a material adverse effect on the Company's liquidity, results of
operations or financial position.
The Company has not been identified as a potentially responsible party
under the Federal Superfund law or comparable state laws in connection with
its shipments of waste to off-site disposal locations.
Product Liability
The Company has designed most of its standard products and expects that it
will continue to do so. The Company employs engineers and designers to
design and test its products and to supervise its quality control. The
Company has on occasion found manufacturing flaws in its products. In
addition, the Company purchases from third party suppliers raw materials,
principally steel, and finished goods that are produced and processed by
other manufacturers. The Company also has on occasion found flaws in raw
materials and finished goods produced by others, some of which flaws have
not been apparent until after the products were installed by customers.
Many of the Company's products are integral to the structural soundness or
fire safety of the buildings in which they are used. As a result, if any
flaws exist in the Company's products (as a result of design, raw material
or manufacturing flaws) and such flaws are not discovered and corrected
before the Company's products are incorporated into structures, the
structures could suffer severe damage (such as collapse or fire) and
personal injury could result. To the extent that any damage or injury is
not covered by the Company's product liability insurance, and if the
Company were to be found to have been negligent or otherwise culpable, the
Company and its business and financial condition could be materially and
adversely affected by the necessity to correct such damage and to
compensate persons who might have suffered injury. Furthermore, in the
event that such a flaw is discovered after installation but before any
damage or injury occurs, the Company may be liable for any costs necessary
to retrofit the affected structures.
<PAGE>
Manufacturing Capacity
Many of the Company's current and planned manufacturing facilities are
located in geographic regions that have experienced major natural
disasters, such as earthquakes, floods and hurricanes. For example, the
1989 Loma Prieta earthquake in Northern California destroyed a freeway and
caused other major damage within a few miles of the Company's facilities in
San Leandro, California, and the 1994 Northridge earthquake in Southern
California, destroyed several freeways and numerous buildings in the region
in which the Company's facilities in Brea are located. The Company does not
carry earthquake insurance. Other insurance that it carries is limited and
not likely to be adequate to cover all of the Company's resulting costs,
business interruption and lost profits in the event of a major natural
disaster in the future. If a natural disaster were to render one or more of
the Company's manufacturing facilities totally or partially unusable,
whether or not covered by insurance, the Company's business and financial
condition could be materially and adversely affected.
Employees
As of February 28, 1997, the Company had 1,139 full-time employees, of whom
804 were hourly employees and 335 were salaried employees. A significant
number of the Company's employees at two of the Company's major
manufacturing facilities are represented by labor unions and are covered by
collective bargaining agreements that will expire between 1998 and 2000.
The Company believes its overall compensation and benefits for the most
part exceed the industry averages and that its relations with its employees
are good. A significant work stoppage or interruption could, however, have
a material and adverse effect on the Company and its business and financial
condition. See "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<PAGE>
ITEM 2. PROPERTIES.
Properties
The Company maintains its corporate offices in Pleasanton, California, and
other offices, manufacturing and warehouse facilities elsewhere in
California and in Texas, Ohio, Florida, Mississippi, Illinois, British
Columbia and England. As of February 28, 1997, the Company's facilities
were as follows:
<TABLE>
<CAPTION>
Approximate
Square Owned or Lease
Location Footage Leased Lessee Expires Function
- --------------------------- ----------- ---------- -------- ------- --------------------------
<S> <C> <C> <C> <C> <C>
Pleasanton, California 14,500 Leased Holdings 2000 Office
San Leandro, California 47,100 Leased(1) SST 2001 Office, Manufacturing and
Warehouse
San Leandro, California 71,000 Owned Office, Manufacturing and
Warehouse
San Leandro, California 57,000 Leased(2) SST 2001 Manufacturing and
Warehouse
San Leandro, California 48,000 Leased SST 2001 Office and Warehouse
San Leandro, California 27,000 Owned Manufacturing and
Warehouse
San Leandro, California 62,900 Leased SST 1997 Warehouse
Brea, California 50,700 Owned Office, Manufacturing and
Warehouse
Brea, California 78,000 Owned Office and Warehouse
Brea, California 30,500 Owned(3) Office, Manufacturing and
Warehouse
Fullerton, California 6,600 Leased Company 1997 Warehouse
McKinney, Texas 84,300 Owned Office, Manufacturing and
Warehouse
McKinney, Texas 117,100 Owned Office and Warehouse
Columbus, Ohio 153,500 Leased(4) SST 2005 Office, Manufacturing and
Warehouse
Jacksonville, Florida 74,600 Leased SST 2001 Office and Warehouse
Addison, Illinois 24,000 Leased SST(5) 2000 Office, Manufacturing and
Warehouse
Addison, Illinois 10,200 Leased SST(5) 1998 Warehouse
Cannock, Staffordshire, 26,900 Leased SST(6) 2000 Office, Manufacturing and
England Warehouse
Chelmsford, 25,000 Leased SST(6) 2002 Office, Manufacturing and
England Warehouse
Vacaville, California 125,000 Leased(7) SDV 2003 Office, Manufacturing and
Warehouse
Vacaville, California 120,300 Owned Office, Manufacturing and
Warehouse
Fontana, California 17,900 Leased SDV 1998 Warehouse
Vicksburg, Mississippi 172,000 Leased(8) SDV 2003 Office, Manufacturing and
Warehouse
Vancouver, British Columbia 6,000 Leased SST 1999 Warehouse
</TABLE>
- --------------------
(1) Lessor is Simpson Investment Company, a related party. See Note 10 to
the Consolidated Financial Statements contained elsewhere herein.
(2) Lessor is Doolittle Investors, a related party. See Note 10 to the
Consolidated Financial Statements contained elsewhere herein.
(3) This property was purchased by the Company from a third party lessor
in January 1997.
(4) Lessor is Columbus Westbelt Investment Company, a related party. See
Note 10 to the Consolidated Financial Statements contained elsewhere
herein.
(5) Lessee is Ackerman Johnson Fastening Systems, Inc., a wholly-owned
subsidiary of SST.
(6) Lessee is Simpson Strong-Tie International, Inc., a wholly-owned
subsidiary of SST.
(7) Lessor is Vacaville Investors, a related party. See Note 10 to the
Consolidated Financial Statements contained elsewhere herein.
(8) Lessor is Vicksburg Investors, a related party. See Note 10 to the
Consolidated Financial Statements contained elsewhere herein.
The Company's manufacturing facilities are equipped with specialized
equipment and use extensive automation. The Company considers its existing
and planned facilities to be suitable and adequate for its operations as
currently conducted and as planned through 1997. The manufacturing
facilities currently are being operated with one full shift and at most
plants with at least a partial second shift. The Company anticipates that
it may require additional facilities in 1997 and 1998 or thereafter to
accommodate its growth.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings and other matters
arising in the normal course of business. In the opinion of management,
none of such matters when ultimately resolved will have a material adverse
effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock has been traded on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol "SMCO" since the Company's
initial public offering on May 26, 1994. The high and low closing prices
set forth below are as reported on the Nasdaq Stock Market for the periods
indicated.
<TABLE>
<CAPTION>
Market Price
Quarter High Low
-------- --------
<S> <C> <C>
1996
Fourth............................. $ 24 $ 19 3/4
Third.............................. 21 18 1/2
Second............................. 20 3/4 15 1/8
First.............................. 15 3/4 13
1995
Fourth............................. $ 15 3/8 $ 11 1/2
Third.............................. 12 1/2 11 5/8
Second............................. 12 1/8 9 1/2
First.............................. 11 1/8 9 3/8
</TABLE>
As of February 28, 1997, there were 231 holders of record of the Company's
common stock.
The Company currently intends to retain its future earnings, if any, to
finance operations, fund internal growth and repay outstanding debt, and
does not anticipate paying cash dividends on the common stock for the
foreseeable future. Future dividends, if any, will be determined by the
Company's Board of Directors, based on the Company's earnings, cash flow,
financial condition and other factors deemed relevant by the Board of
Directors. In addition, existing loan agreements require the Company to
maintain Tangible Net Worth of $50.0 million plus 50% of net profit after
taxes for each fiscal year ending after December 31, 1996. This requirement
may limit the amount that the Company may pay out as dividends on the
common stock. As of December 31, 1996, the Company had a Tangible Net Worth
of $99.9 million.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial information
with respect to the Company for each of the five years ended December 31,
1996, 1995, 1994, 1993, and 1992, derived from the audited Consolidated
Financial Statements of the Company, the most recent three years of which
appear elsewhere herein. The data presented below should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto and "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands, except --------------------------------------------------------
per share data) 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales $202,409 $167,958 $151,290 $113,923 $ 98,106
Cost of sales 124,394 109,368 96,984 72,387 65,342
-------- -------- -------- -------- --------
Gross profit 78,015 58,590 54,306 41,536 32,764
Selling expense 20,104 17,110 14,714 12,137 11,239
General and administrative expense 25,036 18,512 18,608 14,156 10,449
Compensation related to stock plans 180 61 6,909 693 120
-------- -------- -------- -------- --------
Income from operations 32,695 22,907 14,075 14,550 10,956
Interest (income) expense, net (595) (142) 559 997 1,113
-------- -------- -------- -------- --------
Income before income taxes
and minority interest 33,290 23,049 13,516 13,553 9,843
Provision for income taxes 13,569 8,927 8,098 5,517 3,762
Minority interest - - (33) 66 23
-------- -------- -------- -------- --------
Net income $ 19,721 $ 14,122 $ 5,451 $ 7,970 $ 6,058
======== ======== ======== ======== ========
Net income per share of common stock $ 1.68 $ 1.23 $ 0.51 $ 0.89 $ 0.69
======== ======== ======== ======== ========
Dividends per share of common stock $ - $ - $ - $ .055 $ .103
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital $ 70,676 $ 51,984 $ 44,127 $ 24,526 $ 19,667
Net plant, property and equipment 28,688 26,420 20,843 13,551 12,530
Total assets 122,521 96,642 80,311 58,325 44,558
Total debt - 20 - 14,998 12,306
Total liabilities 20,224 15,089 13,789 25,487 19,312
Total shareholders' equity 102,297 81,553 66,522 32,535 25,123
</TABLE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1996 1995
-------------------------------------------- --------------------------------------------
(Dollars in thousands, Fourth Third Second First Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 50,063 $ 57,129 $ 51,760 $ 43,457 $ 43,251 $ 47,070 $ 41,862 $ 35,775
Cost of sales 30,088 34,441 31,509 28,356 29,378 29,974 25,980 24,036
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit 19,975 22,688 20,251 15,101 13,873 17,096 15,882 11,739
Selling expense 5,202 4,929 5,463 4,510 5,235 4,002 4,014 3,859
General and
administrative expense 6,648 7,034 6,225 5,128 4,019 5,472 5,186 3,834
Compensation related to
stock plans 180 - - - 61 - - -
-------- -------- -------- -------- -------- -------- -------- --------
Income from operations 7,945 10,725 8,563 5,463 4,558 7,622 6,682 4,046
Interest (income) expense, net (269) (175) (97) (54) (65) (22) 12 (65)
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 8,214 10,900 8,660 5,517 4,623 7,644 6,670 4,111
Provision for income taxes 3,316 4,507 3,492 2,254 1,531 2,917 2,777 1,702
-------- -------- -------- -------- -------- -------- -------- --------
Net income $ 4,898 $ 6,393 $ 5,168 $ 3,263 $ 3,092 $ 4,727 $ 3,893 $ 2,409
======== ======== ======== ======== ======== ======== ======== ========
Net income per share of
common stock $ 0.41 $ 0.54 $ 0.44 $ 0.28 $ 0.27 $ 0.41 $ 0.34 $ 0.21
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following is a discussion and analysis of the consolidated financial
condition and results of operations for the Company for the years ended
December 31, 1996, 1995 and 1994, and of certain factors that may affect
the Company's prospective financial condition and results of operations.
The following should be read in conjunction with the Consolidated Financial
Statements and related Notes appearing elsewhere herein.
OVERVIEW
During the three-year period ended December 31, 1996, net sales of the
Company increased 33.8% from $151.3 million in 1994 to $202.4 million in
1996. The increase in sales resulted principally from increased geographic
distribution and a broadening of the Company's customer base and product
lines. Sales increased from 1994 to 1996 in all regions of the United
States, with above average rates of growth in the Midwestern and
Northeastern markets. Expansion into overseas markets also contributed to
the sales growth over the last three years. Do-it-yourself ("DIY"), seismic
and high-wind products, and engineered wood related product sales increased
faster than the Company's other core products, as did sales from other
recently introduced products. In particular, SDV's Direct-Vent products, a
double walled venting system sold both to manufacturers and through
distributors, contributed significantly to SDV's sales. In addition, sales
of SST's epoxy products has experienced strong growth since 1994. During
the year ended December 31, 1996, gross profit margin increased to 38.5%,
after decreasing from 35.9% in 1994 to 34.9% in 1995. The increase in 1996
was due primarily to lower material costs, which came down after a
substantial increase in 1995. Income from operations as a percentage of
sales, before stock compensation charges, increased to 16.2% in 1996 from
13.9% in 1994, after a slight decrease in 1995.
Sales continue to be somewhat seasonal, with the second and third quarters
usually having higher sales and profits than the first and fourth quarters.
The Company's working capital needs are greatest during the second and
third quarters, due primarily to the need to maintain high levels of
inventory and accounts receivable resulting from increased sales and
seasonal promotions that allow customers extended payment terms during this
period. Such working capital historically has been provided by the
Company's credit facilities or available cash.
Cash generated from operating activities during the three years in the
period ended December 31, 1996, totaled approximately $47.6 million and was
used to finance most of the $32.7 million in capital expenditures,
acquisitions and investments during that same period. Working capital needs
increased substantially, primarily due to the higher levels of inventory
and accounts receivable necessary to support the growth in sales.
Acquisitions made during the past three years in the United Kingdom
continue to report losses. While sales there have more than doubled since
1994, current gross margins are substantially lower than the rest of the
Company's operations. During 1996, Simpson Strong-Tie International, Inc.,
a subsidiary of the Company, completed the purchase of additional assets in
the UK. In connection with this acquisition, the Company is attempting to
reduce its operating costs by consolidating all of its UK facilities into a
single location. As part of this consolidation, the Company wrote off
approximately $1.1 million of intangible assets associated with the
separate UK operations. The Company cannot predict whether or when its
European operation will generate profits. As the size of the Company's
foreign investments grows, its foreign currency translation exposure
increases.
RESULTS OF OPERATIONS-COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND
1995
Net Sales
Net sales in 1996 increased by 20.5% to $202.4 million from $168.0 million
in 1995. Net sales of Simpson Strong-Tie products increased 19.8% to $152.1
million in 1996 while sales of Simpson Dura-Vent products increased by
22.8% to $50.3 million in 1996. SDV accounted for 24.9% of the Company's
total net sales, up from 24.4% in 1995. The increase in net sales at both
SST and SDV were primarily due to volume increases, with a relatively small
increase in average prices. The increase in net sales was spread throughout
the United States but was particularly strong in the Northeastern region of
the country, primarily as a result of increased home center and dealer
distributor business. Sales in California, however, grew at a rate
substantially below the overall growth rate. The Company also had above
average growth in export sales, a small but steadily growing part of both
the connector and venting businesses. The sales growth rate of do-it-
yourself, epoxy and seismic products led Simpson Strong-Tie sales, and
sales of Direct-Vent products, now sold both to OEMs and through
distributors, continued to experience strong growth.
Gross Profit
Gross profit in 1996 increased 33.2% to $78.0 million from $58.6 million in
1995. Gross profit as a percentage of net sales increased to 38.5% in 1996
from 34.9% in 1995. The increase was primarily due to three factors. The
first factor was a substantial benefit attributable to the LIFO gain for
the year as compared to a LIFO loss in the prior year. Second, the
non-material component of cost of sales, which includes research and
development costs, direct and indirect labor, factory costs and shipping
and freight, decreased slightly as a percentage of sales primarily due to
the increased absorption of the fixed components of these costs resulting
from increased sales volume. Finally, raw material costs decreased somewhat
relative to 1995. Labor costs as a percentage of sales remained relatively
flat during 1996. Three of the Company's collective bargaining agreements
at two of its California facilities were renegotiated in 1995. These
agreements cover sheetmetal workers in Brea, California, and the Company's
tool and die craftsman in both Brea and San Leandro, California. These
three contracts were extended into 1998 and 1999. A fourth contract,
covering sheetmetal workers in San Leandro, which was due to expire in July
1997, was extended in 1996 and now expires in July 2000. If replacement
agreements are not reached prior to the expiration of these contracts, the
Company may experience a work stoppage or interruption that could have a
material and adverse effect on the Company and its business and financial
condition.
Selling Expense
In 1996, selling expense increased 17.5% to $20.1 million from $17.1
million in 1995. The increase was primarily due to higher spending for
advertising and sales promotion, a large portion of which was oriented
towards serving the retail business. The Company also hired several new
Retail Specialists to support the increased home center and DIY business
and added several sales people. In addition, the increased sales at Simpson
Dura-Vent resulted in proportionately higher commissions and other related
costs.
General and Administrative Expense
General and administrative expense increased 35.2% to $25.0 million in 1996
from $18.5 million in 1995. The increase was primarily due to higher cash
profit sharing, as a result of higher operating profit, and the write off
of intangible assets related to the Company's UK operations (see "Acquired
Operations" below). Also contributing to the increase in general and
administrative expense were increased personnel and overhead costs
resulting from the addition of administrative staff, including those at the
businesses acquired in the second half of 1995.
Interest (Income) Expense, net
The Company had interest income of $595,180 in 1996 as compared to $141,535
in 1995. The increase resulted from the increased cash and short-term
investment balances during the year.
Provision for Taxes
The Company's effective tax rate increased to 40.8% in 1996 from 38.7% in
1995. The lower 1995 tax rate was principally a result of the full
recognition of California investment tax credits on equipment purchased for
manufacturing and research and development.
Acquired Operations
In December 1996, Simpson Strong-Tie International, Inc. ("SSTI"), a
subsidiary of the Company, completed the purchase of the assets, including
$675,000 in equipment, of the Builders Products Division of MiTek
Industries Ltd. for approximately $1,040,000. In conjunction with the
purchase of the assets, SSTI also agreed to supply MiTek and its customers
with connector products. As a result of this acquisition, the Company
believes that additional manufacturing space is needed and has determined
that the consolidation of its UK facilities into a single location is
advisable. In connection with this consolidation, the Company wrote off
approximately $1.1 million of intangible assets associated with the
separate UK operations. The Company recorded after-tax net losses in its
European operations, including intercompany interest charges and the $1.1
million charge discussed above, of approximately $2.8 million in 1996
compared to after-tax net losses of $1.5 million in 1995. The losses were
primarily due to costs of depreciation on purchased capital equipment,
administrative and other overhead costs incurred related to the growing
operations. The Company expects these losses to continue through at least
1997.
RESULTS OF OPERATIONS-COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND
1994
Net Sales
Net sales in 1995 increased by 11.0% to $168.0 million from $151.3 million
in 1994. Net sales of Simpson Strong-Tie products increased 14.4% to $127.0
million in 1995 while sales of Simpson Dura-Vent products increased by 1.7%
to $41.0 million in 1995. SDV accounted for 24.4% in 1995 of the Company's
total net sales, down from 26.6% in 1994. The increase in net sales at SST
was primarily due to volume increases, with only a small increase in
average prices. SDV sales volume declined but average sales price increases
of approximately five percent resulted in an overall sales increase. The
increase in net sales was spread throughout the United States but was
particularly strong in the Northeastern region of the country, primarily as
a result of increased home center and dealer distributor business. The
Company also had above average growth in export sales, a small but steadily
growing part of both the connector and venting businesses. The sales growth
rate of seismic and do-it-yourself products led Simpson Strong-Tie sales,
and sales of Direct-Vent products for the OEM venting market continued to
experience strong growth. The increase in sales of Direct-Vent was largely
offset, however, by decreases in other Simpson Dura-Vent products.
Gross Profit
Gross profit in 1995 increased 7.9% to $58.6 million from $54.3 million in
1994. Gross profit as a percentage of net sales decreased to 34.9% in 1995
from 35.9% in 1994. The decrease was primarily due to higher raw material
costs. Material cost for galvanized and hot rolled sheet metal, the
Company's primary raw materials, increased compared to 1994. SDV
experienced an increase of more than 30% in aluminum sheet metal prices in
1995. Overall the Company's material costs as a percentage of net sales
increased slightly more than two percentage points in 1995. In the
aggregate, the non-material component of cost of sales, which includes
research and product development costs, direct and indirect labor, factory
costs and shipping and freight, increased at a rate that was slightly less
than the rate of increase in net sales.
Three of the Company's collective bargaining agreements at two of its
California facilities were renegotiated in 1995. These agreements cover
sheetmetal workers in Brea, California, and the Company's tool and die
craftsman in both Brea and San Leandro, California. These three contracts
were extended into 1998 and 1999. A fourth contract, covering sheetmetal
workers in San Leandro, which was due to expire in July 1997, was extended
in 1996 and now expires in July 2000. If replacement agreements are not
reached prior to the expiration of the contracts, the Company may
experience a work stoppage or interruption that could have a material and
adverse effect on the Company and its business and financial condition.
Selling Expense
In 1995, selling expense increased 16.3% to $17.1 million from $14.7
million in 1994. The increase was due primarily to higher spending for
advertising and sales promotion, a large part of which was focused on the
enhancement of retail displays and product packaging. The Company also
hired several new Retail Specialists to better support the increased home
center and DIY business and added other key marketing personnel.
General and Administrative Expense
General and administrative expense decreased slightly to $18.5 million in
1995 from $18.6 million in 1994. The decrease was driven by lower expected
losses on delinquent accounts and lower professional service costs. The
decrease was partially offset by increased personnel and overhead costs as
a result of the addition of administrative staff, including those at the
businesses acquired in the second half of 1995.
Interest (Income) Expense, net
The Company had interest income of $141,535 in 1995 as compared to interest
expense of $559,249 in 1994. This increase is primarily due to the
repayment of the Company's debt with proceeds from the initial public
offering in the second quarter of 1994 and the investment of excess cash in
short-term instruments.
Provision for Taxes
The Company's effective tax rate decreased from 59.9% in 1994 to 38.7% in
1995 primarily due to the nondeductability of approximately $6.4 million of
the 1994 stock compensation charge. In addition, California investment tax
credits on equipment purchased for manufacturing and research and
development contributed to the lower effective tax rate in 1995.
Acquired Operations
The Company recorded after-tax net losses in its European operations,
including intercompany interest charges, of approximately $1.5 million in
1995 compared to after-tax net losses of $858,000 in 1994. The losses were
primarily due to costs of new tooling, depreciation on purchased capital
equipment and selling and administrative and other overhead costs incurred
related to the new operations. The Company's metal shapes business,
acquired in late 1993, was integrated into its existing branch operation in
Columbus, Ohio, to eliminate redundant overhead costs.
LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents increased $12.9 million to $19.8 million at
December 31, 1996, from $6.9 million at December 31, 1995. The Company's
liquidity needs arise principally from working capital requirements,
capital expenditures and asset acquisitions. During the three years ended
December 31, 1996, the Company relied primarily on internally generated
funds, proceeds from the issuance of its Common Stock, and its credit
facilities to finance these needs. At December 31, 1996, working capital
was $70.7 million, as compared to $52.0 million at December 31, 1995. As of
December 31, 1996, the Company had no debt and had available to it unused
credit facilities of approximately $19.1 million.
The Company had cash flows from operating activities of $24.6 million,
$13.4 million and $9.6 million for 1996, 1995 and 1994, respectively. In
1996, cash was provided by net income of $19.7 million, noncash expenses,
such as depreciation and amortization, of $7.2 million and increases in
trade accounts payable, accrued profit sharing and other liabilities
totaling approximately $4.9 million. In addition, income taxes payable
increased by approximately $1.3 million. The Company's primary operating
cash flow requirements resulted from increased accounts receivable and
inventory levels as the Company's sales increased. In 1996, 1995 and 1994,
the Company used cash of $7.7 million, $5.6 million and $9.3 million,
respectively, to fund accounts receivable and inventory requirements. The
balance of the cash used in 1996 included increases and decreases in other
assets and liability accounts.
Cash used in investing activities was $12.3 million, $13.1 million and
$11.1 million for 1996, 1995 and 1994, respectively, primarily for capital
expenditures and investments. Capital expenditures decreased in 1996 to
$7.4 million from $10.0 million in 1995. Included in the 1995 expenditures
was the purchase of two buildings acquired for $3.5 million in cash. The
Company also invested in machinery and equipment for use in production
throughout the United States and in its European operating units. The
Company plans additional expansion in 1997 of its manufacturing capacity.
Consequently, the Company expects to incur substantially higher capital
expenditures in 1997. In January 1997, the Company completed the purchase,
for approximately $1.8 million in cash, of a 30,500 square foot building
which it had previously leased from an unrelated party. The Company also
invested approximately $3.9 million in a six-month U.S. Treasury Bill,
maturing in March 1997.
In addition to the capital expenditures made in 1996, Simpson Strong-Tie
International, Inc., a subsidiary of the Company, purchased the assets of
the Builders Products Division of MiTek Industries Ltd. for approximately
$1,040,000 in cash. During the first quarter of 1997, the Company and its
subsidiaries completed two other acquisitions. The first is an equity
purchase of three Canadian companies and a related U.S. company, the
Isometric Group, which manufacture and distribute a line of mechanical
anchors and related products. The acquisition price is approximately $7.3
million plus an earnout based on future sales increases. The second is the
purchase, for approximately $1.7 million, of the remaining 66% equity in
Patrick Bellion, S.A., a French manufacturer of connector products.
Currently, no other commitments or agreements are pending with respect to
any potential acquisitions. The Company is in discussions with several
companies in related businesses regarding possible acquisition or
investment by the Company. No assurance can be given whether any such
acquisition or investment will occur or, if so, regarding its effect on the
Company's business or operating results.
Financing activities provided net cash of $0.5 million 1996 primarily as a
result of the exercise of stock options by current and former employees of
the Company.
