<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1998.
REGISTRATION NO. 333-44603
================================================================================
SECURITIES AND EXCHANGE COMMISSION
------------------------
AMENDMENT NO. 1 TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SIMPSON MANUFACTURING CO., INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 94-3196943
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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4637 CHABOT DRIVE, SUITE 200
PLEASANTON, CALIFORNIA 94588
(510) 460-9912
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN B. LAMSON
CHIEF FINANCIAL OFFICER
4637 CHABOT DRIVE, SUITE 200
PLEASANTON, CALIFORNIA 94588
(510) 460-9912
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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DOUGLAS L. HAMMER, ESQ. DANIEL J. ZUBKOFF, ESQ.
SHARTSIS, FRIESE & GINSBURG LLP CAHILL GORDON & REINDEL
ONE MARITIME PLAZA, 18TH FLOOR 80 PINE STREET
SAN FRANCISCO, CA 94111 NEW YORK, NY 10005
(415) 421-6500 (212) 701-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- -------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- -------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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======================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
Common Stock (without par 1,437,500
value)...................... Shares(2) $32.875 $47,257,812.50 $13,941.05(3)
======================================================================================================
</TABLE>
(1) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE AMOUNT OF THE
REGISTRATION FEE PURSUANT TO RULE 457(C), BASED ON THE AVERAGE OF THE HIGH
AND LOW PRICES OF THE COMMON STOCK AS REPORTED BY THE NEW YORK STOCK
EXCHANGE ON JANUARY 14, 1998.
(2) INCLUDES SHARES TO BE SOLD BY SIMPSON PSB FUND ON EXERCISE OF THE
UNDERWRITERS' OVERALLOTMENT OPTION.
(3) PREVIOUSLY PAID.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
PROSPECTUS Subject to Completion
Dated February 3, 1998
1,250,000 Shares
Simpson Manufacturing Co. Logo
Common Stock
(without par value)
All of the 1,250,000 shares of the Common Stock, without par value (the "Common
Stock"), of Simpson Manufacturing Co., Inc., a California corporation (the
"Company"), are hereby offered by Simpson PSB Fund (the "Principal Selling
Shareholder") and Thomas J Fitzmyers (together, the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive any of the
proceeds from the sale of Common Stock by the Selling Shareholders. See "Use of
Proceeds."
The Common Stock is traded on the New York Stock Exchange, Inc. (the "NYSE")
under the symbol "SSD." On January 30, 1998, the last reported sale price of the
Common Stock on the NYSE was $34.375 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
- ---------------------------------------------------------------------------------------------------
Per Share $ $ $
- ---------------------------------------------------------------------------------------------------
Total(3) $ $ $
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Principal Selling
Shareholder, estimated at $ . The Company intends to make a charitable
donation to the Principal Selling Shareholder in an amount equal to one-half of
such expenses that the Principal Selling Shareholder pays.
(3) The Principal Selling Shareholder has granted the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an additional 187,500 shares of Common Stock, on the same terms as set forth
above, solely to cover overallotments, if any. If such overallotment option is
exercised in full, the total Price to Public, Underwriting Discount and Proceeds
to Selling Shareholders will be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock offered by this Prospectus are being offered by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to approval of certain legal matters by Cahill
Gordon & Reindel, counsel for the Underwriters. It is expected that delivery of
the shares of Common Stock will be made against payment therefor on or about
, 1998, at the offices of J.P. Morgan Securities Inc., 60 Wall
Street, New York, New York.
J.P. MORGAN & CO.
MERRILL LYNCH & CO.
BANCAMERICA ROBERTSON STEPHENS
, 1998
<PAGE> 3
[PHOTOGRAPH]
SIMPSON STRONG-TIE connectors have
been designed for fast, easy
installation that enhances the
strength, durability and safety of
modern wood-to-wood,
wood-to-concrete and wood-to-masonry
construction.
[PHOTOGRAPH]
SIMPSON DURA-VENT venting systems are
engineered to achieve a high level of
performance with gas and wood-burning
appliances, including gas furnaces and water
heaters, gas fireplaces and stoves, wood
stoves and pellet stoves.
[PHOTOGRAPH]
SIMPSON STRONG-TIE anchoring systems
include epoxy adhesives and
mechanical anchors for a variety of
structural connections into a number
of different materials.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
No person has been authorized to give any information or make any
representations in connection with this offering other than those contained or
incorporated by reference in this Prospectus, and, if given or made, such
information or representations must not be relied on as having been authorized
by the Company, the Selling Shareholders or any of the Underwriters. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any securities in any jurisdiction to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company or that the
information contained herein is correct as of any date subsequent to the date
hereof.
TABLE OF CONTENTS
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PAGE
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Incorporation of Certain Documents by
Reference........................... 4
Additional Information................ 4
Prospectus Summary.................... 5
Risk Factors.......................... 8
Use of Proceeds....................... 13
Dividend Policy....................... 13
Price Range of Common Stock........... 13
Capitalization........................ 14
Selected Consolidated Financial
Information......................... 15
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PAGE
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Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Management............................ 33
Principal and Selling Shareholders.... 35
Description of Capital Stock.......... 37
Underwriting.......................... 38
Legal Matters......................... 39
Experts............................... 39
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
Strong-Tie(R), Dura-Vent(R), Dura/Connect(R), Dura-Plus(R), Dura/Liner(R),
Direct Vent G.S.(R) and There Is No Equal(R) (when used with the registered
design) are registered trademarks of the Company's subsidiaries.
3
<PAGE> 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed or to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), are hereby incorporated by reference into this
Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996;
2. The Company's Proxy Statement dated April 14, 1997;
3. The Company's Quarterly Reports on Form 10-Q dated May 14, August 13 and
November 10, 1997; and
4. The Company's Current Reports on Form 8-K dated January 7, March 21 and
September 25, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in this Prospectus or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently-filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any beneficial
owner, to whom this Prospectus is delivered, on written or oral request of such
person, a copy of any and all of the documents that have been incorporated by
reference herein (not including exhibits to such documents unless such exhibits
are specifically incorporated by reference herein or into such documents). Such
request may be directed to Simpson Manufacturing Co., Inc., 4637 Chabot Drive,
Suite 200, P.O. Box 10789, Pleasanton, California 94588-0789, telephone (510)
460-9912, Attn: Chief Financial Officer.
ADDITIONAL INFORMATION
The Company is subject to the reporting requirements of the Exchange Act and, in
accordance therewith, files annual and quarterly reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the Commission's Regional Offices at
7 World Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Common Stock of the
Company is listed on the NYSE. Reports and other information concerning the
Company may be inspected at the offices of the NYSE at 20 Broad Street, New
York, New York 10005. The Commission also maintains a World Wide Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission.
A registration statement on Form S-3 with respect to the Common Stock offered
hereby (the "Registration Statement") has been filed with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all of the information contained in the Registration Statement
and the exhibits and schedules thereto, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus regarding the contents of any
contract or any other document are not necessarily complete and, in each
instance, reference is hereby made to the copy of such contract or document
filed as an exhibit to the Registration Statement. The Registration Statement,
including exhibits thereto, may be inspected without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the Public Reference Section, Securities and Exchange
Commission, Washington, D.C. 20549, on payment of the prescribed fees.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information, including "Risk Factors" and the
Consolidated Financial Statements and Notes thereto, appearing elsewhere or
incorporated by reference in this Prospectus. All references to the Company
refer to Simpson Manufacturing Co., Inc. and its predecessors unless indicated
otherwise.
THE COMPANY
Simpson Manufacturing Co., Inc. (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 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 has continuously manufactured
structural connectors since 1956.
From 1993 through 1997, the Company's annual net sales grew from $113.9 million
to $246.1 million, a compound annual growth rate of 21.2%. In the same period,
the Company's annual net income grew from $8.0 million to $26.0 million, a
compound annual growth rate of 34.4%. Growth has been derived primarily from
frequent new product introductions, expansion into new geographic markets and
growth of distribution channels.
Connectors produced by Simpson Strong-Tie typically are steel devices that are
used to strengthen, support and connect joints in residential and commercial
construction and DIY projects. 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.