The Company believes that cash generated by operations and borrowings
available under its existing credit agreements, the majority of which have
been renewed through June 1998, will be sufficient for the Company's
working capital needs and planned capital expenditures through at least
1997. Depending on the Company's future growth, it may become necessary to
secure additional sources of financing.
INFLATION
Management believes that the effect of inflation on the Company has not
been material in recent years, as inflation rates have remained low.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
SIMPSON MANUFACTURING CO., INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements
Report of Independent Accountants................................ 24
Consolidated Balance Sheets at December 31, 1996 and 1995........ 25
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994............................... 26
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994................... 27
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994............................... 28
Notes to the Consolidated Financial Statements................... 29
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts.................. 40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Simpson Manufacturing Co.,
Inc.:
We have audited the consolidated financial statements and the financial
statement schedule of Simpson Manufacturing Co., Inc. and subsidiaries
listed in the index on page 23 of this Form 10-K. These financial
statements and the financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and the 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 misstatements. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Simpson
Manufacturing Co., Inc. and subsidiaries as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 31, 1997, except for Note 15
for which the date is March 11, 1997
<PAGE>
<TABLE>
<CAPTION>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 19,815,297 $ 6,955,788
Short-term investments 3,896,428 -
Trade accounts receivable, net 20,930,490 20,732,880
Inventories 42,247,777 34,471,250
Deferred income taxes 2,919,455 2,750,455
Other current assets 956,565 1,986,446
------------ ------------
Total current assets 90,766,012 66,896,819
Property, plant and equipment, net 28,687,635 26,420,004
Investments 1,382,578 1,357,457
Other noncurrent assets 1,684,548 1,967,779
------------ ------------
Total assets $122,520,773 $ 96,642,059
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ - $ 20,037
Trade accounts payable 10,063,828 7,375,014
Accrued liabilities 4,137,648 3,386,527
Accrued profit sharing trust 2,446,001 1,999,739
Accrued cash profit sharing and commissions 2,292,057 1,289,144
Accrued workers' compensation 809,272 842,125
Income taxes payable 341,626 -
------------ ------------
Total current liabilities 20,090,432 14,912,586
Deferred income taxes and
other long-term liabilities 133,333 176,783
------------ ------------
Total liabilities 20,223,765 15,089,369
------------ ------------
Commitments and contingencies (Note 10)
Shareholders' equity
Preferred Stock, without par value; authorized
shares, 5,000,000; issued and outstanding
shares, none - -
Common Stock, without par value; authorized
shares, 20,000,000; issued and outstanding
shares, 11,451,018 and 11,358,227 at December
31, 1996 and 1995, respectively 31,233,648 30,415,716
Retained earnings 70,862,906 51,142,268
Cumulative translation adjustment 200,454 (5,294)
------------ ------------
Total shareholders' equity 102,297,008 81,552,690
------------ ------------
Total liabilities and shareholders'
equity $122,520,773 $ 96,642,059
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $202,408,917 $167,957,955 $151,290,466
Cost of sales 124,394,086 109,368,027 96,983,987
------------ ------------ ------------
Gross profit 78,014,831 58,589,928 54,306,479
------------ ------------ ------------
Operating expenses:
Selling 20,104,344 17,109,325 14,714,528
General and administrative 25,035,874 18,512,003 18,607,985
Compensation related to stock plans
(Notes 2 and 14) 180,155 61,250 6,908,581
------------ ------------ ------------
45,320,373 35,682,578 40,231,094
------------ ------------ ------------
Income from operations 32,694,458 22,907,350 14,075,385
Interest (income) expense, net (595,180) (141,535) 559,249
------------ ------------ ------------
Income before income taxes and
minority interest 33,289,638 23,048,885 13,516,136
Provision for income taxes 13,569,000 8,927,000 8,098,000
Minority interest - - (32,628)
------------ ------------ ------------
Net income $ 19,720,638 $ 14,121,885 $ 5,450,764
============ ============ ============
Net income per common share:
Primary $ 1.68 $ 1.23 $ 0.51
Fully diluted $ 1.67 $ 1.22 $ 0.51
Number of shares outstanding
Primary 11,755,184 11,460,567 10,561,641
Fully diluted 11,838,658 11,532,872 10,569,055
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Notes
Common Stock Cumulative Receivable
---------------------------- Retained Translation from
Shares Amount Earnings Adjustment Shareholders Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 8,965,390 $ 3,647,912 $ 31,569,619 $ - $ (2,682,788) $ 32,534,743
Options granted below fair value - 193,892 - - - 193,892
Effect of 1994 reorganization 719,906 9,358,781 - - (1,607,264) 7,751,517
Payments received on notes - - - - 3,940,052 3,940,052
Common stock issued at $10.69
to $12.00 per share, net of
offering costs of $639,045 1,589,900 16,379,780 - - - 16,379,780
Loan to officer - - - - 350,000 350,000
Translation adjustment - - - (78,715) - (78,715)
Net income - - 5,450,764 - - 5,450,764
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 11,275,196 29,580,365 37,020,383 (78,715) - 66,522,033
Options exercised 82,231 749,156 - - - 749,156
Tax benefit of options
exercised - 78,395 - - - 78,395
Common stock issued at
$9.75 per share 800 7,800 - - - 7,800
Translation adjustment - - - 73,421 - 73,421
Net income - - 14,121,885 - - 14,121,885
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 11,358,227 30,415,716 51,142,268 (5,294) - 81,552,690
Options exercised 90,191 526,415 - - - 526,415
Tax benefit of options
exercised - 256,417 - - - 256,417
Common stock issued at
$13.50 per share 2,600 35,100 - - - 35,100
Translation adjustment - - - 205,748 - 205,748
Net income - - 19,720,638 - - 19,720,638
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 11,451,018 $ 31,233,648 $ 70,862,906 $ 200,454 $ - $102,297,008
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 19,720,638 $ 14,121,885 $ 5,450,764
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss (gain) on sale of capital
equipment (16,262) 11,558 3,427
Depreciation and amortization 7,197,718 5,291,466 3,972,907
Minority interest - - (32,628)
Deferred income taxes and other
long-term liabilities (212,450) 65,000 (678,000)
Equity in (income) losses of
affiliates (107,000) (24,554) 6,582
Noncash compensation related to
stock plans 35,100 61,250 6,771,873
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Trade accounts receivable, net (190,608) (2,916,665) (2,746,477)
Inventories (7,500,960) (2,655,355) (6,578,213)
Other current assets 278,047 (951,314) 300,124
Other noncurrent assets (800,840) (256,380) (213,702)
Trade accounts payable 2,688,814 665,976 1,714,800
Accrued liabilities 751,120 307,968 981,116
Accrued profit sharing trust 446,262 279,135 234,811
Accrued cash profit sharing
and commissions 1,002,913 (45,982) 383,477
Accrued workers' compensation (32,853) (55,000) (280,403)
Income taxes payable 1,349,876 (500,661) 322,485
------------ ------------ ------------
Total adjustments 4,888,877 (723,558) 4,162,179
------------ ------------ ------------
Net cash provided by operating
activities $ 24,609,515 $ 13,398,327 $ 9,612,943
------------ ------------ ------------
Cash flows from investing activities
Capital expenditures (7,364,326) (10,049,629) (9,939,384)
Proceeds from sale of equipment 57,787 22,225 43,212
Asset acquisitions, net of cash acquired (1,041,780) (2,414,114) (1,199,733)
Purchase of short-term investment (3,896,428) - -
Equity investments (11,637) (667,002) -
------------ ------------ ------------
Net cash used in investing
activities (12,256,384) (13,108,520) (11,095,905)
------------ ------------ ------------
Cash flows from financing activities
Issuance of debt - 20,037 5,589,363
Repayment of debt (20,037) - (20,587,801)
Issuance of Company's common stock 526,415 835,351 16,163,180
Collections on notes receivable from
shareholders - - 3,940,052
Collections on notes receivable from
subsidiaries'
minority shareholders - - 29,066
Loan to officer - - 350,000
------------ ------------ ------------
Net cash provided by financing
activities 506,378 855,388 5,483,860
------------ ------------ ------------
Net increase in cash and cash
equivalents 12,859,509 1,145,195 4,000,898
Cash and cash equivalents at beginning
of period 6,955,788 5,810,593 1,809,695
------------ ------------ ------------
Cash and cash equivalents at end of
period $ 19,815,297 $ 6,955,788 $ 5,810,593
============ ============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for
Interest $ 31,311 $ 35,045 $ 562,246
============ ============ ============
Income taxes $ 13,036,713 $ 8,961,714 $ 8,455,237
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Summary of Significant Accounting Policies
Nature of Operations
Simpson Manufacturing Co., Inc., through its subsidiaries Simpson
Strong-Tie Company Inc. and Simpson Dura-Vent Company, Inc. (collectively,
the "Company"), designs, engineers and manufactures wood-to-wood,
wood-to-concrete and wood-to-masonry connectors and venting systems for gas
and wood burning appliances and markets its products to the residential
construction, light industrial and commercial construction, remodeling and
do-it-yourself markets.
The Company operates exclusively in the building products industry segment.
The Company's products are sold primarily throughout the United States of
America. Revenues have some geographic market concentration on the west
coast. A portion of the Company's business is therefore dependent upon
economic activity within this region and market.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Simpson
Manufacturing Co., Inc., and its subsidiaries, Simpson Holdings, Inc.,
Simpson Dura-Vent Company, Inc. and Simpson Strong-Tie Company Inc.
Investments in less than 50 percent-owned affiliates are accounted for
using the equity method. All significant intercompany transactions have
been eliminated.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Short-term Investments
The Company considers investments with an original maturity of more than
three months but less than one year to be short-term investments, which are
categorized as "held-to-maturity" and carried at amortized cost, which
approximates market value.
Inventory Valuation
Inventories are valued at the lower of cost or market, with cost determined
under the last-in, first-out (LIFO) method, except in Europe, where
inventories of approximately $1,483,000 and $1,028,000 at December 31, 1996
and 1995, respectively, are valued using the first-in, first-out (FIFO)
method.
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Major renewals and
betterments are capitalized; maintenance and repairs are expensed on a
current basis. When assets are sold or retired, their costs and accumulated
depreciation are removed from the accounts; the resulting gains or losses
are reflected in the consolidated statements of operations.
Depreciation and Amortization
Depreciation of property, plant and equipment is provided for using
accelerated methods over the following estimated useful lives:
Factory machinery and equipment 5 to 10 years
Automobiles, trucks and other equipment 3 to 10 years
Office equipment 3 to 8 years
Buildings and site improvements 20 to 45 years
Leasehold improvements are amortized using the straight-line method over
the remaining term of the lease.
Product Research and Development Costs
Product research and development costs, which are included in cost of
sales, were charged against income as incurred and approximated $1,312,000,
$1,180,000 and $946,000 in 1996, 1995 and 1994, respectively.
Tooling Costs
Tool and die costs are included in product costs in the year incurred.
Income Taxes
Income taxes are calculated using an asset and liability approach. The
provision for income taxes includes federal and state taxes currently
payable and deferred taxes due to temporary differences between the
financial statement and tax bases of assets and liabilities. In addition,
the future tax benefits, are recognized to the extent that realization of
such benefits is more likely than not.
Foreign Currency Translation
The local currency is the functional currency of the Company's European
branches. Assets and liabilities denominated in foreign currency are
translated using the exchange rate on the balance sheet date. Revenues and
expenses are translated using average exchange rates prevailing during the
year. The translation adjustment resulting from this process is shown
separately as a component of shareholders' equity. Foreign currency
transaction gains or losses are included in the determination of net
income.
Reorganization
The Company completed a reorganization in March 1994 (see Note 2). All
references to the number of common shares and per common share amounts in
these consolidated financial statements have been restated to reflect the
revised capital structure.
Initial Pubic Offering
On May 25, 1994, the Company completed an initial public offering of
1,572,500 shares of its common stock at a price per share of $11.50. The
Company received proceeds of approximately $20.5 million from the offering,
including $4.3 million in notes receivable collected from its shareholders.
Net Income Per Common Share
Net income per common share is computed based upon the weighted average
number of common shares outstanding. Common equivalent shares, using the
treasury stock method, are included in the per-share calculations for all
periods when the effect of their inclusion is dilutive. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common and
common equivalent shares issued during the 12 month period prior to May 25,
1994, the date of the Company's initial public offering, have been included
in the calculation as if they were outstanding for all periods presented
using the treasury stock method. Included in these amounts are common stock
options granted or committed to be granted in 1993 and certain of the
shares issued in March 1994 in conjunction with the 1994 reorganization
discussed above.
The difference in primary and fully diluted net income per common share
results from the application of the treasury stock method for common
equivalent shares.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash in banks, short-term
investments in U.S. Treasury instruments and trade accounts receivable. The
Company maintains its cash in demand deposit and money market accounts held
primarily by two banks.
Adoption of Statements of Financial Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for Long-Lived Assets
and for Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121
requires that long-lived assets, certain identifiable intangibles, and
goodwill be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Impairment would be recorded if the expected future undiscounted cash flows
were less than the carrying amount of the asset. SFAS 121 is effective for
fiscal years beginning after December 15, 1995, with earlier adoption
permitted. The Company adopted SFAS 121 effective for its fiscal year ended
December 31, 1996.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), was issued and is
effective for the Company's 1996 fiscal year. The Company will continue to
account for employee stock options in accordance with APB Opinion No. 25
and, accordingly, will comply with the pro forma disclosure requirements of
SFAS 123.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1996
presentation with no effect on net income as previously reported.
2. 1994 Reorganization and Employee Benefits
In February and March 1994, a new holding company was organized and a
reorganization was effected to consolidate shareholdings into one entity.
The new holding company took the name Simpson Manufacturing Co., Inc. and
the former Simpson Manufacturing Co., Inc. was renamed Simpson Holdings,
Inc. The new holding company offered to all shareholders of Simpson
Holdings, Inc., Simpson Strong-Tie Company Inc. and Simpson Dura-Vent
Company, Inc. (other than Simpson Holdings, Inc. itself) the opportunity to
exchange their shares on the basis of agreed exchange ratios. As a result
of this transaction, the new holding company owns directly or indirectly
all of the outstanding stock of Simpson Holdings, Inc., Simpson Strong-Tie
Company Inc. and Simpson Dura-Vent Company, Inc.
Under the terms of this exchange, the Company issued to minority
shareholders of Simpson Strong-Tie Company Inc. and Simpson Dura-Vent
Company, Inc. 719,906 shares of common stock, which, at a value of $13 per
share, resulted in a gross increase to common stock of $9,358,781. In
connection with such exchange, notes receivable from the former minority
shareholders of the subsidiaries of $1,607,264, previously shown as a
reduction of minority interest, are presented as a reduction of
shareholders' equity. Thus, the net non-cash capital contribution as a
result of the exchange was $7,751,517. This capital contribution reflects
principally the excess value of the shares received over the original sales
price of the shares exchanged. Some of the shares exchanged were deemed to
be options. Under generally accepted accounting principles, the exchange of
shares for deemed options in subsidiaries is considered a modification of
such deemed options, and accordingly, the Company recorded a one-time,
non-cash compensation charge of $6,355,841 in 1994. The remaining
$1,395,676 represents the acquisition of fully paid minority shares of
which $1,095,414 was allocated to plant, property and equipment, and the
balance of $300,262 was reflected in the elimination of minority interest.
The agreed exchange ratio as between Simpson Holdings, Inc. and the newly
organized holding company used in the reorganization had the effect of a 14
for 1 split of the Simpson Holdings, Inc. common stock. Accordingly, all
references to the number of common shares and per common share amounts in
these consolidated financial statements have been restated to reflect the
revised capital structure as well as the authorized number of shares of
common stock of the new company (20,000,000). Additionally, the new holding
company has 5,000,000 shares of preferred stock authorized.
The Company recorded an aggregate pretax compensation charge in 1994 of
$6,908,581. In addition to the $6,355,841 non-cash compensation charge
referred to above, the aggregate charge reflected two additional elements.
In March 1994, the Company adopted a bonus plan, pursuant to which it
granted bonuses aggregating $358,848 in 1994. The bonuses were paid partly
by issuance of shares of its common stock and partly by payment in cash.
The noncash portion totaled $208,800, including 16,400 shares of common
stock issued to employees under this plan and 1,000 shares issued to a
consultant of the Company. Under this bonus plan, 800 shares committed to
be issued to employees in 1994 were issued in 1995. In addition, the
Company granted fully exercisable below market stock options under its
option plan to purchase up to an aggregate of 20,715 shares of common stock
at an exercise price of $3.64 per share, which resulted in a compensation
charge of $193,892.
The components of the 1994 pretax compensation charges are as follows:
Non-cash compensation charge related to
1994 Reorganization $ 6,355,841
1994 bonus plan compensation charge 358,848
1994 stock option compensation charge 193,892
------------
$ 6,908,581
============
3. Acquisitions
In December 1996, Simpson Strong-Tie International, Inc. ("SSTI"), a
subsidiary of the Company, purchased the assets, including $675,000 in
equipment, of the Builders Products Division of MiTek Industries Ltd.
("MiTek") for approximately $1,040,000. The remaining $365,000 of the
purchase price represents the excess of the purchase price over the fair
value of the assets acquired. In conjunction with the purchase of the
assets, SSTI also agreed to supply MiTek and its customers with connector
products. As a result of this acquisition, the Company believes that
additional manufacturing space is needed and has determined that the
consolidation of its UK facilities into a single location is advisable. In
connection with this consolidation, the intangible assets associated with
the MiTek acquisition, the Truline Group Ltd. ("Truline") acquisition in
1995, and the Stokes of Cannock Ltd. acquisition in 1994, were written off
during 1996.
In September 1995, the Company acquired the remaining 75% of the equity of
a U.S. company, Ackerman Johnson Fastening Systems, Inc., for $800,000 in
cash and $200,000 for an agreement not to compete for three years (see Note
7). In addition, in October 1995, the Company purchased for approximately
$1,450,000 in cash the assets of Truline, a manufacturer and distributor of
wall starter systems located in Chelmsford, England. Approximately
$1,100,000, $725,000 of which was written off during 1996, of the costs of
these two acquisitions represents the excess of the purchase price over the
fair value of the assets acquired and is being amortized over ten years
using the straight-line method. Both of these acquisitions have been
accounted for under the purchase method of accounting. The pro forma effect
on the Company's consolidated revenue, net income and net income per
share, as if these acquisitions occurred at the beginning of the period, is
immaterial in 1995 and 1994.
4. Trade Accounts Receivable
Trade accounts receivable consist of the following:
<TABLE>
<CAPTION>
At December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Trade accounts receivable $ 22,242,827 $ 21,832,701
Allowance for doubtful accounts (1,108,950) (931,321)
Allowance for sales discounts (203,387) (168,500)
------------ ------------
$ 20,930,490 $ 20,732,880
============ ============
</TABLE>
The Company sells product on credit and generally does not require
collateral.
5. Inventories The components of inventories consist of the following:
<TABLE>
<CAPTION>
At December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Raw materials $ 15,107,660 $ 13,424,828
In-process products 3,763,634 3,180,416
Finished products 23,376,483 17,866,006
------------ ------------
$ 42,247,777 $ 34,471,250
============ ============
</TABLE>
At December 31, 1996 and 1995, the replacement value of LIFO inventories
exceeded LIFO cost by approximately $1,186,000 and $4,178,000,
respectively.
6. Property, Plant and Equipment, net
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
At December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land $ 2,065,682 $ 2,065,682
Buildings and site improvements 10,379,901 10,379,901
Leasehold improvements 2,869,612 2,688,430
Machinery and equipment 46,311,624 40,393,578
------------ ------------
61,626,819 55,527,591
Less accumulated depreciation and amortization (35,916,354) (30,419,484)
------------ ------------
25,710,465 25,108,107
Capital projects in progress 2,977,170 1,311,897
------------ ------------
$ 28,687,635 $ 26,420,004
============ ============
</TABLE>
Included in property, plant and equipment at December 31, 1996 and 1995,
are fully depreciated assets with an original cost of approximately
$17,181,665 and $13,445,000, respectively. These fully depreciated assets
are still in use in the Company's operations.
7. Investments
In 1995, Simpson Strong-Tie Company Inc. acquired a 34% interest in Patrick
Bellion S.A., a French manufacturer and distributor of connector products,
for approximately $850,000 in cash. The Company has an option to purchase
the remaining 66% prior to May 1997, which the Company intends to exercise.
Approximately $503,000 of the aggregate acquisition cost represents the
excess of the purchase price over the net book value of the equity acquired
and is being amortized over ten years. This investment and the 49%
investment in Bulldog-Simpson GmbH acquired in 1993 have been accounted for
using the equity method. The Company's equity in the earnings or losses of
these companies was not material in any of the three years in the period
ended December 31, 1996.
In 1995, Simpson Strong-Tie Company Inc. acquired the remaining 75%
interest in Ackerman-Johnson Fastening Systems Inc. (see Note 3) and no
longer accounts for this investment under the equity method.
8. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
At December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Sales incentive and advertising allowances $ 1,470,656 $ 1,235,061
Vacation liability 1,062,569 924,177
Other 1,604,423 1,227,289
------------ ------------
$ 4,137,648 $ 3,386,527
============ ============
</TABLE>
9. Debt
The outstanding debt at December 31, 1996 and 1995, and the available
credit at December 31, 1996, consisted of the following:
<TABLE>
<CAPTION>
Available
on Credit Debt Outstanding
Facility at at December 31,
December 31, ----------------------------
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revolving line of credit, interest
at bank's reference rate (at December
31, 1996, the bank's reference rate was
8.25%), matures June 1997, commitment
fees are paid at the annual rate of
0.125% on the unused portion of the
facility $ 11,118,635 $ - $ -
Revolving term commitment, interest at
bank's prime rate (at December 31, 1996,
the bank's prime rate was 8.25%),
matures June 1997, commitment fees are
paid at the annual rate of 0.125% on
the unused portion of the facility 4,000,000 - -
Revolving line of credit, interest at
bank's prime rate (at December 31, 1996,
the bank's prime rate was 8.25%),
matures June 1997, commitment fees are
paid at the annual rate of 0.125% on
the unused portion of the facility 3,583,715 - -
Revolving line of credit, interest rate at
the bank's base rate of interest plus 2%,
(at December 31, 1996, the bank's base
rate of interest plus 2% was 8.00%),
matures June 1997 422,800 - 20,037
Standby letter of credit facilities 1,297,650 - -
------------ ------------ ------------
20,422,800 $ - $ 20,037
Less standby letters of credit issued
and outstanding (1,297,650)
------------
Net credit available $ 19,125,150
============
</TABLE>
The revolving lines of credit are guaranteed by the Company and its
subsidiaries. The Company has three outstanding standby letters of credit.
Two of these letters of credit, in the aggregate amount of $832,570, are
used to support the Company's self-insured workers' compensation insurance
requirements. These letters of credit mature in June 1997 and each have an
annual fee of 1.25% of the amount of the facility. The other one, in the
amount of $465,080 is used to support working capital needs of the
Company's European operations. It also matures in June 1997.
10. Commitments and Contingencies
Leases
Certain properties occupied by the Company are leased. The leases expire at
various dates through 2005 and generally require the Company to assume the
obligations for insurance, property taxes, and maintenance of the
facilities.
Some of the properties are leased from partnerships formed by certain
current and former Company shareholders, directors, officers and employees.
Rental expenses under these related party leases for the years ended
December 31, 1996, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Simpson Investment Company $ 185,100 $ 185,100 $ 185,100
Doolittle Investors 231,096 230,438 223,200
Vacaville Investors 437,640 437,640 478,428
Vicksburg Investors 329,017 322,289 302,534
Columbus Westbelt Investment Co. 581,064 418,525 351,600
McKinney Investors - 70,620 141,240
------------ ------------ ------------
$ 1,763,917 $ 1,664,612 $ 1,682,102
============ ============ ============
</TABLE>
Rental expense for 1996, 1995 and 1994 with respect to all other leased
property was approximately $1,170,000, $1,120,000 and $971,000,
respectively.
At December 31, 1996, minimum rental commitments under all noncancelable
leases are as follows:
1997 $ 3,183,392
1998 3,024,522
1999 2,981,187
2000 2,988,233
2001 2,455,194
Thereafter 3,922,723
------------
$ 18,555,251
============
Substantially all of these minimum rental commitments involve the related
parties described above, contain renewal options, and provide for periodic
rental adjustments based on changes in the consumer price index or current
market rental rates. During 1995, the lease between the Company and
Columbus Westbelt Investment Co. was amended to include additional building
and improvements and was extended ten years to 2005. Future rent
adjustments are based on prevailing market conditions at the time of the
adjustment.
Environmental
At two of the Company's operating facilities, evidence of contamination
resulting from activities of prior occupants has been discovered. The
Company took certain remedial actions at one facility in 1990 and has been
informed by the lessor of the other facility, Vicksburg Investors, that
appropriate remedial action has been taken. Accordingly, the Company does
not believe that these matters will have a material adverse effect on its
financial position or results of operations.
Litigation
The Company is involved in various legal proceedings and other matters
arising in the normal course of business. In the opinion of management,
none of such matters when ultimately resolved will have a material adverse
effect on the Company's financial position or results of operations.
11. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 11,989,000 $ 7,536,000 $ 6,981,000
State 2,353,000 1,526,000 1,795,000
Deferred (773,000) (135,000) (678,000)
------------ ------------ ------------
$ 13,569,000 $ 8,927,000 $ 8,098,000
============ ============ ============
</TABLE>
Reconciliations between the statutory federal income tax rate and the
Company's effective income tax rate as a percentage of income before income
taxes and minority interest are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 4.7% 5.0% 5.3%
Non-deductible compensation related
to stock plans - - 19.0%
Other 1.1% (1.3%) 0.6%
------ ------ ------
Effective income tax rate 40.8% 38.7% 59.9%
====== ====== ======
</TABLE>
The tax effects of the significant temporary differences that constitute
the deferred tax assets and liabilities at December 31, 1996, 1995 and
1994, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
Deferred tax assets:
<S> <C> <C> <C>
State tax $ 795,671 $ 533,943 $ 495,013
Compensation related to stock plans 165,967 246,514 260,777
Workers' compensation 89,657 101,815 122,210
Health claims 213,476 198,333 172,810
Vacation 422,392 367,379 330,546
Accounts receivable allowance 464,681 456,977 498,694
Inventory allowance 257,983 154,878 184,585
Sales incentive and advertising allowances 237,050 508,457 404,164
Other 272,578 182,159 203,656
---------- ---------- ----------
$2,919,455 $2,750,455 $2,672,455
========== ========== ==========
Deferred tax liabilities (assets):
Depreciation $ (255,683) $ (222,355) $ (216,878)
Goodwill amortization (545,068) 6,866 38,158
Other 174,255 238,706 212,503
---------- ---------- ----------
$ (626,496) $ 23,217 $ 33,783
========== ========== ==========
</TABLE>
No valuation allowance has been recorded for deferred tax assets for the
years ended December 31, 1996, 1995 and 1994, due to the Company's taxable
income in 1996 and prior years.
12. Profit Sharing and Pension Plans
The Company has four profit sharing plans covering substantially all
salaried employees and nonunion hourly employees. Two of the plans,
covering U.S. employees, provide for annual contributions in amounts the
Board of Directors may authorize, subject to certain limitations, but in no
event more than the amount permitted under the Internal Revenue Code as
deductible expense. The other two plans, covering the Company's European
employees, require the Company to make contributions ranging from three to
ten percent of the employee's compensation. The total cost for all profit
sharing plans for the years ended December 31, 1996, 1995 and 1994, was
approximately $2,469,000, $2,036,000 and $1,722,000, respectively.
The Company also contributes to various industry-wide, union-sponsored
defined benefit pension funds for union, hourly employees. Payments to
these funds aggregated approximately $667,000, $486,000 and $485,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
13. Related Party Transactions
The Chairman and the President and Chief Executive Officer of the Company,
who are directors and principal shareholders of the Company, also serve as
directors and officers of the Simpson PSB Fund (a charitable organization).
The Company contributed $50,000 to this organization in 1996.
In 1994, the Company spent $42,569 to purchase artwork from Barclay Simpson
Fine Arts Gallery for display in the Pleasanton headquarters. This Gallery
is owned and operated by Barclay Simpson, the Chairman of the Board and
majority shareholder of the Company.
During 1994, a loan to the Company's President and Chief Executive Officer
in the amount of $350,000 was repaid in full.
Refer to Note 10 for details of related party transactions involving
Company leases.
14. Stock Bonus and Stock Options Plans
The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized for its non-
qualified stock option plan as stock options granted under this plan have
an exercise price equal to 100% of the market price on the date of grant.
If the compensation cost for this plan had been determined based on the
fair value at the grant dates for awards consistent with the method of FASB
Statement 123, the pro forma effect on the Company's net income and
earnings per share in 1996 and 1995 would have been:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net Income as reported $ 19,720,638 $ 14,121,885
Pro forma 19,468,215 14,014,793
Earnings per share, as reported $ 1.68 $ 1.23
Pro forma 1.66 1.22
</TABLE>
The fair value of each option granted in 1996 and 1995 was estimated on the
date of grant using the Black-Sholes option-pricing model with the
following assumptions for 1996 and 1995, respectively: risk-free interest
rate of 5.5 percent for both years; dividend yield of zero percent for both
years; expected lives of 6.0 and 5.5 years; and volatility of 24.1 percent
for both years. The weighted average fair value of options granted during
1996 and 1995 were $8.51 and $4.72, respectively.
Under the terms of the 1994 Reorganization (see Note 2), employee
shareholders who had participated in the Company's terminated stock
purchase plans were granted options, exercisable at the initial public
offering price, to purchase the number of shares which they had sold in the
offering. Accordingly, the Company issued options to purchase 497,471
shares of the Company's common stock with an exercise price of $11.50 per
share. These options are fully vested and expire in the year 2001.
In 1994, the Company met some of its operating goals established for its
ongoing stock option plans, and accordingly options to purchase 95,000
shares at an exercise price of $10.25 per share and 500 shares at an
exercise price of $11.28 per share were granted to employees participating
in the plan. These options vest equally over a four-year period and expire
in the year 2002. Also, because the Company met its operating goals, the
Company granted to each of its four outside directors options to purchase
2,000 shares at an exercise price of $10.00 per share. These options are
fully vested at the date of grant and expire in the year 2002.
In 1995, the Company met most of its operating goals established for its
ongoing stock option plans, and accordingly options to purchase 92,250
shares at an exercise price of $13.50 per share were granted to employees
participating in the plan. These options will vest equally over a four-year
period and expire in the year 2003.
In 1996, the Company met most of its operating goals established for its
ongoing stock option plans, and accordingly options to purchase 108,250
shares at an exercise price of $23.00 per share and 500 shares at an
exercise price of $25.30 per share were to be granted to employees
participating in the plan. These options will vest equally over a four-year
period and expire in the year 2004. In addition, the Company granted to
each of its four outside directors options to purchase 500 shares at an
exercise price of $29.25 per share. These options are fully vested at the
date of grant and expire in the year 2004.
The following table summarizes the Company's stock option activity for the
three years ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Non-Qualified Stock Options Shares Price Shares Price Shares Price
- -------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 904,114 $ 9.22 895,429 $ 8.77 1,828,358 $ 1.46
Granted 110,750 23.12 92,250 13.50 621,686 9.93
Granted in 1994 Reorganization - - - - 612,546 2.63
Exercised (90,191) 5.84 (82,231) 9.11 (2,167,161) 1.98
Forfeited (10,939) 13.30 (1,334) 10.25 - -
---------- ---------- ----------
Outstanding at end of year 913,734 $ 11.18 904,114 $ 9.22 895,429 $ 8.77
========== ========== ==========
Options exercisable at year-end 694,779 736,740 791,929
</TABLE>
The following table summarizes information about the Company's stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ----------------------------
Weighted-
Number Average Weighted- Number Weighted-
Outstanding Remaining Average Outstanding Average
at December Contractual Exercise at December Exercise
Range of Exercise Prices 31, 1996 Life Price 31, 1996 Price
- ---------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$3.64 204,353 4.3 years $ 3.64 204,353 $ 3.64
$11.50 420,657 4.6 11.50 420,657 11.50
$10.00 to $11.28 98,382 5.1 10.23 47,871 10.21
$13.50 79,592 6.0 13.50 19,898 13.50
$23.00 to $29.25 110,750 7.0 23.12 2,000 29.25
------------ ------------
$3.64 to $29.25 913,734 5.0 years $ 11.19 694,779 $ 9.21
============ ============
</TABLE>
The Company also maintains a Stock Bonus Plan whereas employees who reach
ten years of continuous employment with the Company and who do not
participate in the Company's stock options plans, receive 100 shares of
common stock. In 1996 and 1995, the Company committed to issue 4,500 and
2,600 shares resulting in compensation charges of $180,155 and $61,250,
respectively. The shares are issued in the year following the year in which
they are earned.
15. Subsequent Events
In January 1997, the Company purchased for $1,825,000 in cash a building at
its Brea facility, which it had leased from a third party. The lease, which
was scheduled to expire in May 1997, was terminated with no additional cost
to the Company. The effect of this change on the Company's future minimum
rental commitments is to reduce the 1997 commitments by $62,662.
During the first quarter of 1997, the Company and its subsidiaries
completed two acquisitions. The first, is a purchase of three Canadian
companies and a related U.S. company, the Isometric Group, which
manufacture and distribute a line of mechanical anchors and related
products. The acquisition price is approximately $7.3 million plus an
earnout based on future sales increases. The second is the purchase, for
approximately $1.7 million, of the remaining 66% equity in Patrick Bellion,
S.A., a French manufacturer of connector products.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Column A Column B Column C Column D Column E
Additions
----------------------------
Charged Charged
Balance at to Costs to Other Balance
Beginning and Accounts - at End
Classification of Year Expenses Write-offs Deductions of Year
- ------------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for doubtful accounts $ 931,321 $ 607,354 $ - $ 429,725 $ 1,108,950
Allowance for obsolete inventory 389,611 60,000 270,994 71,724 648,881
Year Ended December 31, 1995
Allowance for doubtful accounts 1,269,587 443,000 - 781,266 931,321
Allowance for obsolete inventory 469,921 120,000 - 200,310 389,611
Year Ended December 31, 1994
Allowance for doubtful accounts 972,233 413,975 - 116,621 1,269,587
Allowance for obsolete inventory 365,037 104,884 - - 469,921
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this Item will be contained in the Registrant's
proxy statement for the annual meeting of shareholders to be held on May
15, 1997, to be filed not later than 120 days following the end of the
Registrant's fiscal year ended December 31, 1996, which will set forth
certain information with respect to the directors and executive officers of
the Registrant and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this Item will be contained in the Registrant's
proxy statement for the annual meeting of shareholders to be held on May
15, 1997, to be filed not later than 120 days following the end of the
Registrant's fiscal year ended December 31, 1996, which will set forth
certain information with respect to executive compensation of the
Registrant and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this Item will be contained in the Registrant's
proxy statement for the annual meeting of shareholders to be held on May
15, 1997, to be filed not later than 120 days following the end of the
Registrant's fiscal year ended December 31, 1996, which will set forth
certain information with respect to security ownership of certain
beneficial owners and management of the Registrant and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this Item will be contained in the Registrant's
proxy statement for the annual meeting of shareholders to be held on May
15, 1997, to be filed not later than 120 days following the end of the
Registrant's fiscal year ended December 31, 1996, which will set forth
certain information with respect to certain relationships and related
transactions of the Registrant and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
a. Exhibits
EXHIBIT
NO DESCRIPTION
------- ---------------------------------------------------
<S> <C>
10.1 Credit Agreement, dated January 15, 1997, between
Simpson Manufacturing Co., Inc. and Wells Fargo
Bank, National Association.
10.2 Amended and Restated Agreement to Loan Agreement
dated July 15, 1995, dated January 14, 1997,
between Simpson Manufacturing Co., Inc. and Union
Bank of California, N.A.
10.3 Collective Bargaining Agreement, dated December 30,
1996, between Simpson Strong-Tie Company Inc. and
Sheet Metal Workers' Local No. #371.
10.4 Stock Purchase Agreement, dated March 7, 1997,
between Simpson Strong-Tie Company Inc. and Simpson
Strong-Tie Canada, Limited and Robert Anthony
Cunningham, Diane Saroginie Cunningham, D. Cunningham,
Joan Phyllis Seetaram, Martin I. Silver and Tracey
Eichinger, as trustees of The Angela Cunningham Trust
dated May 17, 1985, D. Cunningham Holdings Inc. and
Joan Phyllis Seetaram.
11 Statement re computation of earnings per share
21 List of Subsidiaries of the Registrant
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
</TABLE>
b. No reports on Form 8-K were filed during the last quarter of the
period for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Dated: March 25, 1997 SIMPSON MANUFACTURING CO., INC.
-------------- --------------------------------
(Registrant)
By /s/ STEPHEN B. LAMSON
--------------------------------
Stephen B. Lamson
Chief Financial Officer
and Duly Authorized Officer
of the Registrant
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated below.
Signature Title Date
- ------------------------- --------------------------- --------------
Chief Executive Officer:
/s/ THOMAS J FITZMYERS President, Chief Executive March 26, 1997
- ------------------------- --------------------------- --------------
(Thomas J Fitzmyers) Officer and Director
Chief Financial Officer:
/s/ STEPHEN B. LAMSON Chief Financial Officer, March 25, 1997
- ------------------------- --------------------------- --------------
(Stephen B. Lamson) Secretary and Director
Directors:
/s/ BARCLAY SIMPSON Chairman of the Board March 26, 1997
- ------------------------- --------------------------- --------------
(Barclay Simpson)
/s/ EARL F. CHEIT Director March 26, 1997
- ------------------------- --------------------------- --------------
(Earl F. Cheit)
/s/ ALAN R. McKAY Director March 26, 1997
- ------------------------- --------------------------- --------------
(Alan R. McKay)
/s/ SUNNE WRIGHT McPEAK Director March 26, 1997
- ------------------------- --------------------------- --------------
(Sunne Wright McPeak)
/s/ BARRY LAWSON WILLIAMS Director March 26, 1997
- ------------------------- --------------------------- --------------
(Barry Lawson Williams)
EXHIBIT 10.1
------------
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of January 15, 1997, by and between
SIMPSON MANUFACTURING CO., INC, a California corporation ("Borrower"), and
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described
below (each, a "Credit" and collectively, the "Credits"), and Bank has
agreed to provide the Credits to Borrower on the terms and conditions
contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to
time up to and including June 1, 1998, not to exceed at any time the
aggregate principal amount of Five Million Two Hundred Thousand Dollars
($5,200,000.00) ("Line of Credit"), the proceeds of which shall be used to
finance Borrower's working capital requirements. Borrower's obligation to
repay advances under the Line of Credit shall be evidenced by a promissory
note substantially in the form of Exhibit A attached hereto ("Line of
Credit Note"), all terms of which are incorporated herein by this
reference.
(b) Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue
Standby Letters of Credit for the account of Borrower to finance Borrower's
workers' compensation insurance requirements (each, a "Letter of Credit"
and collectively, "Letters of Credit"); provided however, that the form and
substance of each Letter of Credit shall be subject to approval by Bank, in
its sole discretion. Each Letter of Credit shall be issued for a term not
to exceed one (1) year, as designated by Borrower; provided however, that
no Letter of Credit shall have an expiration date subsequent to the
maturity date of the Line of Credit. The undrawn amount of all Letters of
Credit shall be reserved under the Line of Credit and shall not be
available for borrowings thereunder. Each Letter of Credit shall be subject
to the additional terms and conditions of the Letter of Credit Agreement
and related documents, if any, required by Bank in connection with the
issuance thereof (each, a "Letter of Credit Agreement" and collectively,
"Letter of Credit Agreements"). Each draft paid by Bank under a Letter of
Credit shall be deemed an advance under the Line of Credit and shall be
repaid by Borrower in accordance with the terms and conditions of this
Agreement applicable to such advances; provided however, that if advances
under the Line of Credit are not available, for any reason, at the time any
draft is paid by Bank, then Borrower shall immediately pay to Bank the full
amount of such draft, together with interest thereon from the date such
amount is paid by Bank to the date such amount is fully repaid by Borrower,
at the rate of interest applicable to advances under the Line of Credit. In
such event Borrower agrees that Bank, in its sole discretion, may debit any
demand deposit account maintained by Borrower with Bank for the amount of
any such draft.
(c) Borrowing and Repayment. Borrower may from time to time during
the term of the Line of Credit borrow, partially or wholly repay its
outstanding borrowings, and reborrow, subject to all of the limitations,
terms and conditions contained herein or in the Line of Credit Note;
provided however, that the total outstanding borrowings under the Line of
Credit shall not at any time exceed the maximum principal amount available
thereunder, as set forth above.
SECTION 1.2. TERM COMMITMENT.
(a) Term Commitment. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to
time up to and including June 1, 1998, not to exceed the aggregate
principal amount of Four Million Dollars ($4,000,000.00) ("Term
Commitment"), the proceeds of which shall be used to finance equipment
purchases and/or business acquisitions, and which shall be converted on
June 1, 1998, to a term loan, as described more fully below. Borrower's
obligation to repay advances under the Term Commitment shall be evidenced
by a promissory note substantially in the form of Exhibit B attached hereto
("Term Commitment Note"), all terms of which are incorporated herein by
this reference.
(b) Borrowing and Repayment. Borrower may from time to time during
the period in which Bank will make advances under Term Commitment borrow
and partially or wholly repay its outstanding borrowings, and reborrow,
subject to all the limitations, terms and conditions contained herein;
provided however, that the total outstanding borrowings under the Term
Commitment shall not exceed the maximum principal amount available
thereunder, as set forth above. The outstanding principal balance of the
Term Commitment shall be due and payable in full on June 1, 1998; provided
however, that so long as Borrower is in compliance on said date with all
terms and conditions contained herein and in any other documents evidencins
the Credits, Bank agrees to restructure repayment of said outstanding
principal balance so that principal shall be amortized over five (5) years
and shall be repaid in sixty equal monthly installments, as set forth in
the promissory note executed by Borrower on said date to evidence the new
repayment schedule.
(c) Prepayment. Borrower may prepay principal on the Term Commitment
solely in accordance with the provisions of the Term Commitment Note.
SECTION 1.3. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
and the Term Commitment shall bear interest at the rate of interest set
forth in the Line of Credit Note and the Term Commitment Note,
respectively.
(b) Computation and Payment. Interest shall be computed on the basis
of a 360-day year, actual days elapsed. Interest shall be payable at the
times and place set forth in the Line of Credit Note and the Term
Commitment Note (collectively, the "Notes").
(c) Commitment Fee. Borrower shall pay to Bank nonrefundable
commitment fees for the Line of Credit and the Term Commitment equal to
one-eighth percent (1/8%) per annum of the amounts by which Bank's
commitments under the Line of Credit and the Term Commitment exceed the
average daily outstanding principal balances of the Line of Credit and the
Term Commitment, respectively, which commitment fees shall be due and
payable in full on the first day of each month.
(d) Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiation by Bank
of each draft under any Letter of Credit and upon the occurrence of any
other activity with respect to any Letter of Credit (including without
limitation, the transfer, amendment or cancellation of any Letter of
Credit) determined in accordance with Bank's standard fees and charges then
in effect for such activity.
SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all interest and fees due under each Credit by charging Borrower's
demand deposit account number 4103-117438 with Bank, or any other demand
deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit
account to pay all such sums when due, the full amount of such deficiency
shall be immediately due and payable by Borrower.
SECTION 1.5. GUARANTIES. All indebtedness of Borrower to Bank shall
be guaranteed by Simpson Dura Vent Company, Inc. ("SDV") and Simpson
Strong-Tie company Inc. ("SST") (each, a "Guarantor") in the principal
amount of Eight Million Four Hundred Thousand Dollars ($8,400,000.00) each,
as evidenced by and subject to the terms of guaranties in form and
substance satisfactory to Bank.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and
final payment, and satisfaction and discharge, of all obligations of
Borrower to Bank subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized
and existing and in good standing under the laws of the state of
California, and is qualified or licensed to do business (and is in good
standing as a foreign corporation, if applicable) in all jurisdictions in
which such qualification or licensing is required or in which the failure
to so qualify or to be so licensed could have a material adverse effect on
Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes,
and each other document, contract and instrument required hereby or at any
time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal,
valid and binding agreements and obligations of Borrower or the party which
executes the same, enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any
law or regulation, or contravene any provision of the Articles of
Incorporation or By-Laws of Borrower, or result in any breach of or default
under any contract, obligation, indenture or other instrument to which
Borrower is a party or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated September 30, 1996, a true copy of which has
been delivered by Borrower to Bank prior to the date hereof, (a) is
complete and correct and presents fairly the financial condition of
Borrower, (b) discloses all liabilities of Borrower that are required to be
reflected or reserved against under generally accepted accounting
principles, whether liquidated or unliquidated, fixed or contingent, and
(c) has been prepared in accordance with generally accepted accounting
principles consistently applied. Since the date of such financial statement
there has been no material adverse change in the financial condition of
Borrower, nor has Borrower mortgaged, pledged, granted a security interest
in or otherwise encumbered any of its assets or properties except in favor
of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect
to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower
may be bound that requires the subordination in right of payment of any of
Borrower's obligations subject to this Agreement to any other obligation of
Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, consents, approvals, franchises and
licenses required and rights to all trademarks, trade names, patents, and
fictitious names, if any, necessary to enable it to conduct the business in
which it is now engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended or recodified from time to time ("ERISA");
Borrower has not violated any provision of any defined employee pension
benefit plan (as defined in ERISA) maintained or contributed to by Borrower
(each, a "Plan"); no Reportable Event as defined in ERISA has occurred and
is continuing with respect to any Plan initiated by Borrower; Borrower has
met its minimum funding requirements under ERISA with respect to each Plan;
and each Plan will be able to fulfill its benefit obligations as they come
due in accordance with the Plan documents and under generally acceDted
accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower
to Bank in writing prior to the date hereof, Borrower is in compliance in
all material respects with all applicable federal or state environmental,
hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of Borrower's
operations and/or properties, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal
Resource Conservation and Recovery Act of 1976, and the Federal Toxic
Substances Control Act, as any of the same may be amended, modified or
supplemented from time to time. None of the operations of Borrower is the
subject of any federal or state investigation evaluating whether any
remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any
release of any toxic or hazardous waste or substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The
obligation of Bank to grant any of the Credits is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes.
(ii) Corporate Borrowing Resolution.
(iii) Corporate Resolution Authorizing Execution of Guaranty from SDV
and SST.
(iv) All guaranties required by Secticn 1.5 hereof.
(v) Foreign Exchange Agreement.
(vi) Continuing Standby Letter of Credit Agreement.
(vii) Such other documents as Bank may require under any other Section
of this Agreement.
(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower or any guarantor hereunder, nor any material decline, as
determined by Bank, in the market value of any collateral required
hereunder or a substantial or material portion of the assets of Borrower
or any such guarantor.
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where
required by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation
of Bank to make each extension of credit requested by Borrower hereunder
shall be subject to the fulfillment to Bank's satisfaction of each of the
following conditions:
(a) Compliance. The representations and warranties contained herein
and in each of the other Loan Documents shall be true on and as of the date
of the signing of this Agreement and on the date of each extension of
credit by Bank pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such date,
and on each such date, no Event of Default as defined herein, and no
condition, event or act which with the giving of notice or the passage of
time or both would constitute such an Event of Default, shall have occurred
and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of
the Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower shall, unless Bank
otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal,
interest, fees or other liabilities due under any of the Loan Documents at
the times and place and in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records
in accordance with generally accepted accounting principles consistently
applied, and permit any representative of Bank, at any reasonable time, to
inspect, audit and examine such books and records, to make copies of the
same, and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal
year, an unqualified, audited consolidated financial statement of Borrower,
prepared by an independent certified public accountant acceptable to Bank,
to include balance sheet, income statement, statement of cash flow and
consolidating schedules for Simpson Holdings, Inc. ("SHI"), SDV and SST,
prepared by Borrower;
(b) not later than 45 days after and as of the end of each fiscal
quarter, a consolidated, unconsolidated and consolidating financial
statement of Borrower, SHI, SDV and SST, prepared by Borrower, to include
balance sheet and income statement;
(c) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's
continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable to Borrower
and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to
that of Borrower, including but not limited to fire, extended coverage,
public liability, flood, property damage and workers' compensation, with
all such insurance carried with companies and in amounts satisfactory to
Bank, and deliver to Bank from time to time at Bank's request schedules
setting forth all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time
make necessary repairs, renewals and replacements thereto so that such
properties shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation federal and state income taxes and
state and local property taxes and assessments, except such (a) as Borrower
may in good faith contest or as to which a bona fide dispute may arise, and
(b) for which Borrower has made provision, to Bank's satisfaction, for
eventual payment thereof in the event Borrower is obligated to make such
payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of
any litigation pending or threatened against Borrower with a claim in
excess of $1,000,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except to
the extent modified by the definitions herein):
(a) Tangible Net Worth not at any time less than $50,000,000.00 plus
an amount equal to 50% of net profit after taxes at each fiscal year end on
a cumulative basis, with "Tangible Net Worth" defined as the aggregate of
total stockholders' equity plus subordinated debt less any intangible
assets.
(b) Total Liabilities divided by Tangible Net Worth not at any time
greater than 1.5 to 1.0 as of each fiscal quarter end, with "Total
Liabilities" defined as the aggregate of current liabilities and
non-current liabilities less subordinated debt, and with "Tangible Net
Worth" as defined above.
(c) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end.
(d) EBITDA Coverage Ratio not less than 1.5 to 1.0 as of each fiscal
year end, with "EBITDA" defined as net profit before tax plus interest
expense (net of capitalized interest expense), depreciation expense and
amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA
divided by the aggregate of total interest expense plus the prior period
current maturity long-term debt and the prior period current maturity of
subordinated debt.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than
five (5) days after the occurrence of each such event or matter) give
written notice to Bank in reasonable detail of: (a) the occurrence of any
Event of Default, or any condition, event or act which with the giving of
notice or the passage of time or both would constitute an Event of Default;
(b) any change in the name or the organizational structure of Borrower; (c)
the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency with
respect to any Plan; or (d) any termination or cancellation of any
insurance policy which Borrower is required to maintain, or any uninsured
or partially uninsured loss through liability or property damage, or
through fire, theLt or any other cause affecting Borrowerls property in
excess of an aggregate of $10,000,000.00.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether
direct or contingent, liquidated or unliquidated) of Borrower to Bank under
any of the Loan Documents remain outstanding, and until payment in full of
all obligations of Borrower subject hereto, Borrower will not without
Bank's prior written consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to
Bank, and (b) any other liabilities of Borrower existing as of, and
disclosed to Bank prior to, the date hereof.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the
nature of Borrower's business as conducted as of the date hereof; acquire
all or substantially all of the assets of any other entity, except
acquisitions not to exceed $15,000,000.00 per fiscal year when aggregated
by SHI, SDV and SST; nor sell, lease, transfer or otherwise dispose of all
or a substantial or material portion of Borrower's assets except in the
ordinary course of its business.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for
deposit or collection in the ordinary course of business), accommodation
endorser or otherwise for, nor pledge or hypothecate any assets of Borrower
as security for, any liabilities or obligations of any other person or
entity in an aggregate amount at any time in excess of $1,000,000.00,
except any of the foregoing in favor of Bank.
SECTION 5.5. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of
Borrower's assets now owned or hereafter acquired, except any of the
foregoing in favor of Bank or which is existing as of, and disclosed to
Bank in writing prior to, the date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute
an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees
or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any
other party under this Agreement or any other Loan Document shall prove to
be incorrect, false or misleading in any material respect when furnished or
made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other
Loan Document (other than those referred to in subsections (a) and (b)
above), and with respect to any such default which by its nature can be
cured, such default shall continue for a period of twenty (20) days from
its occurrence.