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 some products introduce outside
air into the appliance. SDV designs its products 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.
The Company emphasizes continuous new product development and often obtains
patent protection for its new products. The Company's products are marketed in
all 50 states of the United States and in England, France, Germany, Canada,
Mexico, Japan and Australia. Both Simpson Strong-Tie and Simpson Dura-Vent
products are distributed through a contractor and dealer distributor network,
home centers and OEMs.
The Company has developed and uses automated manufacturing processes. Its
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. The Company's development of
specialized manufacturing processes has also permitted increased operating
flexibility and enhanced product design innovation. The Company has developed a
quality management system that employs numerous quality-control procedures.
Since 1996, SST's quality management system has been registered under ISO 9001.
The Company has 11 manufacturing locations in the United States, Canada, France
and the United Kingdom.
The Company is a California corporation and was reorganized in 1994 as a holding
company for Simpson Strong-Tie and Simpson Dura-Vent. The Company's principal
business offices are located at 4637 Chabot Drive, Suite 200, P.O. Box 10789,
Pleasanton, California 94588-0789, telephone (510) 460-9912.
5
<PAGE> 7
THE OFFERING
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COMMON STOCK OFFERED BY THE SELLING
SHAREHOLDERS 1,250,000 shares(1)
COMMON STOCK OUTSTANDING BEFORE AND AFTER
THIS OFFERING 11,517,113 shares(2)
USE OF PROCEEDS The net proceeds to Simpson PSB Fund, a
California nonprofit public benefit
corporation (the "Principal Selling
Shareholder"), will be used principally for
charitable purposes. See "Use of Proceeds."
RISK FACTORS For a discussion of certain considerations
relevant to an investment in the Common
Stock, see "Risk Factors."
NYSE SYMBOL "SSD"
</TABLE>
- ---------------
(1) Excludes up to 187,500 shares of Common Stock that may be sold on exercise
of an overallotment option granted by the Principal Selling Shareholder. See
"Underwriting."
(2) Excludes an aggregate of 978,417 shares of Common Stock issuable on exercise
of stock options that were outstanding as of December 31, 1997. See
"Business -- Employees and Labor Relations" and "Principal and Selling
Shareholders."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary consolidated financial information with
respect to the Company for each of the five years ended December 31, 1993, 1994,
1995, 1996 and 1997, 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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
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Dollars in thousands, YEARS ENDED DECEMBER 31,
except per share data 1993 1994 1995 1996 1997
---------- ----------- ----------- ----------- -----------
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STATEMENT OF OPERATIONS DATA
Net sales $ 113,923 $ 151,290 $ 167,958 $ 202,409 $ 246,074
Gross profit 41,536 54,306 58,590 78,015 96,795
Compensation related to
stock plans(1)(2) 693 6,909 61 180 305
Income from operations 14,550 14,075 22,907 32,695 43,324
Net income 7,970 5,451 14,122 19,721 25,986
Net income per share
Basic $ 1.07 $ .56 $ 1.25 $ 1.73 $ 2.26
Diluted(3) $ .89 $ .51 $ 1.23 $ 1.68 $ 2.17
Weighted average shares
outstanding
Basic 7,495,894 9,717,004 11,316,673 11,424,945 11,474,592
Diluted(3) 9,051,425 10,561,641 11,460,567 11,755,184 11,965,950
</TABLE>
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AS OF DECEMBER 31,
1996 1997
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BALANCE SHEET DATA
Working capital $ 70,676 $ 83,297
Property, plant and equipment, net 28,688 42,925
Total assets 122,521 150,765
Total debt -- 30
Total liabilities 20,224 21,814
Total shareholders' equity 102,297 128,951
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(1) In 1994, a reorganization was effected to consolidate shareholdings in
Simpson Strong-Tie and Simpson Dura-Vent (the "1994 Reorganization"). As part of
the 1994 Reorganization, the Company recorded a one-time, non-cash,
non-deductible compensation charge of approximately $6.4 million in the first
quarter of 1994, resulting from an exchange of Company shares for outstanding
SST and SDV shares held by employees. After giving effect to all components of
the 1994 Reorganization, including this non-cash compensation charge,
shareholders' equity increased by $1.1 million. The Company also recorded in the
first quarter of 1994 other non-cash compensation charges aggregating
approximately $400,000 and a cash compensation charge of approximately $100,000.