(d) Any default in the payment or performance of any obligation, or
any defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower or any
guarantor hereunder has incurred any debt or other liability to any person
or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower or any
guarantor hereunder; or the recording of any abstract of judgment against
Borrower or any guarantor hereunder in any county in which Borrower or such
guarantor has an interest in real property; or the service of a notice of
levy and/or of a writ of attachment or execution, or other like process,
against the assets of Borrower or any guarantor hereunder; or the entry of
a judgment against Borrower or any guarantor hereunder.
(f) Borrower or any guarantor hereunder shall become insolvent, or
shall suffer or consent to or apply for the appointment of a receiver,
trustee, custodian or liquidator of itself or any of its property, or shall
generally fail to pay its debts as they become due, or shall make a general
assignment for the benefit of creditors; Borrower or any guarantor
hereunder shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with
creditors or any other relief under the Bankruptcy Reform Act, Title 11 of
the United States Code, as amended or recodified from time to time
("Bankruptcy Code"), or under any state or federal law granting relief to
debtors, whether now or hereafter in effect; or any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other relief for
debtors is filed or commenced against Borrower or any guarantor hereunder,
or Borrower or any such guarantor shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or any such guarantor shall be adjudicated a
bankrupt, or an order for relief shall be entered against Borrower or any
such guarantor by any court of competent jurisdiction under the Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in
good faith believes impairs, or is substantially likely to impair, the
prospect of payment or performance by Borrower of its obligations under any
of the Loan Documents.
(h) The death or incapacity of any guarantor hereunder. The
dissolution or liquidation of Borrower or any guarantor hereunder; or
Borrower or any such guarantor, or any of their directors, stockholders or
members, shall take action seeking to effect the dissolution or liquidation
of Borrower or such guarantor.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default:
(a) all indebtedness of Borrower under each of the Loan Documents, any term
thereof to the contrary notwithstanding, shall at Bank's option and without
notice become immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are hereby expressly waived by
each Borrower; (b) the obligation, if any, of Bank to extend any further
credit under any of the Loan Documents shall immediately cease and
terminate; and (c) Bank shall have all rights, powers and remedies
available under each of the Loan Documents, or accorded by law, including
without limitation the right to resort to any or all security for any of
the Credits and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. All rights, powers and remedies
of Bank may be exercised at any time by Bank and from time to time after
the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided
by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank
in exercising any right, power or remedy under any of the Loan Documents
shall affect or operate as a waiver of such right, power or remedy; nor
shall any single or partial exercise of any such right, power or remedy
preclude, waive or otherwise affect any other or further exercise thereof
or the exercise of any other right, power or remedy. Any waiver, permit,
consent or approval of any kind by Bank of any breach of or default under
any of the Loan Documents must be in writing and shall be effective only to
the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any
provision of this Agreement must be in writing delivered to each party at
the following address:
BORROWER: SIMPSON MANUFACTURING CO., INC.
4637 Chabot Drive
Suite 200
Pleasanton, CA 94588-0789
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
East Bay RCBO
One Kaiser Plaza, Suite 850
Oakland, CA 94612
or to such other address as any party may designate by written notice to
all other parties. Each such notice, request and demand shall be deemed
given or made as follows: (a) if sent by hand delivery, upon delivery; (b)
if sent by mail, upon the earlier of the date of receipt or three (s) days
after deposit in the U.S. mail, first class and postage prepaid; and (c) if
sent by telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay
to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of Bank's in-house
counsel), expended or incurred by Bank in connection with (a) the
negotiation and preparation of this Agreement and the other Loan Documents,
Bank's continued administration hereof and thereof, and the preparation of
any amendments and waivers hereto and thereto, (b) the enforcement of
Bank's rights and/or the collection of any amounts which become due to Bank
under any of the Loan Documents, and (c) the prosecution or defense of any
action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to
any Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators,
legal representatives, successors and assigns of the parties; provided
however, that Borrower may not assign or transfer its interest hereunder
without Bank's prior written consent. Bank reserves the right to sell,
assign, transfer, negotiate or grant participations in all or any part of,
or any interest in, Bank's rights and benefits under each of the Loan
Documents. In connection therewith, Bank may disclose all documents and
information which Bank now has or may hereafter acquire relating to any of
the Credits, Borrower or its business, [any guarantor hereunder or the
business of such guarantor,] or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
other Loan Documents constitute the entire agreement between Borrower and
Bank with respect to the Credits and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject
matter hereof. This Agreement may be amended or modified only in writing
signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement or any
other of the Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or
hereafter arising under or in connection with, or in any way pertaining to,
any of the Loan Documents, or any past, present or future extensions of
credit and other activities, transactions or obligations of any kind
related directly or indirectly to any of the Loan Documents, including
without limitation, any of the foregoing arising in connection with the
exercise of any self-help, ancillary or other remedies pursuant to any of
the Loan Documents. Any party may by summary proceedings bring an action in
court to compel arbitration of a Dispute. Any party who fails or refuses to
submit to arbitration following a lawful demand by any other party shall
bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the ARA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved
in acccrdance with the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in
any of the Loan Documents. The arbitration shall be conducted at a location
in California selected by the ARA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly
relevant to the Dispute being arbitrated. Judgment upon any award rendered
in an arbitration may be entered in any court having jurisdiction; provided
however that nothing contained herein shall be deemed to be a waiver sy any
party that is a bank of the protections afforded to it under 12 U.S.C.
section 91 or any similar applicable state law.
(c) No Waiver: Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or
personal property collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver,
from a court of competent jurisdiction before, after or during the pendency
of any arbitration or other proceeding. The exercise of any such remedy
shall not waive the right of any party to compel arbitration or reference
hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state
or federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered
to resolve Disputes by summary rulings in response to motions filed prior
to the final arbitration hearing. Arbitrators (i) shall resolve all
Disputes in accordance with the substantive law of the state of California,
(ii) may grant any remedy or relief that a court of the state of California
could order or grant within the scope hereof and such ancillary relief as
is necessary to make effective any award, and (iii) shall have the power to
award recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount in
controversy is $5,000,000 or less shall be decided by a single arbitrator
who shall not render an award of greater than $5,000,000 (including
damages, costs, fees and expenses). By submission to a single arbitrator,
each party expressly waives any right or claim to recover more than
$5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000,
the arbitrators shall be required to make specific, written findings of
fact and conclusions of law. In such arbitrations (i) the arbitrators shall
not have the power to make any award which is not supported by substantial
evidence or which is L sed on legal error, (ii) an award shall not be
binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of California, and (iii) the parties shall
have in addition to the grounds referred to in the Federal Arbitration Act
for vacating, modifying or correcting an award the right to judicial review
of (A) whether the findings of fact rendered by the arbitrators are
supported by substantial evidence, and (B) whether the conclusions of law
are erroneous under the substantive law of the state of California.
Judgment confirming an award in such a proceeding may be entered only if a
court determines the award is supported by substantial evidence and not
based on legal error under the substantive law of the state of California.
(f) Real Property Collateral: Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to
arbitration if the Dispute concerns indebtedness secured directly or
indirectly, in whole or in part, by any real property unless (i) the holder
of the mortgage, lien or security interest specifically elects in writing
to proceed with the arbitration, or (ii) all parties to the arbitration
waive any rights or benefits that might accrue to them by virtue of the
single action rule statute of California, thereby agreeing that all
indebtedness and obligations of the parties, and all mortgages, liens and
security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable. If any such Dispute is not submitted to
arbitration, the Dispute shall be referred to a referee in accordance with
California Code of Civil Procedure Section 638 et seq., and this general
reference agreement is intended to be specifically enforceable in
accordance with said Section 638. A referee with the qualifications
required herein for arbitrators shall be selected pursuant to the AAA's
selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with
the AAA. No arbitrator or other party to an arbitration proceeding may
disclose the existence, content or results thereof, except for disclosures
of information by a party required in the ordinary course of its business,
by applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Loan
Documents or any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
SIMPSON MANUFACTURING CO., INC WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/Steve Lamson By: /s/Steven Bojkovic
----------------------- -----------------------
Steve Lamson Steven Bojkovic
Title: Chief Financial Officer Vice President
By: /s/Thomas J Fitzmyers
-----------------------
Thomas J Fitzmyers
Title: President
EXHIBIT 10.2
------------
LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is made and
entered into as of January 14, 1997 by and between Simpson Manufacturing
Co., Inc., a California Corporation ("Borrower") and UNION BANK OF
CALIFORNIA, N.A. ("Bank"). This Agreement amends and restates in its
entirety that certain loan agreement dated July 15, 1995 between Bank and
Simpson Manufacturing Co., Inc..
SECTION 1. THE LOAN
1.1.1 The Revolving Loan. Bank will loan to Borrower an amount not to
exceed Thirteen Million and Eight Hundred Thousand Dollars ($13,800,000.00)
outstanding in the aggregate at any one time (the "Revolving Loan").
Borrower may borrow, repay and reborrow all or part of the Revolving Loan
in accordance with the terms of the Revolving Note. All borrowings of the
Revolving Loan must be made before June 1, 1998, at which time all unpaid
principal and interest of the Revolving Loan shall be due and payable. The
Revolving Loan shall be evidenced by a promissory note (the "Revolving
Note") on the standard form used by Bank for commercial loans.
1.1.2 The Standby L/C Sublimit. As a sublimit to the Revolving Loan,
Bank shall issue, for the account of Borrower, one or more irrevocable,
standby or commercial letters of credit (individually, an "L/C" and
collectively, the "L/Cs"). All such L/Cs shall be drawn on such terms and
conditions as are acceptable to Bank. The aggregate amount available to be
drawn under all outstanding L/Cs and the aggregate amount of unpaid
reimbursement obligations under drawn L/Cs shall not exceed Two Million
Dollars ($2,000,000.00) and shall reduce, dollar for dollar, the maximum
amount available under the Revolving Loan. Each L/C shall be governed by
the terms of (and Borrower agrees to execute) Bank's standard form for L/C
applications and reimbursement agreements. No L/C may be issued for a
period exceeding 12 months, and no L/C shall expire after June 1, 1998. At
Borrower's request, Bank will issue L/C's with the following affiliates
named as the Account Party, so long as the Borrower executes the Bank's
standard form for L/C applications and reimbursement agreements:
1. Simpson Holdings, Inc.
2. Simpson Strong-Tie, International, Inc.
3. Ackerman-Johnson Fastening Systems, Inc.
4. Simpson Strong-Tie Company, Inc.
5. Simpson Dura-Vent Company, Inc.
Borrower currently maintains an outstanding L/C in the amount of Two
Hundred and Seventy-five Thousand Pounds Sterling (GBP275,000) maturing June
15, 1997 and an L/C in the amount of Four Hundred and Sixteen Thousand Two
Hundred Eighty Four Dollars and fifty cents ($416,284.50) maturing on June
1, 1997. These L/C's shall now be considered as utilization under the L/C
sublimit.
<PAGE>
1.1.3 The Term Loan. Solely to repay the Revolving Loan, Bank will
loan to Borrower the sum outstanding related to an acquisition by Borrower
at the maturity of the Revolving Loan in one disbursement on or before June
1, 1998 provided Borrower is in compliance with all other terms and
conditions of this Agreement. The principal amount of the Term Loan shall
be amortized over a maximum of a three (3) year period and shall be repaid
in equal monthly installments, as set forth in a promissory note executed
by Borrower on or before said date.
1.2 Terminology.
As used herein the word "Loan" shall mean, collectively, all the
credit facilities described above.
As used herein the word "Note" shall mean, collectively, all the
promissory notes described above.
As used herein, the words "Loan Documents" shall mean all
documents executed in connection with this Agreement.
1.3 Purpose of Loan. The proceeds of the Revolving Loan shall be used
for general working capital purposes and acquisitions.
1.4.1 Interest. The unpaid principal balance of the Revolving Loan
shall bear interest at the rate(s) specified in the Revolving Note; or, at
borrower's option, Bank will make available under the Line advances bearing
interest at (1.00%) above the London Interbank Offer Rate ("LIBOR"), quoted
by the Bank at the time of Borrower's election, provided Borrower shall
give Bank two (2) business days prior written notice of said election, for
amounts greater than Two Hundred and Fifty Thousand Dollars ($250,000), and
for periods of not less than one (1) month and not longer than one (1)
year, but at no time shall such periods extend beyond June 1, 1998.
1.4.2 Interest. The unpaid principal balance of the Term Loan shall
bear interest at the rate(s) specified in the Term Note; or, at borrower's
option, Bank will make available under the Term Loan advances bearing
interest at (1.25%) above the London Interbank Offer Rate ("LIBOR"), quoted
by the Bank at the time of Borrower's election, provided Borrower shall
give Bank two (2) business days prior written notice of said election, for
amounts greater than Two Hundred and Fifty Thousand Dollars ($250,000), and
for periods of not less than one (1) month and not longer than one (1)
year, but at no time shall such periods extend beyond the maturity of the
term note.
1.5 Unused Fee. On June 15 and December 15 of each year, or the
earlier termination of the Loan, Borrower shall pay to Bank a fee of one
eighth of one percent (.125%) per year on the unused portion of the
Revolving Loan.
1.6 Stand-by Letter of Credit Fees. Borrower agrees to pay Bank one
percent (1%) per annum of the principal face sum of all L/C's.
1.7 Disbursement. Upon execution hereof, Bank shall disburse the
proceeds of the Loan as provided in Bank's standard form Authorization
executed by Borrower.
<PAGE>
1.8 Controlling Document. In the event of any inconsistency between
the terms of this Agreement and any Note or any of the other Loan
Documents, the terms of such Note or other Loan Documents will prevail over
the terms of this Agreement.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the
proceeds of the Loan unless at or prior to the time for the making of such
disbursement, the following conditions have been fulfilled to Bank's
satisfaction:
2.1 Compliance. Borrower shall have performed and complied with all
terms and conditions required by this Agreement to be performed or complied
with by it prior to or at the date of the making of such disbursement and
shall have executed and delivered to Bank the Note and other documents
deemed necessary by Bank.
2.2 Guaranties. Simpson Strong-Tie Company, Inc., and Simpson Dura-
Vent Company, Inc. (collectively the "Guarantors") shall have executed and
delivered to Bank their respective continuing guaranties, each in the
amount of Fourteen Million One Hundred Thousand Dollars ($14,100,000), in
form and amount satisfactory to Bank.
2.3 Borrowing Resolution. Borrower shall have provided Bank with
certified copies of resolutions duly adopted by the Board of Directors of
Borrower, authorizing this Agreement and the Loan Documents. Such
resolutions shall also designate the persons who are authorized to act on
Borrower's behalf in connection with this Agreement and to do the things
required by Borrower pursuant to this Agreement.
2.4 Continuing Compliance. At the time any disbursement is to be
made, there shall not exist any event, condition or act which constitutes
an event of default under Section 6 hereof or any event, condition or act
which with notice, lapse of time or both would constitute such event of
default; nor shall there be any such event, condition, or act immediately
after the disbursement were it to be made.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 Authority to Borrow. The execution, delivery and performance of
this Agreement, the Note and all other agreements and instruments required
by Bank in connection with the Loan are not in contravention of any of the
terms of any indenture, agreement or undertaking to which Borrower is a
party or by which it or any of its property is bound or affected.
<PAGE>
3.2 Financial Statements. The financial statements of Borrower,
including both a consolidated balance sheet at September 30, 1996, together
with supporting schedules, and a consolidated income statement for the nine
(9) months ended September 30, 1996, have heretofore been furnished to
Bank, and are true and complete and fairly represent the financial
condition of Borrower during the period covered thereby. Since September
30, 1996, there has been no material adverse change in the financial
condition or operations of Borrower.
3.3 Litigation. There is no litigation or proceeding pending or
threatened against Borrower or any of its property which is reasonably
likely to affect the financial condition, property or business of Borrower
in a materially adverse manner or result in liability in excess of
Borrower's insurance coverage.
3.4 Default. Borrower is not now in default in the payment of any of
its material obligations, and there exists no event, condition or act which
constitutes an event of default under Section 6 hereof and no condition,
event or act which with notice or lapse of time, or both, would constitute
an event of default.
3.5 Organization. Borrower is duly organized and existing under the
laws of the state of its organization, and has the power and authority to
carry on the business in which it is engaged and/or proposes to engage.
3.6 Authorization. This Agreement and all things required by this
Agreement have been duly authorized by all requisite action of Borrower.
3.7 Compliance With Laws. Borrower is not in violation with respect
to any applicable laws, rules, ordinances or regulations which materially
affect the operations or financial condition of Borrower.
3.8 ERISA. Any defined benefit pension plans as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meets, as of the date hereof, the minimum funding standards of
Section 302 of ERISA, and no Reportable Event or Prohibited Transaction as
defined in ERISA has occurred with respect to any such plan.
3.9 Continuing Representations. These representations shall be
considered to have been made again at and as of the date of each
disbursement of the Loan and shall be true and correct as of such date or
dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or any
other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
4.1 Use of Proceeds. Borrower will use the proceeds of the Loan only
as provided in subsection 1.3 above.
4.2 Records. Borrower will keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles.
<PAGE>
4.3 Information Furnished. Borrower will furnish to Bank:
(a) Within sixty (60) days after the close of each fiscal
quarter, a consolidated and consolidating financial statement, to include a
balance sheet, income statement, statement of cash flow and consolidating
schedules for Simpson Manufacturing Company, Inc., Simpson Holdings, Inc.,
Simpson Strong-Tie Company, Inc., Simpson Strong-Tie International, Inc.,
Simpson Dura-Vent Company, Inc., Ackerman-Johnson Fastening Systems, Inc,
and Simpson Venture Capital;
(b) Within one hundred twenty (120) days after the close of each
fiscal year, an unqualified, audited consolidated financial statement of
Simpson Manufacturing Company, Inc., prepared by an independent certified
public accountant acceptable to Bank;
(c) Give written notice within fifteen (15) days of all
litigation affecting Borrowers or Guarantors in which the amount is Five
Million Dollars ($5,000,000.00) or more;
(d) Give written notice to Bank within fifteen (15) days of any
property loss affecting Borrowers or Guarantors in which the amount is Five
Million Dollars ($5,000,000.00) or more;
(e) Notice of occurrence of any Event of Default or of any event,
condition or occurrence which, with the giving of notice or the message of
time or both, would constitute an Event of Default;
(f) Copies of any amendments to Borrower's loan documents with
Well Fargo Bank;
(g) Prompt written notice to Bank of all events of default
under any of the terms or provisions of this Agreement or of any other
agreement, contract, document or instrument entered, or to be entered into
with Bank; and of any litigation which, if decided adversely to Borrower,
would have a material adverse effect on Borrower's financial condition; and
of any other matter which has resulted in, or is likely to result in, a
material adverse change in its financial condition or operations;
(h) Prior written notice to Bank of any changes in Borrower's
officers and other senior management; Borrower's name; and location of
Borrower's assets, principal place of business or chief executive office;
and
(i) Give written notice at least 30 days prior to the proposed
closing date of any acquisition in excess of Eight Million Dollars
($8,000,000.00), providing a description of the business or assets to be
acquired and the terms of the acquisition.
4.4 Tangible Net Worth. Borrower will at all times maintain Tangible
Net Worth of not less than Fifty Million Dollars ($50,000,000.00), as of
December 30, 1996 plus fifty percent (50%) of net income measured on a
quarterly basis. "Tangible Net Worth" shall mean net worth increased by
indebtedness of Borrower subordinated to Bank and decreased by patents,
licenses, trademarks, trade names, goodwill and other similar intangible
assets, organizational expenses, security deposits, prepaid costs and
expenses and monies due from affiliates (including officers, shareholders
and directors).
<PAGE>
4.5 Debt to Tangible Net Worth. Borrower will at all times maintain a
ratio of total liabilities to tangible net worth of not greater than
1.50:1.0.
4.6 Profit From Operations. Borrower will maintain a net profit from
operations, as defined by generally accepted accounting principles, of any
positive amount for each fiscal year.
4.7 Cash Flow. Borrower will maintain a ratio of Cash Flow to Debt
Service of not less than 1.50:1.0. Compliance with this subsection shall
be measured as of the end of each fiscal year. "Cash Flow" shall mean net
profit before taxes to which interest, net of capitalized interest,
depreciation, amortization, and other noncash expenses are added for the
twelve (12) month period immediately preceding the date of calculation.
"Debt Service" shall mean interest expenses plus prior period current
portion of long-term debt, including subordinated debt payments.
4.8 Litigation and Attorneys' Fees. Borrower will pay promptly to
Bank upon demand, reasonable attorneys' fees (including but not limited to
the reasonable estimate of the allocated costs and expenses of in-house
legal counsel and legal staff) and all costs and other expenses paid or
incurred by Bank in collecting, modifying or compromising the Loan or in
enforcing or exercising its rights or remedies created by, connected with
or provided for in this Agreement or any of the Loan Documents, whether or
not an arbitration, judicial action or other proceeding is commenced. If
such proceeding is commenced, only the prevailing party shall be entitled
to attorneys' fees and court costs.
4.9 Additional Requirements. Borrower will promptly, upon demand by
Bank, take such further action and execute all such additional documents
and instruments in connection with this Agreement as Bank in its reasonable
discretion deems necessary, and promptly supply Bank with such other
information concerning its affairs as Bank may request from time to time.
4.10 Bank Expenses. Borrower will pay or reimburse Bank for all
costs, expenses and fees incurred by Bank in preparing and documenting this
Agreement and the Loan, and all amendments and modifications thereof,
including but not limited to all filing and recording fees, costs of
appraisals, insurance and attorneys' fees, including the reasonable
estimate of the allocated costs and expenses of in-house legal counsel and
legal staff.
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement
or any other of the Loan Documents have been paid in full, unless Bank
waives compliance in writing, Borrower agrees that:
5.1 Encumbrances and Liens. Borrower will not create, assume or
suffer to exist any mortgage, pledge, security interest, encumbrance, or
lien in all or any portion of its accounts receivable or other rights to
payment, general intangibles, inventory or equipment.
<PAGE>
5.2 OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to
Bank; (b) trade debt incurred by Borrower in the normal course of its
business; (c) the existing liabilities of Borrower disclosed to Bank on its
financial statement referenced in Section 3.2 hereof; (d) indebtedness
arising under existing real estate secured loans, provided however that
such indebtedness shall not exceed the lesser of (I) 100% of the purchase
price of the real property or (ii) the appraised value; and (e) unsecured
indebtedness of Borrower to Wells Fargo Bank in an aggregate amount not to
exceed Nine Million and Two Hundred Thousand Dollars ($9,200,000.00).
5.3 Sale of Assets, Liquidation or Merger. Borrower will not
liquidate, dissolve, or enter into any consolidation, merger, partnership
or other combination, nor convey, nor sell, nor lease all or the greater
part of its assets or business; nor permit the dissolution, merger,
consolidation or sale of all or any greater part of the assets of any of
Borrower's affiliates or subsidiaries.
5.4 Guaranties. Borrowers will not become a guarantor or surety,
pledge its credits or properties in any manner in excess of $1,000,000 in
the aggregate
5.5 Acquisitions. Borrower will not make any acquisitions or acquire
any net assets, other than fixed or capital assets acquired in the normal
course of business, in excess of Fifteen Million Dollars ($15,000,000) in
any fiscal year.
5.6 Except for the amendment anticipated to be executed prior to
January, 1997, the terms of which have been advised to the Bank, Borrower
will not amend, alter, supplement or otherwise modify the terms of
Guarantor's existing indebtedness to Wells Fargo Bank, N.A.
5.7 Borrower will not transfer the proceeds of any loan or advance
hereunder, or any other asset of Borrower to any affiliate or Guarantor,
unless such transfer is evidenced by a valid and enforceable instrument or
statement or account.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default")
shall terminate any obligation on the part of Bank to make or continue the
Loan and automatically, unless otherwise provided under the Note, shall
make all sums of interest and principal and any other amounts owing under
the Loan immediately due and payable, without notice of default,
presentment or demand for payment, protest or notice of nonpayment or
dishonor, or any other notices or demands:
6.1 Borrower shall default in the due and punctual payment of the
principal of or the interest on the Note or any of the other Loan Documents
and such default shall not be cured within ten (10) business days after the
occurrence thereof; or
6.2 Any default shall occur under the Note; or
<PAGE>
6.3 Borrower or any Guarantor shall default in the due performance or
observance of any covenant or condition of the Loan Documents;
6.4 Any guaranty required hereunder is breached or becomes
ineffective, or any Guarantor disavows or attempts to revoke or terminate
such guaranty; or
6.5 If, in the opinion of Bank, there is materially adverse change in
the financial condition of Borrower or any Guarantor, or for any reason
Bank believes that the prospect of payment or performance pursuant to the
Credit Facilities, any other indebtedness of Borrower to Bank, or any other
agreement or instrument required by Bank in connection with the Credit
Facilities has been impaired; or
6.6 Borrower or any Guarantor shall commit or do, or fail to commit or
do, any act or thing which would constitute an event of default under any
of the terms of any other agreement, document, or instrument executed, or
to be executed by it and concerning a financial obligation of Borrower or
any such Guarantor (including without limitation the existing loan
documents with Wells Fargo Bank), and such default shall not have been
cured within any applicable period of grace provided in such agreement,
document or instrument.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 Additional Remedies. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in
addition to all rights, powers and remedies given to Bank by law against
Borrower or any other person, including but not limited to Bank's rights of
setoff or banker's lien.
7.2 Nonwaiver. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a
waiver thereof and any single or partial exercise of any right, power or
remedy shall not preclude the further exercise thereof. No waiver shall be
effective unless it is in writing and signed by an officer of Bank.
7.3 Inurement. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assignees
of Borrower, and any assignment of Borrower without Bank's consent shall be
null and void.
7.4 Applicable Law. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by
and construed according to the laws of the State of California.
7.5 Amendments. This Agreement may be amended only in writing signed
by all parties hereto.
7.6 Integration Clause. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire
agreement between Bank and Borrower regarding the Loan and all prior
communications verbal or written between Borrower and Bank shall be of no
further effect or evidentiary value.
<PAGE>
7.7 Construction. The section and subsection headings herein are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8 Amendments. This Agreement may be amended only in writing signed
by all parties hereto.
7.9 Counterparts. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original.
SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following
methods and addressed to the respective party at its address given with the
signatures at the end of this Agreement and shall be considered to have
been validly given: (a) upon delivery, if delivered personally; (b) upon
receipt, if mailed, first class postage prepaid, with the United States
Postal Service; (c) on the next business day, if sent by overnight courier
service of recognized standing; and (d) upon telephoned confirmation of
receipt, if telecopied.
8.2 The addresses to which notices or demands are to be given may be
changed from time to time by notice delivered as provided above.
<PAGE>
THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK OF CALIFORNIA, N.A.
/s/Carol Garrett /s/Joellen Ademski
- ---------------------- ----------------------
Carol Garrett Joellen Ademski
Vice President Vice President
Address:
1800 Harrison Street, Suite 1400
Oakland, CA 94612-3429
Telephone: (510)271-1747 FAX: (510)271-1764
SIMPSON MANUFACTURING CO., INC.
/s/Thomas Fitzmyers /s/Steve Lamson
- ---------------------- ----------------------
Thomas Fitzmyers Steve Lamson
President Chief Financial Officer
Address:
4637 Chabot Drive, suite 200
Pleasanton, CA 94588-0789
Telephone: (510)460-9912 FAX: (510)847-9114
GUARANTORS
SIMPSON STRONG-TIE COMPANY INC.
/s/Thomas Fitzmyers /s/Steve Lamson
- ---------------------- ----------------------
SIMPSON DURA-VENT COMPANY, INC.
/s/Barclay Simpson /s/Steve Lamson
- ---------------------- ----------------------
EXHIBIT 10.3
------------
AGREEMENT BETWEEN SIMPSON STRONG - TIE CO., INC. AND
SHEET METAL WORKERS' LOCAL NO. #371
FOR THE PERIOD JULY 18, 1997 TO JULY 17, 2000
<PAGE>
TABLE OF CONTENTS
ARTICLE I PURPOSE .............................. Page 3
ARTICLE II JURISDICTION ......................... 3
ARTICLE III UNION SECURITY ....................... 3
ARTICLE IV CHECK-OFF ............................ 4
ARTICLE V HOURS AND OVERTIME ................... 4
ARTICLE VI WAGES ................................ 5
ARTICLE VII FUNERAL LEAVE ........................ 6
ARTICLE VIII HOLIDAYS ............................. 7
ARTICLE IX JURY SERVICE ......................... 8
ARTICLE X VACATIONS ............................ 8
ARTICLE XI SHIFTS ............................... 9
ARTICLE XII GRIEVANCE PROCEDURE .................. 10
ARTICLE XIII ACCESS TO EMPLOYER ESTABLISHMENT ..... 11
ARTICLE XIV HEALTH CARE PLAN ..................... 11
ARTICLE XV PENSION PLAN ......................... 12
ARTICLE XVI INDUSTRIAL INJURIES .................. 12
ARTICLE XVII SENIORITY ............................ 13
ARTICLE XVIII SAFETY ............................... 14
ARTICLE XIX LEAVE OF ABSENCE ..................... 15
ARTICLE XX GENERAL .............................. 15
ARTICLE XXI DURATION OF AGREEMENT ................ 17
<PAGE>
SIMPSON STRONG-TIE CO., INC., San Leandro Branch, 1450 Doolittle Rd,
San Leandro, California, party of the first part, hereinafter sometimes
called the "COMPANY", and SHEET METAL WORKERS' INTERNATIONAL ASSOCIATION,
LOCAL UNION NO. 371 OF NORTHERN CALIFORNIA, 60 Hegenberger Place, Oakland,
California, party of the second part, hereinafter sometimes called the
"UNION".
ARTICLE I
PURPOSE
Section 1. This agreement, made and entered into by and between
parties specified above, established by mutual consent of both parties
specific rules and regulations to govern employment, wage scale, and
working conditions of sheet metal production workers and helpers, shop
cleaners and maintenance men, parties to and recognized under this
Agreement. Office, clerical, professional, supervisors, guards, watchmen,
as defined in the National Labor Relations Act are excluded from the terms
of this Agreement.
Section 2. It is understood that maintenance men and shop cleaners
hired after July 13, 1985, will be required to join the Union. Further, it
is agreed that in the event of a work stoppage all people in this
classification may enter the plant at his/her option to only accomplish
work within their normal jobs. If such employees are subsequently put to
production work, the Union has the right to call all maintenance and
cleaning employees under Union affiliation to leave the plant, regardless
of whether they are in violation or not.
ARTICLE II
JURISDICTION
Section 1. The terms of the Agreement are hereby recognized and
accepted as binding on both parties hereto and shall apply in a manner and
under conditions specified herein to manufacture, fabrication, and assembly
of all types of louver and vent products and to all types of variations of
timber connectors and any and all new products not now manufactured at the
above location and all associated production work included in the
jurisdictional claims of the Sheet Metal Workers' International Association
and none but sheet metal workers and welders and recognized by the Union
shall be employed on said work by the Company.
ARTICLE III
UNION SECURITY
Section 1. The Company recognizes the Union as the sole
representative of employees in classifications of work set forth in Article
II of the Agreement.
<PAGE>
Section 2. Membership in the Union, as a condition of employment, is
required after thirty (30) days following the beginning of employment or
the execution date of the Agreement, whichever is later in the case of
particular employee. The Company is free to hire irrespective of Union or
non-Union affiliation. Membership in the Union shall be available to new
employees on the same terms and conditions applicable to other employees.
If the Company has reasonable grounds for believing that Union membership
was denied or terminated for any reason other than the employee's failure
to pay regular initiation fees or dues, it is not required to discharge any
such employee.
Section 3. The Company will notify the Union of anticipated openings.
Applicants referred by the Union will be given consideration with all other
applicants.
ARTICLE IV
CHECK - OFF
Section 1. The Company shall, during the life of this Agreement, upon
writtten authorization by the employee on a form approved by the Company
and the Union, in conformance with the Labor Management Relations Act of
1947, as amended, deduct from the first pay period of each month, Union
dues in the amount as authorized by the Union, such Union dues shall be for
the following month.
Section 2. Initiation Fee: The Company shall deduct initiation fees,
upon written authorization by the employee for twenty (20) weeks starting
with the second pay period from the date of hire in the amount as
authorized by the Union.
Section 3. New Hires: The Employer shall direct all newly-hired
employees to the office of the Union. The Union will then dispatch the
employees with two (2) copies of a clearance form, one (1) copy going to
the Company, and the other to the Shop Steward.
Section 4. No later than ten (10) days after such deduction, on a
form provided by the Union, the Company shall remit to the Union a check in
the total amount of dues and initiation fees which have been deducted,
together with a list of names of the employees from whose pay said dues and
initiation fees have been deducted and the amount deducted from each.
Initiation fees and Union dues can be included in the same check mailed ten
(10) days after deduction for union dues.
Section 5. All bargining unit employees shall receive once each
calendar month a supplemental payment as follows: Effective January 1,
1997, ten cents ($.10) per hour for each hour paid. The Company shall
forward the supplemental payment to the Local Union once each calendar
month for the preceeding month hours paid as a supplemental dues payment.
ARTICLE V
HOURS AND OVERTIME
Section 1. The regular shift for Day and Swing shifts will consist of
eight (8) hours, with a one-half (1/2) unpaid meal period. (The regular
shift for Midnight will consist of eight (8) hours, with a one-half (1/2)
hour paid meal period.) A shift starting time will be established for each
shift in each department. The starting time for day shift shall be at 7:00
a.m., plus or minus one (1) hour. The starting time for swing shift will
3:00 p.m., plus or minus one (1) hour. The start time for the midnight
shift will be 11:00 p.m., plus or minus one (1) hour. The fixed starting
time for any shift may only be changed by mutual consent of the employees
involved and the Company. In the event of a change in starting time,
special needs may be accommodated, if possible, by agreement between the
affected employee and the Company. Personal emergencies will be
accommodated by the Company, if possible. It will not be the intent of
this section to offset overtime.
<PAGE>
Section 2. The first eight (8) hours of work on a given day shall be
compensated at regular pay. All hours worked over eight (8) but less than
twelve (12) on a given work day shall be compensated at time and one-half
(1.5 rate). All hours worked over twelve (12) on a given work day shall be
compensated at double time (2.0 rate). Any employee who starts work before
the regular starting time on any shift shall be compensated at time and
one-half (1.5 rate) after eight (8) hours. If sent home by the company
before eight (8) hours worked, then any hours worked before his starting
time shall be at time and one-half (1.5 rate).
Section 3. For all hours worked on Saturday, time and one-half (1.5
rate) shall be paid and no employee shall be required to work in excess of
eight (8) hours. Saturday hours in excess of eight (8) shall be by mutual
consent of the Company and the employee involved and shall be compensated
at double time (2.0 rate). All work performed on Sunday up to eight (8)
hours will be compensated at double time (2.0 rate). All work performed on
Sunday in excess of eight (8) will be by mutual consent of the employee
involved and the Company, and shall be compensated at double time and one-
half (2.5 rate).
Section 4. All work in excess of eight (8) hours, Monday through
Friday, shall be by mutual consent of the employee and the Company.
Required overtime will be distributed among employees with preference given
to those normally performing the work. The Company shall provide
reasonable advance notice of required overtime.
Section 5. There shall be no pyramiding of overtime. Nothing
contained in this Agreement shall be interpreted as requiring a duplication
or pyramiding of holiday, weekend, daily or weekly overtime payments
involving the same hours of labor.
ARTICLE VI
WAGES
Section 1. The following wage rates are established as the basic
hourly rate for each department.
Effective Effective Effective
07/18/97 07/18/98 07/18/99
--------- --------- ---------
Warehouse/Production $ 15.40 $ 15.75 $ 16.10
Maintenance/Welding 15.85 16.20 16.55
<PAGE>
Section 2. A. Entry level wages and progression to basic rates for
employees hired between 07/14/91 to 07/13/94 are as follows:
1st four months: $ 7.00 5th four months: $ 9.00
2nd four months: 7.50 6th four months: 9.50
3rd four months: 8.00 7th four months: 10.00
4th four months: 8.50 8th four months: 10.50
Thereafter Base
Section 2. B. Entry level wages and progression to basic rates for
employees hired after 07/18/94 are as follows:
1st six months: $ 7.00 6th six months: $ 9.50
2nd six months: 7.50 7th six months: 10.00
3rd six months: 8.00 8th six months: 10.50
4th six months: 8.50 After 60 months: 12.50
5th six months: 9.00 After 72 months: Base
Entry level wages apply only to new hires with no previous employment
history as a Sheet Metal Union production worker at Simpson Strong - Tie,
San Leandro Branch.
Section 3. A. Shift premiums for employees on the Swing shift will be
eighty (80) cents per hour. Shift premiums for employees on the Midnight
shift will be one (1) dollar per hour.
Section 3. B. The Company reserves the right to pay any or all
employees above the basic rate at the Company's discretion. Employees
currently above the basic rate will continue to receive their current
differential. Differentials based on specific jobs such as leads and
setups can be removed when the person(s) are no longer performing these
jobs.
Section 4. Employees covered by this Agreement who report for work by
the direction of the Company and are not placed to work, shall be entitled
to two (2) hours' pay at the established rate. This provision, however,
shall not apply under conditions over which the Company has no control.
Section 5. The welder classification is recognized by the $.45 cents
per hour premium over and above the normal scale for production workers.
If an employee is classified as a welder, he/she will receive welder pay
regardless of job assignment. If an employee's job is changed and is
permanently reassigned to other work, his/her classification will be
changed. In the event that an employee who is not classified as welder
temporarily does welding work he/she will receive welder pay for the hours
he/she welds. Such temporary assignment must be by mutual consent of the
Company and employee.
Section 6. Foreman must approve all overtime.
<PAGE>
ARTICLE VII
FUNERAL LEAVE
Section 1. In the event of a death in the immediate family for any
employee who has attained senority, he/she will, upon request, be granted a
leave of three (3) working days immediately following such a death. The
employee on such leave will receive eight (8) hours' pay for those days at
his/her normal rate of pay. This provision does not apply if the employee
is on leave of absence or layoff.
A. For purposes of this provision, the immediate family shall be
restricted to father, mother, spouse, child, father-in-law, mother-in-law,
stepson, stepdaughter, brother, sister, grandmother, grandfather, brother-
in-law, and sister-in-law.
Section 2. In the event that additional time is needed, a leave of
absence may be applied for.
ARTICLE VIII
HOLIDAYS
Section 1. The following legal holidays shall be recognized and
observed within the territory covered by this Agreement on the date
established by the Federal or State law.
New Year's Day
Presidents' Day
Memorial Day
Independence Day
Labor Day
Veterans' Day
Thanksgiving Day
Friday after Thanksgiving Day
Day before Christmas Day
Christmas Day
Day before New Year's Day
Section 2. When a holiday falls on a Saturday, it will be observed on
the preceeding Friday. When a holiday falls on a Sunday, it will be
observed on the following Monday.
Section 3. Whenever a regular legal paid holiday falls on a Tuesday,
Wednesday, or Thursday, employees shall have the option, with the Company's
approval, of taking the Friday or Monday as the paid holiday, with the
understanding that work performed on the regular holiday shall be paid at
straight time.
Section 4. An employee after completing thirty (30) calendar days of
employment shall be paid for the above holidays at his normal rate of pay
including shift differential and any other premiums, for a full shift,
provided, however, that the employee shall have worked the full regularly
scheduled work day before and after the holiday; except that if an employee
is absent due to a medically certified illness, Company authorized absence,
or is detained due to justifiable circumstances beyond his control, he
shall not lose holiday pay as outlined above.
<PAGE>
Section 5. Work performed on holidays will be paid at double time (2)
rate PLUS the regular straight-time holiday pay (1) for a total of triple
time (3).
ARTICLE IX
JURY SERVICE
Section 1. When a member of the Union working under the jurisdiction
of the Agreement necessarily loses time from work because of jury service
on a day on which he would normally have worked, he will be reimbursed by
the Company for the difference between the pay received for jury service
and his regular straight-time rate of pay for his regular scheduled hours
of work. It is understood that such reimbursement shall exclude travel
allowances and shall not be in excess or eight (8) hours per day of forty
(40) hours per week, less pay received for jury service.
Section 2. In order to qualify for the benefits herein described,
employees shall be required to provide the Company with a statement or
certification from the clerk of the court attesting to the time rendered.
Section 3. An employee called for jury service on any regular work
day shall report to his employer for work for such time as may be available
prior to the hour he is required to be in Court, and shall report back to
his employer upon being excused for Court. An employee who fails to so
report waives his right to reimbursement for time lost as herein provided.
Section 4. Any Swing or Midnight shift employee who is on jury duty
will be moved to day shift while he is on jury duty. He will continue to
receive shift premium.
ARTICLE X
VACATIONS
Section 1. Vacation and severance pay are hereby established under
the following schedule, based on straight-time hourly rate of pay. Swing
or Midnight shift time hourly rate of pay.
Section 2. Any production employee who has worked for the Company for
a period of one (1) year, and during that year worked a total of 1040
hours, shall be entitled to one (1) week's vacation, with pay. Any
employee who either has not been employed continuously by the Company for
one (1) year, or has not worked a total of 1,040 hours during that year
shall not be entitled to two (2) weeks' vacation with pay. Any employee
who either has not been employed continuously by the Company for one (1)
year, or has not worked a total of 1,040 hours during that year shall not
be entitled to any vacation.
<PAGE>
Section 3. Any production employee who has worked for the Company for
a period of two (2) years or more and during that last year worked 1,040
hours or more, shall be entitled to two (2) weeks' vacation with pay.
Section 4. Any employee who has completed at least six (6) years
shall be entitled to the number of days of vacation shown in the following
table. Partial weeks of vacation must be taken in conjunction with
regularly scheduled weeks of vacation.
Full Years of Service Days of Vacation
--------------------- ----------------
6 Years 15
10 Years 16
12 Years 17
14 Years 18
16 Years 20
20 Years 21
22 Years 22
24 Years 23
26 Years 24
28 Years 25
All Years thereafter 25
Section 5. Any employee who is discharged for cause, or who has less
than 1,040 hours of employment and quits, will not be eligible for vacation
or severance pay.
Section 6. Vacation pay shall be paid on the payday preceeding the
employee's vacation provided the employee has notified the Company of
his/her request for such a payment by cutoff date for the payroll prior to
his/her vacation.
Section 7. Employees returning from layoff have a right to schedule
time off without pay for up to the accrued vacaton which was paid at the
time of layoff.
Section 8. Individual vacation days may be used as sick days provided
the employee calls before the start of the shift and has a verified signed
doctor's certicate.
ARTICLE XI
SHIFTS
Section 1. Shift work will be allowed in all classifications without
restrictions on the following basis:
Section 2. Employees on the day shift shall be compenstated at the
rate specified in Article VI. Pay for a full day shift shall be a sum
equivalent to eight (8) times the regular hourly rate.
Section 3. Employees on the swing shift shall be compensated at the
rate specified in Article VI plus the swing shift premium. Pay for a full
swing shift shall be a sum equivalent to eight (8) times the regular hourly
rate plus the swing shift premium.
<PAGE>
Section 4. Employees on the midnight shift shall be compensated at
the rate specified in Article VI plus the midnight shift premium. Pay for
a full midnight shift shall be a sum equivalent to eight (8) times the
regular hourly rate plus the midnight shift premium.
Section 5. IN THE EVENT THERE IS A THIRD SHIFT, THE COMPANY SHALL USE
THE LEAST SENIOR QUALIFIED EMPLOYEES.
ARTICLE XII
GRIEVANCE PROCEDURE
Section 1. The Company and the Union agree in the case of any and all
grievances concerning rate of pay, hours, or working conditions, or the
interpretation or application of this Agreement, the following procedure
shall be followed:
Section 2. Definitions for use in ARTICLE XII only:
Day Zero = The day of the occurrence, meeting, response, or
other action which starts a process with a time limit.
Day = A day ends at the end of the shift on which an employee
normally works.
Example: Day 1 for a day shift employee is the end of
the day shift on the day after the incident
occurs. All days are working days.
Pay for Grievance Time = A single shop steward and the
aggrieved employee may be paid for up to one (1) hour for
handling a grievance at Step 1 and up to one (1) hour for Step
2. The pay will be for actual time in meeting with foreman.
Pay at Step 3 and beyond will be determined by the Union
Business Representative and the appropriate manager.
Step 1: When a grievable action occurs, the aggrieved employee must
meet with the foreman to discuss the problem. This meeting must take place
at least one (1) day after the incident and not more than five (5) days
after the incident. The employee must clearly request a grievance meeting
in a quiet place where communications can take place. Following this
meeting, the foreman must provide a verbal response to the employee within
one (1) day of the meeting.
Step 2: If the aggrevieved employee is not satisfied with the response
in Step 1, he/she may file a written greivance with the Shop Steward at
least one (1) day after the reply is given in Step 1 and not more than five
(5) days after. The Shop Steward will IMMEDIATELY take the written
grievance to the foreman and request a meeting. The foreman must hold such
a meeting as soon as possible. The meeting may not be delayed more than 24
hours. The foreman must accommodate this request by meeting in a quiet
place where communications can take place. The Shop Steward must be
present and partcipate. Following this meeting, the foremen must provide a
written response to the employee within four (4) days of the meeting.
<PAGE>
Step 3: If the aggrieved employee is not satisfied with the response
in Step 2, he/she may request the matter be referred to the Business
Representative of the local union. Such a request must be made at least
one (1) day and not more that five (5) days after the receipt of the
response given in Step 2. If the Business Representative agrees to handle
the grievance, he will schedule a meeting with the Plant Manager within
five (5) days of the receipt of the request. The meeting should be held as
soon as the schedules of the people involved will permit. At this step,
the plant manager and the Business Representative will determine who needs
to attend the meeting. It is generally understood the aggrieved employee
and the foreman will be involved. Following the meeting, the Plant Manager
and the Business Represenative are jointly responsible for responding to
the aggrieved employee in writing within ten (10) days of the 3rd Step
meeting. NOTE: Time limits in Step 3 may be extended by mutual agreement
of the Plant Manager and the Business Representative.
Step 4: If the aggrieved employee is not satisfied with the response
in Step 3, he/she may request the matter be referred to the Business
Representative and the Branch Manager. Such a request must be made at
least one (1) day and not more than five (5) days after the receipt of the
response given in Step 3. The Business Representative and the Branch
Manager shall attempt to reach a settlement before any other action is
taken. There are no restrictions on the actions that can be taken at this
step. However, if a meeting is needed, it shall be scheduled within five
(5) days of the receipt of the request by the Business Representative.
Following the meeting or other resolution of the grievance at this step,
the Branch Manager and the Business Representative are jointly responsible
for responding to the aggrieved employee within ten (10) days of the
meeting or other resolution. NOTE: Time limits in Step 4 may be extended
by mutual agreement of the Branch Manager and the Business Representative.
Step 5: Where settlement cannot be reached between the Company and
the Union in a prior step, an effort will be made to have the grievance
settled by use of the State Conciliation Service, or submitted to a single
arbitrator for settlement. The decision of the impartial arbitrator shall
be final and binding on both parties. All arbitration and/or conciliation
expenses shall be shared equally by the Union and the Company. Pending
such final settlement of the grievance, there shall be no lockout or strike
by either party to this Agreement.
Section 3. Shop stewards shall not solicit grievances.
ARTICLE XIII
ACCESS TO EMPLOYER ESTABLISHMENT
Section 1. It is hereby understood and agreed that a duly authorized
representative of the Union shall have access to the shops and opportunity
to discuss with employees, parties to this Agreement, matters of common
interest in performance of their duties. Said privilege is to be so
exercised that no unncecessary time be lost to the Company.
Section 2. It is further understood and agreed that there shall be no
discrimination against any member of the Union for union affiliation.
<PAGE>
ARTICLE XIV
HEALTH CARE PLAN
Section 1. The Company agrees to contribute an amount specified in
Article XIV, Section 3, to the Sheet Metal Workers' of Northern California
Benefit Trust Fund. Payments will be made on all straight-time hours
worked. Holidays and Vacation Time will be considered time worked for the
purpose of determining hours worked in this Article.
Section 2. It is understood that the operation of the Sheet Metal
Workers' Local 371 Benefit Trust Fund shall be under the supervision of a
joint trusteeship of an equal number of employer and Union trustees.
Section 3. The Company's only obligation will be to pay the following
amounts in the Trust Fund. It is agreed that the maximum amount to be paid
will be the amount to maintain the existing benefits of the below amount,
whichever is less.
01/18/97 to 07/17/98 $ 2.55
07/18/98 to 07/17/99 2.67
07/18/99 to 07/17/00 2.79
ARTICLE XV
PENSION PLAN
Section 1. The Company agrees to make contributions into the Northern
California Sheet Metal Workers' Pension Trust as outlined below. It is
understood and agreed that such contributions are the Company's only
obligation.
07/18/97 to 17/17/98 $ 1.40/hour worked
07/18/98 to 07/17/99 1.45/hour worked
07/18/99 to 07/17/00 1.50/hour worked
Section 2. The payments and contributions outlined in Section 1 of
this Article shall be made in accordance with the applicable trust
agreement and regulations adopted by the Board of Trustees of the
applicable trust.
Section 3. The payments provided for herein shall be made in
accordance with the applicable Pension Trust Agreement and regulations
adopted by the Board of Trustees of the Trust. The payments provided for
herein are due on or before the tenth (10) day of the month following the
month in which the work was performed, and each monthly payment shall
included payments for all hours worked during the previous month. Payments
are delinquent if not paid by the twentieth (20) day of the month following
the month in which the work was performed.
<PAGE>
Section 4. All new employees hired after 07/18/94 will be limited to
a hour $.50/hour worked pension. All new employees will receive full
pension monies after 72 months of service.
ARTICLE XVI
INDUSTRIAL INJURIES
Section 1. All industrial injuries, no matter how slight, must be
reported to the foreman at the time that the injury occurs. Any employee
sent home by the Company or Company physician because of an industrial
injury or industrial disease shall be paid for the remainder of his shift.
Section 2. The Company shall pay employees for reasonable appointment
and travel time lost during regular working hours in visits to the doctor
in the case of industrial injury or industrial disease only in cases when
such appointments cannot be scheduled outside normal working hours. It is
the employee's responsiblility to provide written verification from the
doctor's office in such cases. Failure to provide such verification will
result in the loss of pay until it is provided.
Section 3. Any employee who is off work due to an industrial injury
or an industrial disease shall be paid by the employer, commencing with the
first day he is off work due to such injury or disease, an amount when
added to Workman's Compensation which will equal 100% of the workers
regular take-home pay. These payments will be based on a regular 40 hour
week. Payments will be made for a period of three (3) weeks from the date
of injury or whenever the employee returns to work whichever is sooner.
However, this in only payable three (3) weeks per contract year with no
carryover from year to year.
Section 4. If the employee is admitted to a hospital within 24 hours
for industrial injury or industrial disease, the payments will commence the
day following the injury and will continue for a period of three (3) weeks
from the date of injury or whenever the employee returns to work, whichever
is sooner.
Section 5. If the employee with industrial injury is released for
light duty the Company agrees to place him in a light duty job consistent
with his condition if such work can be found.
Section 6. If an employee with an industrial injury or disease is
released to light duty, the Company agrees to place him in a light duty job
if one can be found. An employee refusing such light duty will be
considered to have abandoned their job as of the date of the injury.
Section 7. An employee failing for return to work from an industrial
injury as scheduled, or who fails to communicate within twenty-four (24)
hours with the Original, Signed Doctor's Certification on their condition
and progress on a regular basis, shall be considered to have abandoned
their job as of the date of the injury.
<PAGE>
ARTICLE XVII
SENIORITY
Section 1. The Company agrees to handle layoffs on the basis of
senority provided that demonstrated ability and qualifications of the
individual involved are consistent with the requirements of the position
involved. In this section, departments are defined as Welding, Production
and Warehouse. The Company agrees to initiate a cross-training program by
department within six (6) months that will be available to all people who
want to participate in it.
Section 2. New employees shall be considered to be in training for
three months from date of hire. During this period the Company may
transfer, layoff or discharge such a training employee as it finds
advisable, and such action shall not constitute a greivance against the
Company.
Section 3. Employees who are laid off due to lack of work, or other
economic conditions, shall retain their senority and have recall rights for
twelve (12) months provided they have worked for the Company for more than
twelve (12) months.