(2) The year ended December 31, 1993, includes $470,000 in one-time, non-cash
expense for options earned by employees pursuant to compensation arrangements
with exercise prices less than fair value. The balance for the year 1993
includes dividends paid to and repurchases of shares of common stock from
employees, which shares are deemed to be stock options (deemed options) for
financial reporting purposes.
(3) For purposes of calculating net income per share, common and common
equivalent shares issued during the 12-month period prior to the Company's
initial public offering in 1994 have been included as if they were outstanding
for all periods presented using the treasury stock method.
7
<PAGE> 9
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties, certain of which are discussed below and in reports filed by the
Company with the Securities and Exchange Commission. See "Incorporation of
Certain Documents by Reference" and "Additional Information." Actual results
might differ materially from results suggested by any forward-looking statements
in this Prospectus.
In addition to the other information included or incorporated by reference in
this Prospectus, the following risk factors should be considered carefully by
prospective investors in evaluating the Company and its business before
purchasing shares of Common Stock offered hereby.
EFFECT OF INCREASED RAW MATERIAL COSTS
Steel and other metals are the Company's principal raw materials. The Company
purchases steel and other raw materials from various suppliers. 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. The Company historically has not attempted to hedge against
changes in prices of steel or other raw materials. The Company might not be able
to increase its product prices in amounts that correspond to increases in raw
materials prices without materially and adversely affecting its sales and
profits. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Raw Materials."
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
The Company's sales are seasonal, with operating results varying from quarter to
quarter. The Company's sales and income have historically been lower in the
first and fourth quarters and higher in the second and third quarters of the
year as retailers and contractors purchase construction materials in the late
spring and summer months for the construction season. In addition, demand for
the Company's products and the Company's results of operations are significantly
affected by weather conditions, such as unseasonably warm, cold or wet weather,
which affect, and sometimes delay or accelerate, installation of certain of the
Company's products. Political and economic events can also affect the Company's
revenues. The Company has little control over the timing of customer purchases,
and sales anticipated in one quarter may occur in another quarter, thereby
affecting both quarters' results. In addition, the Company incurs significant
expenses as it develops, produces and markets its products in anticipation of
future orders. Products typically are shipped as orders are received, and
accordingly the Company operates with little backlog. As a result, net sales in
any quarter generally depend on orders booked and shipped in that quarter. A
significant portion of the Company's operating expenses are fixed, and planned
expenditures are based primarily on sales forecasts. If sales fall below the
Company's expectations, operating results would be adversely affected for the
relevant quarters, as expenses based on those expectations will already have
been incurred. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
CONSTRUCTION INDUSTRY CYCLES
The Company's principal markets are in the building construction industry. That
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 is within the
Company's control. Declines in commercial and residential construction may be
expected to 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
material adverse effects on the Company and its business and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON INTELLECTUAL PROPERTY PROTECTION
The Company's ability to compete effectively with other companies depends in
part on its ability to maintain the proprietary nature of its technology. The
Company owns more than 80 patents in the United States and other
8
<PAGE> 10
countries and has applied for an additional 39 patents, but there can be no
assurance as to the degree of protection afforded by these patents or the
likelihood that patents will issue pursuant to pending patent applications.
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 Company's products or proposed products, or otherwise obtain access
to the Company's proprietary technology.
In addition to seeking patent protection, the Company also relies on unpatented
proprietary technology to maintain its competitive position. Nevertheless, there
can be no assurance that the Company will be able to protect its know-how or
other proprietary information.
In attempting to protect its proprietary information, the Company expects that
it may sometimes be necessary to prosecute lawsuits against competitors and
others that the Company believes have infringed or are infringing the Company's
rights. In such an event, the defendant may assert counterclaims to complicate
or delay the litigation or for other reasons. If the Company were to be unable
to maintain the proprietary nature of its significant products, the Company's
business and financial condition could be materially and adversely affected. See
"Business -- Patents and Proprietary Rights."