Employees who have less than twelve (12) months of work time with the
Company shall retain seniority and have recall rights for three (3) months.
The original hire date will be the seniority date for any employee who is
"recalled" by the Company after his recall rights have expired, but shall
not be extended for more than 12 months after recall rights have expired (3
months and 12 months). The seniority for employees who are "rehired" will
be the new hire date.
Section 4. Failure of any employee to report to work within five (5)
days when called shall automatically cancel his seniority.
Section 5. Seniority is defined as your hire date unless you quit,
terminate, or are rehired.
Section 6. Union Shop Steward: Shop Stewards will be recognized by
the Company and will have super seniority when it comes to layoff. Union
will provide the names to the Company.
ARTICLE XVIII
SAFETY
Section 1. Safety is one of the highest objectives of Simpson Strong
- - Tie Company. It is agreed that the Union and the Company will establish
and maintain an effective, dynamic safety program which will require active
participation by all employees regardless of position. Program definition
and administration will be a joint responsibility of the Union and the
Company. Both the Company and the Union representative will have equal
reponsibility and authority. Such programs will include all aspects of
health and safety (including cleanliness of restrooms and lunch rooms) as
well as plant safety, training, etc.
<PAGE>
Section 2. The Company agrees to continue to require pre-employment
drug and alcohol screening of new employees and those recalled from layoff.
Section 3. Employees may be requested to submit to drug and alcohol
screening (subject to Article XII, Grievance Procedures) when there is a
justifiable reason to believe an employee is working under the influence of
drugs or alcohol. Justifiable reasons will be limited to industrial injury
and to cases in which a person's behavior places him/her in danger of
harming him/herself, a fellow employee, or the equipment. If the employee
refuses to submit to screening, he/she can be sent home without pay. The
shop steward must be present before any action is taken.
Section 4. Employees who are determined to be under the influence of,
or using drugs or alcohol while on company property may be terminated
immediately. For purposes of this agreement, "under the influence" is
defined as levels of alcohol or drugs in the employee's blood or urine that
are detectable by standard tests.
Section 5. An employee who is offered and accepts professional
assistance in lieu of being fired, will be granted a leave of absence of up
to thirty (30) days of treatment. Extensions may be granted upon
application and with the recommendation of treating professionals. The
total leave may not exceed ninety (90) days. Each employee may exercise
this provision one (1) time only.
ARTICLE XIX
LEAVE OF ABSENCE
Section 1. Leaves of absence shall be granted in cases of extreme
emergency and such other times as the work load may permit. Leaves of up
to three (3) months may be granted. Such leaves must be requested and
approved in writing. The Company will notify the Union via a copy of the
approval letter. Failure to return at the end of the leave period will be
considered as a resignation as of the first day of the leave. While on
leave the employee may not engage in or seek other employment, or be self-
employed. Employees who misrepresent facts to obtain or secure a leave of
absence may be discharged.
Section 2. In the event of a serious medical problem, as determined
by the Company, the Company will automatically place the employee on a
sixty (60) day leave of absence, with the understanding that the employee
is to return to work as soon as he/she is medically able. If the employee
is unable to return within sixty (60) days, an evalutaion will be made. If
appropriate, the leave will be extended for up to sixty (60) days more.
This process will continue until the employee has returned to work, or it
has been determined that he/she will not be able to return to work, or a
total twelve (12) months has been granted. If the employee is unable to
return to work within (12) months, he/she will be administratively dropped
from the payroll unless the Company and Union agree to a six (6) month
extension.
<PAGE>
ARTICLE XX
GENERAL
Section 1. It is hereby understood and agreed that nothing included
in this Agreement shall be interpreted, construed or applied in any way
that will conflict with the provisions, requirements, purpose and intent of
the Constitiution of the Sheet Metal Workers' International Association or
with the obligations of its members in connection therewith. If the
Constitution is revised which causes any section to be in violation of the
constitiution, Article XX, Section 5, will apply.
Section 2. All parties hereto mutually agree to cooperate fully, in
every legal and proper way to establish and maintain, within the territory
in which they shall operate a code of ethics and fair practices which will
insure compliance with the specific terms of this Agreement, and to direct
their efforts, individually and collectively, as circumstances may warrant
and justify, to the elimination of unfair competition and destructive
practices.
Section 3. Except to the extent expressly abridged by a specific
provsion of the Agreement, the Company reserves and retains, solely and
exclusively, all of its common law rights to manage the business as such
rights existed prior to the execution of this or any other previous
agreement with the Union or any other union.
The sole and exclusive rights of management shall include, but are not
limited to, its rights to determine the existance or non-existance of facts
which are the basis of a management decision, to determine prices of
products, volume of production and methods of financing, to drop a product
line, to establish or continue policies, practices, and procedures for the
conduct of the business, and from time to time redetermine, the number,
location, relation and types of its operations, and the methods, processed
and materials to be employed, to discontinue processed or operations, or to
discontinue their performance by employees of the Company, to determine the
number of hours per day, or per week operation shall be carried on, to
select and to determine the number of types of employees required; to
assign work to such employees in accordance with the requirements
determined by management; establish and change work schedules and
assignments; to transfer, promote, or demote employees or to layoff,
terminate, or otherwise relieve employees from duty for lack of work, other
legitmate reasons, to determine the facts of lack of work, to make and
enforce reasonable rules for the maintenance of discipline; to suspend,
discharge, or otherwise discipline employees for just cause and otherwise
to take such measures as management may determine to be necessary for the
orderly, efficient, and profitable operation of the business all to the
best regard of its employees.
Section 4. The Company agrees that it is to the Company's advantage
to perform as much of the work with its own employees as possible, and to
that end the Company will make every effort to maintain maximum utilization
of its plant and equipment. It is understood and agreed that there shall
be no discrimination against any member of this Union for Union
affiliation.
<PAGE>
Section 5. Should any part hereof, of any provisions contained herein
be rendered or declared illegal, or any unfair labor practice by reason of
any existing or subsequently enacted legislation or by any decree of a
Court of competent jurisdiction or by the decision of any authorized
governmental agency, including the National Labor Relations Board, such
invalidation of such part of portions of this Agreement shall not
invalidate the remaining proptions hereto, provided that upon such
invalidation the parties immediately meet and negotiate substitute
provisions for such parts or provision rendered or declared illegal or an
unfair labor practice. The remaining parts or provisions shall remain in
full force and effect.
Section 6. The Company agrees that in the event the Company decides
to suspend operations or move to another location which is more than fifty
(50) straight-line miles from the present location, the Company will notify
the Union not less than thirty (30) days before such action takes place.
In this, the Company agrees to gain with the Union concerning severance pay
for affected employees.
Section 7. Swing shift shop stewards will be allowed to take 2 hours
with pay in order to attend one monthly stewards' meeting.
Section 8. A. During the life of this Agreement, the Union will not
cause a strike or production stoppage of any kind, nor will any employee or
emplyees take part in a strke, intentionally slow down in the rate of
production, or in any manner cause interference with or stoppage of the
employer's work, PROVIDED the employer follows the grievance procedure in
Article XII.
B. Likewise, the Company agrees that there shall be no lockouts
during the life of this Agreement, provided the Union follows the grievance
procedure in Article XII.
C. It shall be considered a violation of this Agreement if employees
fail to report for work by reason of a legitimate, authorized picket line
established by another union which has a collective bargaining agreement
with the Company, except as provided for in Article I, Section 2. Except
for the above, the Union shall not observe a picket line placed for
organizational or any other purpose.
<PAGE>
ARTICLE XXI
DURATION OF AGREEMENT
Section 1. All provisions of this Agreement shall go into effect on
July 18, 1997, and shall remain in effect until Midnight on July 17, 2000,
and shall continue in force and effect from year to year thereafter, unless
either party shall desire a change and shall file a notice in writing of
changes desired at least sixty (60) days prior to subsequent year ending
July 17, and the established wage scales and conditions specified herein
shall continue in force and effect pending negotiations and settlement of
any proposed changes desired by either party.
Section 2. In Witness and testimony of the provisions and terms
mutually agreed upon and specified herein, the duly authorized officers
and/or representatives of both parties hereby affix their signatures this
30th day of December 1996.
SIMPSON STRONG - TIE SHEET METAL WORKERS'
SAN LEANDRO BRANCH INTERNATIONAL ASSOCIATION
LOCAL UNION NO. #371
By: /s/Murray Daniels By: /s/Christopher Boreliz
------------------------ ------------------------
Murray Daniels Christopher Boreliz
/s/Edward Davis /s/Keenan Fincher
------------------------ ------------------------
Edward Davis Keenan Fincher
/s/Michael Plunk /s/Maryiln Caluya
------------------------ ------------------------
Michael Plunk Maryiln Caluya
/s/Robert O'Connor /s/Louie Liwanag
------------------------ ------------------------
Robert O'Connor Louie Liwanag
/s/Nelson Martin
------------------------
Nelson Martin
/s/Clarence Garcia
------------------------
Clarence Garcia
<PAGE>
ADDENDUM TO THE PRESENT COLLECTIVE BARGAINING AGREEMENT BETWEEN
SIMPSON STRONG-TIE AND SHEET METAL WORKERS' LOCAL #371
Article IV. Check-Off
Section 5. All bargaining unit employees shall receive once each
calender month a supplemental payment as follows: Effective January 1,
1997, ten cents ($.10) per hour for each hour paid. The Company shall
forward the supplemental payment to the Local Union once each calendar
month for the preceding month hours paid as a supplemental dues payment.
Article VI. Wages
All employees shall receive a fifty-cent ($.50) pay increase across
the board effective January 1, 1997
Article XI. Shifts
Section 5. In the event there is a third shift, the Company shall use
the least senior qualified employees.
Article XV. Pension
The pension shall be increased for all employees effective January 1,
1997, ten cents ($.10) per hour.
All employees shall receive a $500.00 signing bonus effective January
1, 1997.
SIMPSON STRONG - TIE SHEET METAL WORKERS'
SAN LEANDRO BRANCH INTERNATIONAL ASSOCIATION
LOCAL UNION NO. #371
By: /s/Murray Daniels By: /s/Christopher Boreliz
------------------------ ------------------------
Murray Daniels Christopher Boreliz
/s/Edward Davis /s/Keenan Fincher
------------------------ ------------------------
Edward Davis Keenan Fincher
/s/Michael Plunk /s/Maryiln Caluya
------------------------ ------------------------
Michael Plunk Maryiln Caluya
/s/Robert O'Connor /s/Louie Liwanag
------------------------ ------------------------
Robert O'Connor Louie Liwanag
/s/Nelson Martin
------------------------
Nelson Martin
/s/Clarence Garcia
------------------------
Clarence Garcia
EXHIBIT 10.4
------------
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made as of March 7, 1997, by and
among the following parties:
Simpson Strong-Tie Company Inc., a California corporation
("SST");
Simpson Strong-Tie Canada, Limited, a corporation incorporated
under the laws of the Province of Ontario ("SST-Canada" and,
collectively with SST, "Buyer");
Robert Anthony Cunningham ("R. Cunningham");
Diane Saroginie Cunningham ("D. Cunningham");
D. Cunningham, Joan Phyllis Seetaram, Martin I. Silver and
Tracey Eichinger, as trustees of The Angela Cunningham Trust
dated May 17, 1985 (the "Trust" and, collectively with R.
Cunningham and D. Cunningham, the "ADB Sellers");
D. Cunningham Holdings Inc., an Ontario corporation
("DCHI"); and
Joan Phyllis Seetaram ("Seetaram" and, collectively with
the ADB Sellers and DCHI, the "Sellers"), with reference
to the following facts:
Seetaram Holdings Limited, an Ontario corporation ("Holdings"), all of
the outstanding capital stock of which (the "Holdings Stock") is owned by
Seetaram, Isometric Limited, an Ontario corporation ("Isometric"), all of
the outstanding capital stock of which is owned by Holdings, A.D.B. Heading
Limited, an Ontario corporation ("ADB"), all of the outstanding capital
stock of which (the "ADB Stock") is owned by the ADB Sellers, and Dual
Fastening, Inc., a Georgia corporation ("DFI" and, collectively with
Holdings, Isometric and ADB, the "Companies"), all of the outstanding
capital stock of which (the "DFI Stock") is owned by DCHI, are engaged in
the business of developing, producing, manufacturing, marketing and
selling, principally in Canada and the United States of America (the
"U.S."), fastening products used in building construction. SST is engaged
in a similar business.
Sellers and Buyer (collectively, the "Parties") consider it desirable
and in their respective best interests that Buyer purchase from Sellers and
Sellers sell to Buyer all of the outstanding capital stock of each of the
Holdings, ADB and DFI, on the terms and conditions in this Agreement. All
references herein to "dollars" or "$" mean U.S. dollars, except as
otherwise expressly indicated.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein, the Parties agree as follows:
1. Purchase and Sale.
1.1. Assignment of Stock. At the Closing (as hereinafter
defined), Seetaram shall sell, assign, transfer and convey to SST-Canada
all right, title and interest, of record and beneficial, in and to all of
the Holdings Stock, the ADB Sellers shall sell, assign, transfer and convey
to SST-Canada all right, title and interest, of record and beneficial, in
and to all of the ADB Stock, and DCHI shall sell, assign, transfer and
convey to SST all right, title and interest, of record and beneficial, in
and to all of the DFI Stock, in each case subject to no, and free of any,
liens, claims, pledges, mortgages, encumbrances, security interests,
defects in title, community property rights, restrictions on transfer and
other defects in title or restrictions (collectively, "Liens"). To that
end, Sellers shall deliver to SST-Canada and SST, as provided above, at the
Closing all certificates or other instruments representing or evidencing
the Holdings Stock, the ADB Stock and the DFI Stock (collectively, the
"Company Stock"), duly endorsed for transfer to SST-Canada or SST, as
provided above, or accompanied by stock powers duly executed by the
respective Sellers transferring and assigning the Company Stock to SST-
Canada or SST, as provided above, all in form and substance satisfactory to
Buyer.
1.2. Purchase of Stock. At the Closing (as hereinafter
defined), Buyer shall purchase from Sellers, respectively, all right, title
and interest, of record and beneficial, in and to all of the Company Stock,
as herein provided.
1.3. Base Purchase Prices. The base purchase prices for the
Company Stock (each, a "Base Stock Price"), expressed in Canadian dollars,
shall be as follows:
Base Stock Price
Company Stock (Canadian Dollars)
-------------- ------------------
Holdings Stock $ 6,000,000
ADB Stock $ 1,800,000
DFI Stock $ 2,200,000
--------------
Total $ 10,000,000
==============
1.4. Payment. At the Closing (as hereinafter defined), Buyer
shall pay the total Base Stock Prices, by delivering to Morris Silver
Lewis, Barristers-at-Law and Solicitors, counsel for Sellers, a certified
cheque drawn on a Canadian Chartered Bank, in immediately available
Canadian dollars, payable to the order of "Morris Silver Lewis, in trust",
or payable to such other person or persons as Sellers may direct by notice
signed by all Sellers and received by Buyer at least three days prior to
the Closing. On making such payment, Buyer shall be deemed to have paid in
full the Base Stock Prices for all of the Stock, and the $25,000 deposit
(the "Deposit") heretofore lodged by SST with its counsel, together with
any interest earned thereon, shall thereupon be returned to SST.
1.5. Closing. The purchases and sales of the Company Stock
shall be consummated in accordance with this Agreement at a closing (the
"Closing") to be held at the offices of Stikeman, Elliott, Barristers &
Solicitors, Canadian counsel for Buyer, at Suite 5300, Commerce Court West,
Toronto, Canada, at 10:00 A.M. Toronto time, on March 10, 1997, or on such
later date as all of the conditions in section 9 are satisfied or waived or
on such earlier or later date as the Parties may determine by mutual
agreement (the date of the Closing being hereinafter called the "Closing
Date"); provided that the Closing Date shall not be later than April 15,
1997.
1.6. Earn-Out Payments. For each of the four calendar years
1997, 1998, 1999 and 2000 (each, an "Earn-Out Year") for which Mechanical
Anchor Sales (as hereinafter defined) exceed the Mechanical Anchor Sales
for the preceding calendar year, SST-Canada shall pay to Sellers an
additional amount (each, an "Earn-Out Payment") equal to ten percent of
such excess; provided that no Earn-Out Payment shall accrue or be due or
payable for any Earn-Out Year for which the Mechanical Anchor Sales are not
more than $6,395,380. For purposes of this section 1.6, "Mechanical Anchor
Sales" means the aggregate net revenues (determined by Buyer in accordance
with U.S. generally accepted accounting principles ("GAAP") from Buyer's
sales reports prepared in the ordinary course of Buyer's business) for
sales by Buyer and its affiliates (including the Companies) of Mechanical
Anchor Products identified on Schedule 1.6 attached hereto, reduced by
charges for returns of any of such products; provided that Schedule 1.6 may
be amended at any time or from time to time by agreement between R.
Cunningham and SST. Mechanical Anchor Sales for calendar year 1996 shall
be deemed to have been $6,395,380 (including $5,552,380 by the Companies
and $843,000 by SST and its subsidiaries). Buyer shall furnish to R.
Cunningham within forty-five days after the end of each calendar quarter
ending on or prior to December 31, 2000, commencing with the calendar
quarter ending March 31, 1997, a report showing the Mechanical Anchor Sales
for that quarter. Not later than March 31 of the year following each Earn-
Out Year, Buyer shall furnish to R. Cunningham copies of all such sales
reports for such Earn-Out Year. SST-Canada shall make each Earn-Out
Payment that accrues as provided in this section 1.6 by check or wire
transfer in accordance with instructions provided by the respective Sellers
entitled thereto not later than March 31 of the calendar year following the
respective Earn-Out Year to the following parties in the following
proportions:
R. Cunningham 4.5%
D. Cunningham 4.5%
Trust 9.0%
DCHI 22.0%
Seetaram 60.0%
2. Publicity. Prior to the Closing Date, no publicity, release,
announcement, notice, statement or report concerning the transactions
contemplated hereby shall be issued by any Party without the prior approval
of the form and substance thereof by SST and R. Cunningham; provided that
SST and its affiliates shall have the right, in their absolute discretion,
to make or file with the U.S. Securities and Exchange Commission or any
other U.S. or Canadian governmental agency such releases, announcements,
notices, statements or reports as they may determine to be necessary or
advisable for Buyer or any of its affiliates to comply with applicable
laws, rules and regulations.
3. Representations and Warranties of Buyer. Buyer hereby represents
and warrants to, and agrees with, Sellers, as follows:
3.1. Organization. SST and SST-Canada are corporations duly
organized, validly existing and in good standing under the laws of the
State of California and the Province of Ontario, respectively, and each has
full corporate power and authority to carry on its business as now
conducted and to own its assets. Buyer is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction
where, by virtue of its business conducted therein, it is required to be so
qualified, except in any jurisdiction where the failure to be so qualified
does not affect Buyer materially and adversely. All of the outstanding
capital stock of SST-Canada is owned of record and beneficially by SST.
3.2. Litigation. There are no actions, suits, proceedings or
investigations pending before any court or governmental agency or before
any arbitrator of any kind, or any order, injunction or decree outstanding,
or, to the knowledge of Buyer, threatened, against Buyer or against or
relating to its property, assets or business, that would materially and
adversely affect the right, power or capacity of Buyer to enter into and
perform its obligations under this Agreement.
3.3. No Breach. The execution and delivery of, and the
transactions contemplated by, this Agreement do not and will not result in
a breach of the terms or conditions of or constitute a default under, or
violate, the Articles of Incorporation or Bylaws of Buyer or any agreement
or other document or undertaking, oral or written, to which Buyer is a
party or by which it is bound.
3.4. Authority for Agreement. All corporate and other
proceedings required to be taken by or on behalf of Buyer to authorize
Buyer to enter into and carry out this Agreement have been duly and
properly taken. This Agreement has been duly executed and delivered by
Buyer. This Agreement is the legal, valid and binding agreement of Buyer,
enforceable against Buyer in accordance with its terms.
3.5. Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried on directly by Buyer
with Sellers, without the intervention of any broker or investment banker
or other third party engaged by Buyer. Buyer has not engaged, consented to
or authorized any broker, investment banker or other third party to act on
its behalf, directly or indirectly, as a broker or finder in connection
with the transactions contemplated by this Agreement.
3.6. Investment Canada. Buyer is a WTO Investor within the meaning
of the Investment Canada Act.
4. Representations and Warranties of Sellers. Sellers, jointly and
severally, hereby represent and warrant to Buyer, and agree with Buyer, as
follows:
4.1. Organization. Each of the Companies and Sellers
(collectively, the "Selling Parties") that is incorporated is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to
carry on its business as now conducted and to own its assets. The Trust is
duly organized, validly existing and in good standing as a trust under the
laws of each jurisdiction that govern the Trust and has full power and
authority to carry on its business as now conducted and to own its assets.
Each of such corporations is duly qualified to do business and is in good
standing as an extra-provincial or foreign corporation in each jurisdiction
where, by virtue of its business conducted therein, it is required to be so
qualified, except in any jurisdiction where the failure to be so qualified
does not affect it materially and adversely. True and complete copies of
the articles or certificate of incorporation, trust instrument, bylaws and
other charter documents, as currently in effect, of each such corporation
and the Trust have been delivered to Buyer. The minute books of each such
corporation contain substantially accurate records of all meetings of its
board of directors, all committees of its board of directors, and its
shareholders since its incorporation and accurately reflect all material
transactions to which such minutes refer.
4.2. Capitalization. The authorized capital stock of the
Selling Parties that are corporations, the issued and outstanding capital
stock of those corporations and the record and beneficial owners thereof
and the number of shares owned by each are as follows:
Issued and Record and
Outstanding Beneficial
Corporation Authorized Capital Stock Shares Owner
----------- ----------------------------- ----------- -------------
DCHI unlimited Class A, B, C, D 1 Common D. Cunningham
and E Shares and unlimited
Common Shares
DFI 1,500 Common Shares 500 Common DCHI
ADB 100,000 Common Shares, no par 10 Common R. Cunningham
value 10 Common D. Cunningham
20 Common Trust
Isometric 3,600 Non-Voting Special 10 Common Holdings
Shares, par value $10 each,
and 400 Common Shares, no par
value
Holdings 10,000 Common Shares, no par 100 Common Seetaram
value, 4,000 Class A Non- 100 Class A Seetaram
Cumulative,Non-Voting, Non- Special
Partici pating, Special
Shares, par value $10 each,
and 5,000 Class B Non-
Cumulative, Voting, Non-
Participating Shares, par
value $10 each
All of such shares that are issued and outstanding have been duly and
validly issued and are outstanding, fully paid, nonassessable and free of
all Liens and preemptive and similar rights. The record and beneficial
owners identified above in this section 4.2 own all right, title and
interest in and to the shares set forth above, subject to no Lien or
preemptive or similar rights. Sellers have contributed to the capital of
the respective Companies the amounts of all debts and liabilities of any of
Companies to any of Sellers shown on the 1996 Financial Statements (as that
term is defined in section 4.6), including, without limitation, the
contribution by DCHI to the capital of DFI in the amount of $38,688, or
subsequently incurred (other than debts for ordinary and customary employee
compensation incurred in the ordinary course of the Companies' businesses),
and none of the Companies has any debt, duty, obligation or liability to
any of Sellers.
4.3. Subsidiaries. None of the Companies has any subsidiaries
or owns of record or beneficially any capital stock or other equity
securities issued by any person, except that Isometric is a wholly owned
subsidiary of Holdings.
4.4. Options, Warrants, Convertible Securities, etc. Except as
provided in this Agreement, there are no outstanding options, rights,
warrants, convertible securities, commitments or agreements calling for the
issuance, assignment, transfer, sale, pledge, hypothecation or other
disposition of any capital stock of any of the Selling Parties that is a
corporation or of any securities convertible into or exchangeable for any
capital stock of any such corporation.
4.5. Officers and Directors. Schedule 4.5 attached hereto
contains a complete and correct list of the names of all officers and
directors of each of the Selling Parties that is a corporation.
4.6. Financial Statements. Except as set forth in Schedule 4.6
attached hereto, the books of account of each of the Companies are correct
and complete in all material respects and fairly present its income,
expenses, assets and liabilities in accordance with GAAP and with Canadian
generally accepted accounting principles ("Cdn.GAAP"), as appropriate,
consistently applied. Except as set forth in Schedule 4.6, the unaudited
financial statements of the Companies for the two years ended December 31,
1995, and the combined audited financial statements of the Companies for
the eleven-month period ended November 30, 1996, all of which have been
delivered by Sellers to Buyer, fairly present the Companies' financial
position as of said dates and the results of their operations for such
periods and were prepared in conformity with GAAP or Cdn.GAAP, as
appropriate, consistently applied throughout the periods covered thereby.
Such financial statements for the eleven-month period ended November 30,
1996 (the "1996 Financial Statements") have been prepared in accordance
with GAAP, consistently applied, and have been audited by Coopers &
Lybrand, Chartered Accountants, independent certified public accountants.
None of the Companies has any material liabilities or obligations, whether
accrued, absolute, contingent or otherwise, and whether due or to become
due, which arose or, in accordance with GAAP, should be accrued, with
respect to any period ended on or prior to November 30, 1996, other than
(a) those disclosed, or reflected as liabilities or obligations, or
reserved against, on the 1996 Financial Statements, (b) those disclosed
herein or on any schedule hereto or (c) those fully covered by insurance
and not otherwise materially adversely affecting the financial condition,
business, assets or operations of any of the Companies. The current
working capital of each of the Companies is consistent with its past
practices and sufficient for the purposes of operating its business in its
present form and at its present level of activity and for the purpose of
fulfilling in accordance with their respective terms all purchase orders,
projects and contractual obligations which have been placed with or
undertaken by it.
4.7. Liabilities Since November 30, 1996. None of the Companies
has any liabilities or obligations material to it, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, which
arose, or, in accordance with GAAP, were accrued or should be accrued, with
respect to any period that began after November 30, 1996, and none of
Sellers has any knowledge of any circumstances, conditions, events or
arrangements that would give rise to any such liabilities or obligations of
any of the Companies in the future, other than (a) those incurred in the
ordinary course of its business, which have not been in the aggregate
materially adverse to the business or financial condition of any of the
Companies, (b) those disclosed on any schedule hereto, (c) those reasonably
incurred in connection with this Agreement and the transactions
contemplated hereby, and (d) those covered by insurance and not otherwise
materially adversely affecting the financial condition, business, assets or
operations of any of the Companies.
4.8. Actions Since November 30, 1996. Except as reflected in
the 1996 Financial Statements and except as otherwise expressly set forth
in or contemplated by this Agreement, since November 30, 1996, none of the
Companies has (a) and none of Sellers has, issued or sold, or agreed to
issue or sell, or purchased, or agreed to purchase any capital stock of any
of the Companies or securities convertible into or exchangeable for such
capital stock, or any options, warrants, rights or calls to purchase such
capital stock, or other securities, (b) incurred any obligation or
liability, absolute or contingent, except those to which clauses (a)
through (d) of section 4.7 refer, (c) discharged or satisfied any Lien,
except in the ordinary course of business, or paid or satisfied any
liability other than liabilities as of November 30, 1996, to which clauses
(a) through (c) of section 4.6 refer or liabilities to which clauses (a)
through (d) of section 4.7 refer, in each case only in the ordinary course
of business, (d) entered into, or modified, any employment or consulting
agreement, or made any wage or salary increases or granted any bonuses,
except in the normal employee or executive review process, which has been
fully disclosed to Buyer in writing, (e) subjected to Lien any of its
properties or assets, (f) sold, assigned or transferred any of its
properties or assets, except in the ordinary course of business, (g)
entered into any transaction not in the ordinary course of business, (h)
waived any rights of substantial value, or cancelled, modified or waived
any debts owed to it in excess of $10,000 in the aggregate, (i) declared,
paid or set aside any dividends or other distributions or payments on its
capital stock, (j) made any loans or advances to any person or assumed,
guaranteed, endorsed or otherwise become responsible for obligations of any
person, except for advances to unaffiliated third parties not in excess of
$10,000 in the aggregate, (k) except as described in Schedule 4.7 attached
hereto, made any payment to any of Sellers in respect of any debt of any of
the Companies to any of Sellers in any capacity other than ordinary and
customary employee compensation paid in the ordinary course of business,
(l) made any change or amendment in its articles or certificate of
incorporation, or other charter documents, (m) effected any merger,
consolidation, recapitalization, stock split, stock dividend,
reorganization or other transaction affecting any of its capital stock, (n)
made any illegal payments to governmental or quasi-governmental officials,
or any payments to customers for the sharing of fees or to customers or
suppliers for the rebating of charges, or other reciprocal practices, or
(o) entered into any agreement, commitment or understanding to do any of
the foregoing.
4.9. Adverse Developments. Since November 30, 1996, there has
not occurred (a) any materially adverse change in the business, assets,
results of operations or financial condition of any of the Companies, or
(b) any loss or destruction, whether or not covered by insurance, of any
material portion of the assets of any of the Companies which materially
adversely affects the ability of any of the Companies to carry on its
business as currently conducted, and none of Sellers knows of any
development that may give rise to any of the foregoing.
4.10. Taxes. All taxes, including, without limitation, income,
property, sales, use, occupancy, excise, franchise, added value, employees'
withholding and Social Security taxes, imposed by Canada, the U.S. or any
other country or by any province, state, municipality, subdivision or
instrumentality of Canada, the U.S. or any other country or by any other
taxing authority, which have become due and payable by any of the
Companies, and all interest and penalties thereon, whether disputed or not,
have been paid in full or adequately provided for by reserves shown in its
books of account. All deposits required by law to be made by any of the
Companies with respect to employees' withholding taxes, and income,
franchise or capital taxes of any of the Companies, have been duly made,
and all income or franchise tax returns of each of the Companies were true
and complete and have been filed as and when required by applicable law.
As of November 30, 1996, none of the Companies was liable for the payment
of any taxes, including, without limitation, income, gross receipts,
property, sales, use, occupancy, excise, value added or franchise taxes, in
any jurisdiction, other than as set forth herein or in the 1996 Financial
Statements. No deficiency or adjustment in respect of Canadian, U.S.,
provincial, state, local or foreign income taxes has been assessed against
any of the Companies and remains unpaid, other than such taxes or
assessments as are being contested in good faith and which have been
disclosed to Buyer in writing, and none of Sellers has knowledge of any
unassessed tax deficiency proposed or threatened against any of the
Companies. The Canadian federal income tax liability of Isometric and ABD
has been assessed for all fiscal years to and including the year ended
December 31, 1995. There has been no reassessment filed and no notice of
objection by any taxing authorities. The U.S. Federal and state tax
returns of DFI have been filed with all tax authorities having
jurisdiction, and the time for audit thereof by tax authorities having
jurisdiction has expired for all tax years ended on or prior to December
31, 1993. No examination of any tax return of any of the Companies is
currently in progress, there are no outstanding agreements or waivers
extending the statutory period or providing for an extension of time with
respect to the assessment or reassessment of tax or the filling of any tax
return or any payment of any tax by any of the Companies (except that DFI
routinely requests extension of the time for the filing of its tax
returns), and there are no claims now threatened or pending against any of
the Companies in respect of taxes or any matters under discussion with any
governmental entity relating to taxes. DFI requested such an extension for
the year ended March 31, 1996, and DFI's tax returns for that year were
prepared and filed in a timely manner. Each of the Companies has withheld
from each payment made by it the amount of all taxes and other deductions
required to be withheld therefrom and has paid the same to the proper
taxing or other authority within the time prescribed under any applicable
law. None of Sellers is a nonresident person of Canada within the meaning
of the Income Tax Act (Canada).
4.11. Ownership of Assets. Except as set forth in Schedule 4.11
attached hereto, each of the Companies owns outright and has good and
marketable, indefeasible title to all of its assets and properties,
tangible and intangible (including all assets reflected in the 1996
Financial Statements, except those disposed of in the ordinary course of
business since November 30, 1996), and good title to its leasehold estates,
in each case free and clear of all Liens, in each case except for (a) Liens
for current taxes not delinquent, or taxes being protested in good faith
(such protests being set forth in Schedule 4.11), and (b) such
imperfections in the title thereto and Liens, if any, as do not materially
detract from the value, or interfere with the present or continued use, of
its property, or otherwise impair its business or operations. None of the
properties or assets, the value of which is reflected in the 1996 Financial
Statements, is held by any of the Companies as lessee or subject to any
lease or as conditional vendee under conditional sale or other title
retention agreement or as optionee under any option to purchase. Each of
the Companies owns or has the right to use all assets and properties that
are used or useful in its business, subject to no Liens, excepting only
those described in the 1996 Financial Statements, those that will be
discharged or released prior to the Closing and minor easements and
exceptions, none of which will interfere with its use thereof after the
Closing.
4.12. Intangible Assets. Schedule 4.12 attached hereto sets
forth a list and brief description of all patents and patent rights and
applications, and all trademarks, service marks, trade names and copyrights
and applications for the registration thereof, and other intangible assets
(other than trade secrets) owned or used by any of the Companies or in
which it has an interest. No person has any proprietary or other interest
in any of such intangible assets or any trade secrets of any of the
Companies and no third party has infringed on any of the properties so
listed or has asserted the invalidity or unenforceability of any thereof.
None of the Companies is infringing on any patent, copyright, trademark,
service mark or other intangible right of any third party, and no
proceedings have been instituted or are pending or are threatened, and no
claim has been received by any of the Companies, alleging any such
infringement. To the best knowledge of Sellers, none of the Companies, no
activity in which any of the Companies is engaged, no product which any of
the Companies manufactures, uses or sells and no process, method,
packaging, advertising, or material that any of the Companies employs in
the manufacture, marketing or sale of any such product, breaches, violates,
infringes, interferes with, or requires payment for the use of any rights
of any third party. Except as set forth in Schedule 4.12, none of the
Companies is a party to or bound by any license or other agreement (as
licensor or licensee or otherwise) providing for the payment or receipt of
any royalty.
4.13. Litigation. Except as set forth in Schedule 4.13 attached
hereto, there are no actions, suits, proceedings or investigations pending
before any court or governmental agency or before any arbitrator of any
kind, or any order, injunction or decree outstanding or, to the best
knowledge of Sellers, threatened, against any of the Companies or against
or relating to its property, assets or business, nor do any of Sellers know
or have reasonable grounds to know of any basis for any such action, suit,
proceeding, governmental investigation, order, injunction or decree. None
of the Companies is in violation of any applicable law, regulation,
ordinance, order, injunction, decree, award or other requirement of any
governmental body, court or arbitrator relating to its property, assets or
business, except for such law, regulation, ordinance, order, injunction,
decree, award and other requirement of which Sellers have no actual or
constructive knowledge and which would not have a material adverse effect
on the business or financial condition of any of the Companies.
4.14. Agreements and Obligations. Except as set forth on
Schedule 4.14 attached hereto, each of the Companies has performed all
obligations required to be performed by it to the date hereof under all
material agreements to which it is a party or by which it is bound, is not
in default under any such agreement which would permit any other party to
terminate or would give rise to a claim for damages by any other party, and
none of Sellers knows of any default or alleged default thereunder by any
other party or of any event which, with the giving of notice or the passage
of time, or both, would become such a default by any of the Companies which
would permit any other party to terminate or would give rise to a claim for
material damages against the defaulting party or such other party. All
such agreements are valid and in full force and effect and, to the best
knowledge of Sellers, none of such agreements is subject to rescission or
reformation and there are no circumstances or writings extrinsic to any of
such agreements that would materially modify any of their terms, prevent
their assignment or create a Lien on any of the Companies or any of its
properties.
Without limiting the generality of the foregoing, except as
contemplated hereby or as set forth herein or in Schedule 4.14, none of the
Companies is a party to or bound by any written or oral (a) material
contract, commitment or arrangement that cannot by its terms be cancelled
on notice of thirty days or less, (b) contractual obligation or liability
of any kind to holders of its securities as such, (c) contracts or
arrangements with its customers for the sharing of their fees, the rebating
of charges to such customers or other similar arrangements, (d) contract
for the purchase or sale of any materials, products or supplies, which
contains any escalator, renegotiation or redetermination clause, (e) lease
material to it for real or personal property, (f) union or other collective
bargaining agreement, (g) contract, accepted order or commitment for the
purchase of materials, products, supplies or equipment having a total
contract price in excess of $10,000, (h) agreement or instrument evidencing
or relating to indebtedness for borrowed money or creating any Lien on any
property owned or used by any of the Companies, (i) contract which by its
terms requires the consent of any party other than any of the Companies to
the consummation of the transactions contemplated hereby, (j) contract
containing covenants limiting the freedom of any of the Companies to
compete in any line of business or with any person in any geographical
area, (k) contract or option relating to acquisition by any of the
Companies of any operating business, (l) irrevocable proxy, voting
agreement, voting trust agreement or shareholder agreement, (m) option for
the purchase of any asset, tangible or intangible, (n) contract or
arrangement requiring the payment to any person of an override or similar
commission or fee or (o) other agreement which was entered into other than
in the ordinary course of business of any of the Companies.
4.15. Accounts Receivable. All accounts receivable reflected in
the 1996 Financial Statements have arisen in the ordinary course of
business, represent obligations due to the respective Companies and have
been collected or are collectible in the ordinary course of business in the
aggregate recorded amounts thereof, except to the extent set forth as
reserves for bad debts in the 1996 Financial Statements. None of Sellers
is indebted to any extent to any of the Companies.
4.16. Permits. Each of the Companies has all permits, licenses,
orders, approvals, franchises and other rights and privileges necessary for
it to carry on its business as presently conducted, except such permits,
licenses, orders, approvals, franchises and other rights and privileges
which no governmental authority has demanded be obtained and of which none
of Sellers has any actual or constructive knowledge, and with respect to
which the failure to obtain, if required, would not have a material adverse
effect on the business or financial condition of any of the Companies.
4.17. Banking Arrangements. Schedule 4.17 attached hereto sets
forth the name of each bank or other financial institution in or with which
any of the Companies has an account, credit line or other credit
arrangement or safety deposit box, the account or box number thereof, the
names of all persons presently authorized to draw thereon or having access
thereto, the balance thereof as of January 31, 1997, and a statement
describing the purpose of each such account.
4.18. No Breach. The execution and delivery of, and the
transactions contemplated by, this Agreement or any agreement or instrument
entered into or to be entered into in connection herewith do not and will
not result in a breach of the terms or conditions of or constitute (with or
without the giving of notice or the passage of time) a default under, or
violate, the articles or certificate of incorporation, bylaws or other
charter documents of any of the Selling Parties that is a corporation or
any lease, agreement, indenture, Lien or other document or instrument, or
any undertaking, oral or written, or any law, rule, regulation, order,
judgment or decree, or any other requirement or restriction, to which any
of the Selling Parties is a party or by or to which he, she or it is bound
or subject.
4.19. Authority for Agreement. All corporate and other
proceedings required to be taken by or on behalf of each of the Selling
Parties that is a corporation or trust to authorize it to enter into and
carry out this Agreement and each other agreement or instrument entered
into or to be entered into in connection herewith to which it is a party
have been duly and properly taken. This Agreement has been, and each such
other agreement or instrument will at the Closing have been, duly executed
and delivered by each of the Selling Parties that is a party thereto. This
Agreement is, and each such other agreement or instrument will be from and
after the Closing Date, the legal, valid and binding agreements of each of
the Selling Parties that is a party thereto, enforceable in accordance with
the respective terms thereof.
4.20. Interests in Assets. None of the Selling Parties and no
officer, director, shareholder or trustee of any of the Selling Parties
that is a corporation or trust or any member of his or her family owns any
property or rights, tangible or intangible, used in or related, directly or
indirectly, to the business of any of the Companies, or the use of which is
necessary for such business as now conducted. Each of the Companies owns
all right, title and interest in and to all trade names, trademarks,
service marks and copyrights necessary for the conduct of its business as
now conducted, and all rights to registrations thereof.
4.21. Powers of Attorney. No person now holds any power of
attorney granted by any of the Selling Parties or any of its officers,
directors or trustees, as such.
4.22. Employees. (a) Schedule 4.22 attached hereto contains a
true and complete list of all employees of each of the Companies, whether
they are full-time or part-time, their salaries and wage rates, bonus
arrangements, benefits, positions and length of service. Schedule 4.22
also contains a correct and complete list showing all amounts due or
accrued for all salary, wages, bonuses, commissions, vacation with pay,
pension benefits or other employee benefits relating to all employees.
(b) Except for those written employment contracts identified in
Schedule 4.22 (true and complete copies of which have been furnished to
Buyer), none of the Companies has any written contracts of employment with
any employees.
(c) The business of each of the Companies is being operated in
material compliance with all laws relating to employees, including
employment standards, occupational health and safety and pay equity, and
there are no outstanding orders or prosecutions under any such law.
(d) No compliant is pending or, to the best knowledge of
Sellers, threatened against any of the Companies before any employment
standards branch or tribunal or human rights tribunal.
(e) No unfair labour practice, complaint or grievance against
any of the Companies is pending or, to the best knowledge of Sellers,
threatened before any labour relations board or similar governmental
entity.
(f) There is no labour strike, dispute, slowdown or stoppage
existing, pending or involving or, to the best knowledge of Sellers,
threatened against any of the Companies.
(g) No union representation question exists respecting the
employees of any of the Companies.
(h) No grievance which might have a material adverse effect on
any of the Companies or the conduct of the business of any of the Companies
exists, no arbitration proceeding arising out of or under any collective
agreement is pending, and no claim therefor has been asserted.
(i) No collective bargaining agreement is currently being
negotiated by any of the Companies with respect to its employees and there
are no collective bargaining agreements in force with respect to any of the
employees of any of the Companies.
(j) No employee of any of the Companies has any agreement as to
length of notice required to terminate his or her employment, other than
such as results by law from the employment of an employee without agreement
as to such notice or as to length of employment.
(k) All vacation pay (including all banked vacation pay),
bonuses, commissions and other employee benefit payments are reflected and
have been accrued in the books and records of the respective Companies.
(l) No person or party (including, but not limited to,
governmental agencies of any kind) has asserted any claim, or has any basis
for any action or proceeding, against any of the Companies under or arising
out of any statute, ordinance or regulation relating to discrimination in
employment or employment practices.
(m) None of the Companies is a party to or bound by any
contract, agreement or commitment by the terms of which any person, firm,
corporation, business, trust or other individual or entity is or may become
entitled (for any reason or in any capacity) to any share in the proceeds,
earnings or profits of any of the Companies or of any department, division
or other unit of any of the Companies, and none of the Companies has any
pension, retirement, bonus, incentive, profit sharing, deferred
compensation or other program, plan, contract, agreement or commitment in
force for the benefit of any shareholders, directors, officers, employees
or consultants of any of the Companies, except as described on Schedule
4.22.
(n) No person or party has asserted any claim under which any of
the Companies has any liability under any health, sickness, disability,
death, medical, surgical, hospital or similar benefit plan or arrangement
(whether legally binding or not) maintained by any of the Companies, or to
or by which any of the Companies is a party or is subject or is bound, or
under any workers' compensation or similar law, which is not fully covered
by insurance maintained with reputable, financially responsible insurers.
4.23. Insurance. Schedule 4.23 attached hereto contains a
correct and complete list of all insurance policies that are maintained by
each of the Companies, together with a brief description of each such
policy, including the type of policy, name of insurer, coverage allowance,
expiration dates, annual premiums and any pending claims thereunder. None
of the Companies has failed to pay or is in default with respect to the
payment of any premiums for or under any such insurance policy. None of
the Companies has failed to give any notice or to present any claim under
any such insurance policy in a due and timely fashion. To the best
knowledge of Sellers there are no circumstances in respect of which any
person may make a claim against any of the Companies, whether covered by
insurance or not. Such policies are in full force and effect and are free
from any right of termination on the part of the insurers, except on notice
as stipulated in such policies and no such notice has been received by any
of the Companies. True and complete copies of such insurance policies and
the most recent inspection reports received from insurance underwriters
have been delivered to Buyer. There has not been any material adverse
change in the relationship of any of the Companies with any of its
insurers, in the availability of coverage, or in the premiums payable
pursuant to such policies. Included in Schedule 4.23 is a list setting
forth any and all material claims, with reasonable particulars, made under
any policies of insurance maintained by or for the benefit of each of the
Companies since January 1, 1993.
4.24. Condition of Assets. All of the assets of each of the
Companies are in good operating condition and repair and in compliance with
all applicable laws and regulations. The use and operation of such assets
is in full compliance with applicable building codes, environmental, zoning
and land use laws, and all other local, state, province and national laws
and regulations. All inventory of each of the Companies is in good and
merchantable condition, reasonably in balance and currently of a usable and
saleable quality.
4.25. Environmental Matters. Each of the Companies is in
compliance with, and none of the Companies has any liability under, any
Canada, U.S., province, state or other statute, law, rule, regulation or
ordinance relating to the environment or to the discharge of matter into
the air, ground or water or to the generation, disposal or storage of
matter, which liability arises or results from or by reason of the
ownership or operation of any of the properties or assets of, or the
operation of any business or activity by, any of the Companies. There has
been no production, transportation, disposal or storage on, to, from or in
any real property owned, used or occupied by any of the Companies of any
hazardous waste or other toxic substance by any of the Companies or, to the
best knowledge of Sellers, by any previous owner or tenant of any of such
real property. To the best knowledge of Sellers, no claims, actions,
suits, proceedings, investigations or inquiries are pending or are
contemplated or have been threatened and no judgments have been entered by
or before any court or governmental authority or agency concerning any such
statutes, laws, rules, regulations or ordinances or any such production,
transportation, disposal or storage.
4.26. Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried on directly by
Sellers with Buyer, without the intervention of any broker or investment
banker or other third party engaged by any of the Selling Parties. None of
the Selling Parties has engaged, consented to or authorized any broker,
investment banker or other third party to act on his, her or its behalf,
directly or indirectly, as a broker or finder in connection with the
transactions contemplated by this Agreement.
4.27. Use of Property. None of the properties owned or occupied
by any of the Companies or the occupancy or operation thereof is in
violation of any law or any building, zoning or other ordinance, code or
regulation, in such manner as to materially interfere with the use and
occupancy thereof in the ordinary course of business of any of the
Companies.
4.28. Disclosure. None of the information furnished by any of
the Selling Parties to Buyer herein or in connection herewith contained any
statement of material fact that was not true and complete as of its date or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading as of its date.
4.29. Knowledge. Where any representation or warranty contained
in this Agreement is expressly qualified by reference to the best knowledge
of Sellers, or where any other reference is made herein to the knowledge of
Sellers, it shall be deemed to refer to the knowledge of each of the
Selling Parties. Sellers further confirm that they have made due and
diligent inquiry of such persons (including appropriate officers,
directors, employees, accountants, consultants and lawyers of or for each
of the Companies) as they consider necessary as to the matters that are the
subject of such representations, warranties or references.
5. Confidential Information. Each Party agrees that, until the
Closing, such Party and its representatives will hold in confidence all
information and documents received from any of the other Parties and, if
the transactions contemplated hereby are not consummated, such Party shall
continue to hold such information and documents in confidence and shall
return to the other Parties all such documents and information in written
form (including the documents annexed to this Agreement) then in such
Party's possession without retaining copies thereof, and from and after the
Closing, each of the Selling Parties shall hold in confidence and deliver
to Buyer (without retaining copies) all such documents and information and
all documents and information of or relating to any of the Companies;
provided that each Party's obligation under this section 6 to maintain such
confidentiality shall not apply to any information or documents that are in
the public domain at the time furnished by another Party or that are
disclosed by another Party to any person having no duty of confidentiality
with respect thereto through any means other than as a result of any act of
such Party or its agents, officers, directors or shareholders which
constitutes a breach of this section 5.
6. Preclosing Covenants. From and after the date hereof and until
the Closing on the Closing Date:
6.1. Access. Sellers shall afford Buyer and its officers,
employees, lawyers, accountants and other authorized representatives free
and full access, during regular business hours, to all books, records,
personnel and properties of each of the Companies. To permit Buyer full
opportunity to make such review, examination or investigation as Buyer may
desire of the business and affairs of each of the Companies, Sellers shall
cause the employees, accountants and lawyers of each of the Companies to
cooperate fully with such review and examination and make full disclosure
to Buyer of all information affecting the financial condition and business
operations of each of the Companies, and Sellers shall promptly notify
Buyer of any event which results, or with the passage of time might result,
in any of Sellers' representations and warranties herein being or becoming
false. Anything in this Agreement to the contrary notwithstanding, no
inquiry or investigation by or on the behalf of Buyer, whether before or
after the date hereof, shall constitute a waiver of, negate, abrogate or
otherwise affect the validity of any representation, warranty or covenant
of any of Sellers in, pursuant to or in connection with this Agreement or
modify or affect any of Sellers' obligations or Buyer's rights herein or
hereunder in the event of any breach of any such representation, warranty
or covenant.
6.2. Conduct of Business. Sellers shall cause each of the
Companies to conduct its business only in the ordinary course and not
suffer or permit any change in any material respect of any business policy
or practice of any of the Companies, without the prior written consent of
Buyer.
6.3. Insurance. Sellers shall cause each of the Companies to
maintain in force the insurance policies that it now maintains, except to
the extent that they may be replaced with equivalent policies appropriate
to insure adequately its business and properties at the same rates or at
rates approved by Buyer.
6.4. Capital Stock; Dividends. Sellers shall not suffer or
permit (a) any change to be made in the authorized, issued or outstanding
capital stock of any of the Companies, (b) any securities convertible into
or exchangeable for capital stock of any of the Companies to be authorized
or issued, (c) any options, rights, warrants or calls to purchase capital
stock of any of the Companies to be sold, issued or granted with respect to
any capital stock or any other securities of any of the Companies, or
(d) any of the Companies to declare, pay or commit to pay any cash or stock
dividend or other distribution with respect to its capital stock.
6.5. Contracts and Commitments. Except as shall be approved in
advance by Buyer in writing, or as is contemplated hereby, Sellers shall
not suffer or permit any of the Companies to enter into any contract or
commitment, except contracts or commitments in the ordinary course of
business and involving either (a) an expenditure by it in any one
transaction (other than purchases of materials) not in excess of $10,000 or
(b) the purchase by it of a quantity of materials reasonably anticipated to
be consumed or resold in less than six months.
6.6. Liabilities. Subject to section 6.5, Sellers shall not
suffer or permit any of the Companies to incur any obligation or liability,
absolute or contingent, except for those incurred in the ordinary course of
its business which are not in the aggregate materially adverse to its
business or financial condition, or to pay any obligation or liability
other than the foregoing obligations and liabilities and those described in
clauses (a) through (c) of section 4.6 and clauses (a) through (d) of
section 4.7.
6.7. Other Actions. None of Sellers shall take or omit to take
any action, and each shall exercise his, her or its best efforts to prevent
the occurrence of any event, which would have violated any of Sellers'
representations or warranties herein had such action been taken after
November 30, 1996, and prior to the date hereof.
6.8. Banking Arrangements. Sellers shall not suffer or permit
any of the Companies to cause, suffer or permit any change to be made in
any of its banking arrangements.
6.9. Preservation of Business. Except as otherwise expressly
provided herein, Sellers shall use their best efforts to preserve the
business organizations of the Companies intact, keep available the services
of the present officers (other than D. Cunningham and Seetaram), employees
and consultants of the Companies, maintain the present customers and
suppliers of the Companies and preserve the goodwill of the Companies.
6.10. Litigation. Sellers shall promptly notify Buyer of any
lawsuits, claims, proceedings or investigations that are threatened or
commenced by or against or affecting any of the Companies or any employee,
consultant, officer or director of any of the Companies which might relate
to or affect the business or assets of any of the Companies, including,
without limitation, regular updates regarding the litigation between
Chun Zu Machinery Industry Co. Ltd., plaintiff, and Isometric, defendant,
in the Ontario (Canada) Court (General Division), Court File No. 95-CQ-
59977.
6.11. Monthly Statements. Sellers shall furnish to Buyer (a)
within five days after the end of February 1997 and each subsequent
calendar month, complete and correct reports of all sales by each of the
Companies during that calendar month, and (b) within thirty days after the
end of each such calendar month, complete and correct unaudited monthly
financial statements of each of the Companies for such month.
6.12. Continued Effectiveness of Representations and
Warranties. Each Party shall use his, her or its best efforts to conduct
its business and affairs in such a manner that his, her or its
representations and warranties herein shall continue to be true and
complete on and as of the Closing Date as if made on and as of the Closing
Date, and shall advise the other promptly in writing of any condition or
circumstance that would cause any of such Party's representations or
warranties herein to become untrue in any respect, which condition or
circumstance shall be deemed excepted from such representations and
warranties to the extent accepted by the other.
6.13. Consents. Prior to the Closing Date, Sellers shall
procure all consents and waivers required under any contracts or by any
governmental entities for the full and complete transfer of the Company
Stock to Buyer or otherwise to evidence, effect or perfect the transactions
contemplated hereby, except where, in the opinion of Buyer, the failure to
obtain the consent or waiver would not have a material adverse effect on
the business, condition or financial results of any of the Companies on or
after the Closing Date.
7. Further Covenants.
7.1. Indemnity.
7.1.1. By Buyer. Buyer agrees to indemnify and defend
Sellers and hold Sellers harmless from and against any and all claims,
liabilities, damages, losses and expenses (including, without limitation,
fees and expenses of lawyers and expert witnesses, costs of investigation
and court costs) suffered or incurred by Sellers, as a direct or indirect
result of any breach of any covenant, representation or warranty by Buyer
herein or hereunder.
7.1.2. By Sellers. Sellers, jointly and severally, agree
to indemnify and defend Buyer and its shareholders, controlling persons,
affiliates, directors, officers, employees and agents and hold them
harmless from and against any and all claims, liabilities, damages, losses
and expenses (including, without limitation, fees and expenses of lawyers
and expert witnesses, costs of investigation and court costs) suffered or
incurred by any of them, as a direct or indirect result of any breach of
any covenant, representation or warranty by any of Sellers herein or
hereunder.
7.2. Further Assurances. Sellers shall cooperate with Buyer, at
Buyer's request, after the Closing Date and without further consideration,
(a) to execute, deliver, record and publish as appropriate such other
certificates, instruments and documents of sale, assignment, transfer and
conveyance of the Company Stock, and take such other action, as Buyer may
reasonably request more effectively to convey, assign, sell and transfer to
or vest in Buyer any and all of the Company Stock, (b) in the case of
contracts, if any, to which any of the Companies is a party and which
require the consent of any third party that is not received prior to the
Closing Date, to continue to endeavor to obtain such consents promptly and,
if any such consents are not obtainable, to provide Buyer with the benefit
thereof in some other manner, and (c) to assist Buyer in connection with
any actions, proceedings or arrangements or disputes relating to the
Companies and their ownership of and other rights in their respective
assets. The Parties shall each do or perform such further acts and things
and execute and deliver such further certificates, instruments and other
documents as may be reasonably necessary and proper to implement the intent
of the Parties as expressed in this Agreement.
7.3. Proceedings. Each Party shall promptly inform the other of
the making of any threat or claim or the commencement of any investigation,
litigation or proceeding against or affecting the business of any of the
Companies, its assets or any of the transactions contemplated hereby.
7.4. Sales Tax. Sellers shall pay when due, to the appropriate
governmental authority or authorities, all stock transfer, sales, excise
and other taxes and levies, if any, arising from the sale of any of the
Company Stock hereunder.
7.5. Expenses. The Companies shall pay all reasonable and
customary costs, expenses and fees incurred by Sellers on or prior to the
Closing Date for the services of lawyers, accountants and other advisers
retained by Sellers in negotiating the terms and conditions of this
Agreement, making any investigation in connection herewith, preparing and
executing this Agreement and any certificates, instruments and documents
necessary in connection herewith and consummating the transactions
contemplated hereby; provided that the fees and expenses of Coopers &
Lybrand, Chartered Accountants, in connection with their audit of the 1996
Financial Statements, shall be borne one-half by the Companies and one-half
by Buyer.
7.6. No Solicitation. Prior to the Closing Date, none of
Sellers shall contact, solicit, discuss or negotiate with any person other
than Buyer any of the transactions contemplated hereby or the possible sale
to any person of any capital stock of any of the Companies or the assets of
any of the Companies or any substantial part thereof.
7.7. Noncompetition. Subject to section 7.8, none of Sellers
shall at any time within five years after the Closing Date directly or
indirectly own an interest in, join, operate, control, participate in, or
be connected as officers, employees, agents, independent contractors,
consultants, partners, shareholders (except as holders of not more than one
percent of the outstanding stock of any class of a corporation, the stock
of which is actively and publicly traded) or principals with, any
corporation, proprietorship, association or other entity or person engaged
in any business that is competitive with any business of any of the
Companies as conducted during the two-year period ending on the Closing
Date.
7.8. Employment Arrangement with R. Cunningham. On or prior to
the Closing Date, R. Cunningham and Isometric shall have agreed on a
mutually satisfactory employment arrangement, whereby R. Cunningham shall
be employed by Isometric from and after the Closing Date on terms
satisfactory to Buyer.
7.9. Lawyers' Fees. If either Buyer or any of Sellers shall
fail to perform any of its or their obligations under this Agreement or if
a dispute arises concerning the meaning, interpretation or enforcement of
any provision of this Agreement, the defaulting Party or Parties or the
Party or Parties not prevailing in such dispute, as the case may be, shall
pay any and all costs and expenses incurred by the other Party or Parties
in enforcing or establishing its or their rights hereunder, including,
without limitation, court costs, reasonable fees and expenses of lawyers
and expert witnesses and all costs of investigation.
7.10. Risk of Loss. If, prior to the Closing, all or any
material part of the assets or the business of any of the Companies is
destroyed or damaged by fire or any other casualty or shall be
appropriated, expropriated, condemned or seized by any governmental entity
or other lawful authority, Buyer shall have the option, exercisable, in
Buyer's absolute discretion, by notice given within three business days of
Buyer's receipt of notice of such destruction, damage, appropriation,
expropriation, condemnation or seizure: (a) to reduce the Base Stock Price
for the Company Stock of each of the Companies affected thereby by an
appropriate amount equal to the cost of repair, or, if destroyed or damaged
beyond repair, by an amount equal to the replacement cost of the assets so
damaged or destroyed and to complete the purchase hereunder; or (b) to
complete the purchase without reduction of the Base Stock Prices, in which
event all proceeds of insurance or compensation for appropriation,
expropriation, condemnation or seizure shall be payable to the applicable
Company and any and all right and claim of Sellers to any such amounts
shall be assigned to the applicable Company; or (c) to terminate this
Agreement and not complete the purchase, in which case all obligations of
Buyer shall terminate forthwith on Buyer giving notice as required herein.
7.11. Other Negotiations. Sellers shall not, and shall not
permit any of the Companies to, contact, commence or continue negotiations
with, or otherwise discuss with any person other than Buyer, any merger,
consolidation, sale of stock, sale of assets, joint venture, strategic
alliance or other business combination involving any of the Companies.
8. Conditions Precedent to the Obligations of Sellers. The
obligations of Sellers on the Closing Date to consummate the transactions
contemplated hereby are subject to the fulfillment, prior to or on the
Closing Date, of each of the following conditions, any one or more of which
may be waived by R. Cunningham (for himself and on behalf of Sellers)
(except when the fulfillment thereof is a requirement of law):
8.1. Representations, Warranties and Covenants. All
representations and warranties of Buyer in this Agreement and in any
written statement (including financial statements), certificate, schedule,
exhibit, agreement or other document or instrument delivered pursuant
hereto or in connection with the transactions contemplated hereby, shall
have been true and complete on and as of the date hereof and shall be true
and complete as of the Closing Date, as if made on and as of the Closing
Date. Buyer shall have performed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or
complied with by Buyer prior to or on the Closing Date.
8.2. No Actions. No action, suit or proceeding shall be
pending, or to the knowledge of Buyer, threatened, before a court or
governmental body, or instituted or threatened by any governmental agency,
to restrain or prevent the carrying out of the transactions contemplated
hereby.
8.3. Certificate. Buyer shall have delivered to Sellers a
certificate, in form reasonably satisfactory to R. Cunningham (for himself
and on behalf of Sellers), dated the Closing Date and signed by the
President or Chief Financial Officer and the Secretary of Buyer, to the
following effects:
8.3.1. Setting forth the names and specimen signatures of
the officers and agents of Buyer authorized to execute and deliver this
Agreement and the documents and instruments deliverable by Buyer hereunder;
8.3.2. Stating that all of the conditions set forth in this
section 8 have been fulfilled on or prior to the Closing Date and Buyer is
not in breach of or default under any provision of this Agreement; and
8.3.3. Stating that such certificate is being executed and
delivered to induce Sellers to consummate the transactions contemplated
hereby.
8.4. Other Documents. Buyer shall have duly executed and
delivered to Sellers such other documents and instruments necessary to
effect or evidence any of the transactions contemplated hereby as
R. Cunningham (for himself and on behalf of Sellers) may reasonably
request.
9. Conditions Precedent to the Obligations of Buyer. The
obligations of Buyer on the Closing Date to consummate the transactions
contemplated hereby are subject to the fulfillment, prior to or on the
Closing Date, of each of the following conditions, any one or more of which
may be waived by Buyer (except when the fulfillment thereof is a
requirement of law):
9.1. Representations, Warranties and Covenants. All
representations and warranties of Sellers in this Agreement and in any
written statement (including financial statements), certificate, schedule,
exhibit, agreement or other document or instrument delivered pursuant
hereto or in connection with the transactions contemplated hereby, shall
have been true and complete on and as of the date hereof and shall be true
and complete as of the Closing Date, as if made on and as of the Closing
Date. Sellers shall have performed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or
complied with by them prior to or on the Closing Date.
9.2. No Actions. No action, suit or proceeding shall be
pending, or to the knowledge of any of Sellers, threatened, before a court
or governmental body, or instituted or threatened by any governmental
agency, to restrain or prevent the carrying out of the transactions
contemplated hereby or which might adversely affect the right of Buyer to
own any of the Company Stock or of any of the Companies to own, operate or
control its assets, property or business from and after the Closing Date.
9.3. Certificate. Sellers shall have delivered to Buyer a
certificate, in form satisfactory to Buyer, dated the Closing Date and
signed by each of Sellers that is a natural person, by each trustee of the
Trust and by the President and the Secretary of DCHI, to the following
effects:
9.3.1. Setting forth the names and specimen signatures of
the officers of DCHI and the trustees of the Trust authorized to execute
and deliver this Agreement and the documents and instruments deliverable by
DCHI or the Trust hereunder;
9.3.2. Stating that all of the conditions set forth in this
section 9 have been fulfilled on or prior to the Closing Date and that none
of Sellers is in breach of or default under any provision of this
Agreement; and
9.3.3. Stating that such certificate is being executed and
delivered to induce Buyer to consummate the transactions contemplated
hereby.
9.4. Business Relationships. Sellers shall have furnished to
Buyer the names and addresses and all pertinent information regarding all
employees, suppliers, distributors and others who have material business
relationships with any of the Companies and shall have introduced Buyer to
each of them, and Buyer shall be satisfied that each of such relationships
may reasonably be expected to be continued from and after the Closing Date.
9.5. Approvals. Buyer shall have received all applicable
governmental approvals, permits, consents and authorizations that Buyer
considers necessary in connection with the transactions contemplated hereby
and the operation after the Closing of the businesses of the Companies.
9.6. Due Diligence. Buyer shall have completed to its
satisfaction such review, examination and investigation of Sellers, the
Companies and the properties, businesses and affairs of the Companies, as
Buyer considers necessary.
9.7. Financial Statements. The 1996 Financial Statements shall
have been audited by Coopers & Lybrand, Chartered Accountants, in
accordance with GAAP, and Buyer shall be satisfied with the 1996 Financial
Statements.
9.8. Premises Lease. Isometric (as tenant) and Seetaram or a
corporation owned by her (as landlord) shall have duly executed and
delivered a lease, providing for monthly rent of $4.50 (in Canadian
dollars) per square foot on a triple net basis for a term of one year from
the Closing Date and four one-year renewal options in favor of Isometric,
of the premises to be conveyed by Holdings to Seetaram or a corporation
owned by her at 12 Ashbridge Circle, Woodbridge, Ontario, Canada, which
lease shall be in substantially the form of Schedule 9.8 attached hereto;
provided that, anything in this Agreement to the contrary notwithstanding,
Buyer consents and agrees to the transfer and conveyance prior to the
Closing Date of such premises by Holdings to Seetaram or a corporation of
which Seetaram is the sole shareholder.
9. Opinion of Counsel. On the Closing Date, Sellers shall have
delivered to Buyer an opinion, dated the Closing Date, in form and
substance satisfactory to Buyer, of Morris Silver Lewis, Barristers and
Solicitors, counsel for Sellers, to the effects stated in sections 4.1,
4.2, 4.3, 4.4, 4.5, 4.13, 4.16, 4.18 and 4.19 and to such other effects as
Buyer may reasonably request.
9.10. Other Documents. Sellers shall have duly executed and
delivered to Buyer such other documents and instruments necessary to effect
or evidence any of the transactions contemplated hereby as Buyer may
reasonably request.
10. Modification and Waiver. This Agreement may be amended or
modified at any time only by a written instrument executed by the Parties,
and any of the terms, covenants, representations, warranties or conditions
hereof may be waived by a written instrument executed by the Party waiving
compliance. The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of
such Party at a later time to enforce the same. No waiver by any Party of
the breach of any term, agreement, covenant, representation or warranty in
this Agreement as a condition to such Party's obligations hereunder shall
release or affect any liability resulting from such breach, and no waiver
of any nature, whether by conduct or otherwise, in any one or more
instances shall be deemed to be or construed as a further or continuing
waiver of any such condition or of any breach of any other term, agreement,
covenant, representation or warranty.
11. Termination. This Agreement and transactions contemplated hereby
may be terminated at any time prior to the Closing Date, as follows:
(a) By mutual consent of the Parties;
(b) By any Party if the Closing Date shall not have occurred on
or prior to April 15, 1997, unless such delay shall have been caused by the
breach of the Party seeking to terminate;
(c) By any of Sellers (i) if any of the representations and
warranties of Buyer herein or in any schedule, exhibit, agreement,
certificate or other document or information delivered in connection
herewith is false, which falsity affects Sellers materially and adversely,
or (ii) if Buyer shall have failed to comply with or perform any covenant
or agreement or to satisfy any condition on the part of Buyer to be
complied with, performed or satisfied on or prior to the date of such
termination;
(d) By Buyer (i) if any of the representations and warranties of
Sellers herein or in any schedule, exhibit, agreement, certificate or other
document or information delivered in connection herewith is false, which
falsity affects Buyer or any of the Companies materially and adversely,
(ii) if any of Sellers shall have failed to comply with or perform any
covenant or agreement or to satisfy any condition on the part of Sellers to
be complied with, performed or satisfied on or prior to the date of such
termination, or (iii) as provided in section 7.10.
Any such termination under clause (c) or (d) of the preceding sentence
shall be upon at least ten days' notice of termination given to the other
Party by the Party seeking termination. On any termination in accordance
with this section 11, no Party shall have any further rights or obligations
under or in connection with this Agreement, except that the Parties' rights
and obligations under sections 2, 5, 7.1 and 7.9 shall survive any such
termination and except that no termination of this Agreement shall relieve
or release any Party from such Party's liability for any breach or
violation of such Party of any representation, warranty, covenant or
agreement herein; provided that, if Buyer terminates this Agreement without
due cause (due cause being defined as (1) any breach or violation by any of
Sellers of their agreements in sections 6.1 and 7.11, or (2) any
representation or warranty made by any of Sellers herein or in connection
herewith is found by Buyer to be materially incorrect), Buyer shall
forthwith cause the Deposit and any earnings thereon to be paid to the
Companies in the proportions specified in section 1.6, but otherwise the
Deposit and any earnings thereon shall be returned to Buyer.
12. Notices. Any notice, consent, demand or other communication
required or permitted to be given hereunder shall be in writing and shall
be deemed duly given and received when delivered personally, when
transmitted by facsimile if receipt is acknowledged by the addressee, or
one day after being deposited for next-day delivery with an internationally
recognized overnight delivery service, all charges prepaid, properly
addressed, as follows:
If to Buyer, to:
4637 Chabot Drive, Suite 200
Pleasanton, CA 94588
United States of America
Facsimile: 510-847-9114
Attention: Chief Financial Officer
and
109 E. Main Street
Whitesboro, TX 76273
United States of America
Facsimile: 903-564-9348
Attention: David Hendricks
With a copy (not by itself constituting notice) to:
Shartsis, Friese & Ginsburg, LLP
One Maritime Plaza, 18th Floor
San Francisco, CA 94111
United States of America
Facsimile: 415-421-2922
Attention: Douglas L. Hammer, Esq.
If to any of Sellers, to:
12 Ashbridge Circle
Woodbridge, Ontario L4L 3R5
Canada
Facsimile: 905-856-0056
Attention: Robert A. Cunningham
With a copy (not by itself constituting notice) to:
Morris Silver Lewis
1 Yorkdale Road, Suite 403
Toronto, Ontario M6A 3A1
Canada
Facsimile: 416-781-3110
Attention: Martin I. Silver, Esq.
Any Party may change his, her or its address by notice hereunder to each
other Party.
13. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the Parties and their respective heirs, executors,
administrators, successors and assigns; provided that no Party shall assign
this Agreement or any rights hereunder or delegate any duties hereunder,
without the prior consent of each other Party, and any attempted or
purported assignment or delegation without such consent shall be void; but
provided further that SST or SST-Canada may, in its exclusive discretion
and without the consent of any other Party, assign this Agreement or any or
all of its rights hereunder or delegate any or all of its duties hereunder
to any corporation controlled by, controlling or under common control with
it, so long as it is not thereby released from any of its obligations
hereunder without the prior consent of R. Cunningham on behalf of himself
and Sellers. This Agreement is not intended, nor shall it be construed, to
confer any enforceable rights on any person who is not a Party, other than
an assignee of a Party as permitted hereby.
14. Joint and Several Obligations. The duties, obligations and
liabilities of Sellers in or pursuant to this Agreement or any other
agreement, certificate, instrument or other document to be executed by
Sellers hereunder or in connection herewith (except any employment
agreement or arrangement between Isometric and R. Cunningham) shall be
joint and several, and each representation, warranty, covenant, agreement
and condition of or to be performed or satisfied by Sellers in or pursuant
to this Agreement or any other agreement, certificate, instrument or other
document to be executed by Sellers hereunder or in connection herewith
(except any employment agreement or arrangement between Isometric and R.
Cunningham) shall be deemed to be the representation, warranty, covenant,
agreement or condition of or to be performed by each and all of Sellers.
15. Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of California,
without giving effect to principles of conflict of laws thereunder.
16. Entire Agreement. This Agreement contains the entire agreement
of the Parties and supersedes all prior or contemporaneous negotiations,
correspondence, understandings, letters of intent and agreements, whether
written or oral, between or among the Parties, regarding the subject matter
hereof.
17. Exhibits. All schedules and exhibits attached hereto and the
documents and instruments delivered at the Closing are expressly made a
part of this Agreement as fully as though completely set forth herein, and
all references to this Agreement herein or in any of such documents and
instruments (whether or not such references include a specific reference to
such documents and instruments) shall be deemed to refer to and include all
such documents and instruments. Any breach of or default under any
provision of any of such documents and instruments, shall, for all
purposes, constitute a breach or default under this Agreement.
18. Counterparts. This Agreement may be executed in any number of
counterparts, or by different Parties in different counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
19. Section Headings. The section headings in this Agreement are
included for convenience of reference only and are not part of this
Agreement.
20. Number and Gender. Whenever the context requires, the use in
this Agreement of the singular number shall be deemed to include the plural
and vice versa, each gender shall be deemed to include each other gender,
and "person" shall be deemed to include, in addition to natural person,
corporation, partnership, limited liability company, trust, association,
firm or other entity or organization.
IN WITNESS WHEREOF, this Agreement has been duly executed by or
on behalf of the Parties as of the date first above written.
BUYER: SELLERS:
Simpson Strong-Tie Company Inc.
/s/Robert A. Cunningham
-----------------------------
By /s/Stephen B. Lamson Robert A. Cunningham
-----------------------------
Stephen B. Lamson /s/Diane Saroginie Cunningham
Chief Financial Officer -----------------------------
Diane Saroginie Cunningham for
herself and as Trustee of The
Simpson Strong-Tie Canada, Limited Angela Cunningham Trust dated
May 17, 1985
By /s/Stephen B. Lamson /s/Joan Phyllis Seetaram
----------------------------- -----------------------------
Stephen B. Lamson Joan Phyllis Seetaram for
Chief Financial Officer herself and as Trustee of The
Angela Cunningham Trust dated
May 17, 1985
/s/Martin I. Silver
-----------------------------
Martin I. Silver as Trustee
of The Angela Cunningham
Trust dated May 17, 1985
/s/Tracey Eichinger
-----------------------------
Tracey Eichinger as Trustee
of The Angela Cunningham
Trust dated May 17, 1985
D. Cunningham Holdings, Inc.
By: /s/Diane S. Cunningham
-----------------------------
Diane S. Cunningham
President
<TABLE>
<CAPTION>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Exhibit 11
PRIMARY EARNINGS PER SHARE
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average number of common
shares outstanding 11,422,995 11,316,073 9,690,411
Shares issuable pursuant to employee
stock option plans, less shares assumed
repurchased at the average fair value
during the period 326,604 142,822 605,767
Shares issuable pursuant to the independent
director stock option plan, less shares
assumed repurchased at the average fair
value during the period 3,635 1,072 -
Shares issuable pursuant to stock bonus plan 1,950 600 8,700
Effect of 1994 share exchange:
Additional common shares outstanding - - 17,893
Additional shares issuable pursuant
to employee stock option plans - - 238,870
------------ ------------ ------------
Number of shares for computation of
primary net income per share 11,755,184 11,460,567 10,561,641
============ ============ ============
Net income $ 19,720,638 $ 14,121,885 $ 5,450,764
Minority interest of employee shareholders - - (32,628)
------------ ------------ ------------
Net income for computation of net
income per share $ 19,720,638 $ 14,121,885 $ 5,418,136
============ ============ ============
Primary net income per share $ 1.68 $ 1.23 $ 0.51
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Exhibit 11 (Continued)
FULLY DILUTED EARNINGS PER SHARE
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average number of common
shares outstanding 11,422,995 11,316,073 9,690,411
Shares issuable pursuant to employee
stock option plans, less shares assumed
repurchased at the end of period fair
value 409,191 214,375 618,157
Shares issuable pursuant to the independent
director stock option plan, less shares
assumed repurchased at the end of period
fair value 4,522 1,824 -
Shares issuable pursuant to stock bonus plan 1,950 600 8,700
Effect of 1994 share exchange:
Additional common shares outstanding - - 17,893
Additional shares issuable pursuant to
employee stock option plans - - 233,894
------------ ------------ ------------
Number of shares for computation of fully
diluted net income per share 11,838,658 11,532,872 10,569,055
============ ============ ============
Net income $ 19,720,638 $ 14,121,885 $ 5,450,764
Minority interest of employee shareholders - - (32,628)
------------ ------------ ------------
Net income for computation of net income
per share $ 19,720,638 $ 14,121,885 $ 5,418,136
============ ============ ============
Fully diluted net income per share $ 1.67 $ 1.22 $ 0.51
============ ============ ============
</TABLE>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES OF SIMPSON MANUFACTURING CO., INC.
AT MARCH 15, 1997
EXHIBIT 21
1. Simpson Holdings, Inc., a California corporation
2. Simpson Strong-Tie Company Inc., a California corporation
3. Simpson Dura-Vent Company, Inc., a California corporation
4. Simpson Strong-Tie International, Inc., a California corporation
5. Simpson Venture Capital Company, Inc., a California corporation
6. Simpson Manufacturing International Corporation, a Barbados
corporation
7. Ackerman Johnson Fastening Systems, Inc., an Illinois corporation
8. Simpson Strong-Tie Canada, Limited., a Canadian corporation
9. Simpson Strong-Tie France, Limited., a French corporation
10. Patrick Bellion, S.A., a French corporation
11. Dual Fastening, Inc., a Georgia corporation
Each subsidiary of Registrant does business using its respective name
listed above, and Simpson Strong-Tie Canada, Limited, uses as a fictitious
business name, "Isometric Limited."
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
EXHIBIT 23
We consent to the incorporation by reference in the registration statements
of Simpson Manufacturing Co., Inc. on Forms S-8 (File No. 33-85662 and File
No. 33-90964) of our report dated January 31, 1997, except for Note 15 for
which the date is March 11, 1997, on our audits of the consolidated
financial statements and the financial statement schedule of Simpson
Manufacturing Co., Inc. and subsidiaries as of December 31, 1996 and 1995
and for the years ended December 31, 1996, 1995, and 1994, which report is
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
San Francisco, California
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1996, and the Consolidated
Statement of Operations for the twelve months ended December 31, 1996, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,815,297
<SECURITIES> 3,896,428
<RECEIVABLES> 22,242,827
<ALLOWANCES> 1,312,337
<INVENTORY> 42,247,777
<CURRENT-ASSETS> 90,766,012
<PP&E> 64,603,989
<DEPRECIATION> 35,916,354
<TOTAL-ASSETS> 122,520,773
<CURRENT-LIABILITIES> 20,090,432
<BONDS> 0
0
0
<COMMON> 31,233,648
<OTHER-SE> 71,063,360
<TOTAL-LIABILITY-AND-EQUITY> 122,520,773
<SALES> 202,408,917
<TOTAL-REVENUES> 202,408,917
<CGS> 124,394,086
<TOTAL-COSTS> 124,394,086
<OTHER-EXPENSES> 45,320,373
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0<F1>
<INCOME-PRETAX> 33,289,638
<INCOME-TAX> 13,569,000
<INCOME-CONTINUING> 19,720,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,720,638
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.67
<FN>
<F1>Interest income for the twelve months ended December 31, 1996,
was $595,180.
</FN>
</TABLE>