PRODUCT LIABILITY
The Company designs and manufactures 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 under development. In addition, the Company
maintains a quality control system. 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 such 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 a flaw is discovered after installation but
before any damage or injury occurs, it may be necessary for the Company to
recall products, and the Company may be liable for any costs necessary to
retrofit the affected structures. Any such recall or retrofit could entail
substantial costs and adversely affect the Company's reputation, sales and
financial condition. The Company does not carry insurance against recall costs,
and its product liability insurance may not cover retrofit costs.
The severe earthquake in Northridge, California, in January 1994, damaged or
destroyed numerous structures, and Company products were installed in some of
those structures. No assurance can be given that claims will not be made against
the Company with regard to damage or destruction of structures incorporating
Company products resulting from a natural disaster. Any such claims, if
asserted, could materially and adversely affect the Company.
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 materially and adversely affect the Company's business and
financial condition. In addition, under the National Appliance Energy
Conservation Act, the Department of Energy periodically reviews the necessity
for increased efficiency standards with respect to gas furnaces. A substantial
percentage of Simpson Dura-Vent's Type B Gas Vent sales are
9
<PAGE> 11
for gas furnace applications. Minimum appliance efficiency standards might be
adopted that could negatively affect sales of Type B Gas Vents, which could
materially and adversely affect the Company's operating results and financial
condition. See "Business -- Regulation."
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
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, chemicals, 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 (especially 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 zinc and lead, which are used in some steel galvanizing
processes). 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. See "Business -- Regulation."
DEPENDENCE ON NEW MARKETS; EXPANSION OUTSIDE THE UNITED STATES
The Company's future growth, if any, will depend to some extent on its ability
to penetrate new markets, both domestically and internationally. In addition,
construction customs, standards, techniques and methods in international markets
differ from those in the United States. Laws and regulations applicable in new
markets for the Company 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 expects that significant time will be required for it
to generate substantial sales or profits in new 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. See "Business -- Business Strategy" and
"Business -- Industry and Market Trends."
ABILITY TO ASSIMILATE ACQUISITIONS
The Company has recently made several small acquisitions and may in the future
pursue additional 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. If
an
10
<PAGE> 12
acquisition occurs, no assurance can be given as to its effect on the Company's
business or operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Acquisitions and
Strategic Investments."
LOSS OF MANUFACTURING CAPACITY
Each of the Company's current and planned manufacturing facilities is located in
a geographic region that has 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
earthquakes in Northridge, California, in January 1994, 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.
COMPETITION
The markets for the Company's products are highly competitive. The Company has
different competitors in various markets that it serves. Some of the Company's
competitors have significantly greater financial and marketing resources than
the Company. In addition, other technologies may be the bases for competitive
products that could render the Company's products obsolete or uncompetitive, and
other companies may find the Company's markets attractive and enter those
markets. Competitive pricing, including price competition or the introduction of
new products, could have material adverse effects on the Company's revenues and
profit margins. See "Business -- Competition."
CONTROL BY PRINCIPAL SHAREHOLDERS
Barclay Simpson, the Chairman of the Board of the Company, and his seven adult
children collectively own or control approximately 43.3% of the outstanding
shares of Common Stock, and Thomas J Fitzmyers, the President and Chief
Executive Officer of the Company, owns approximately 3.7% of the outstanding
shares of Common Stock. In addition, the Company's profit sharing trusts, of
which Messrs. Simpson and Fitzmyers are trustees, own an aggregate of
approximately 1.3% of the outstanding shares of Common Stock. Mr. Fitzmyers will
sell 50,000 of his shares (approximately 0.4% of the outstanding shares of
Common Stock) in this offering. As a result of such share ownership, under
California law, which provides for cumulative voting for directors, Mr. Simpson,
his children and Mr. Fitzmyers together will continue to have the right to elect
at least three of the seven directors; Messrs. Simpson and Fitzmyers will also
have substantial influence with respect to the election of the other directors.
Messrs. Simpson and Fitzmyers are also expected to continue to exercise
substantial control over fundamental changes affecting the Company, such as a
merger or sale of assets or amendment of the Company's Articles of Incorporation
or Bylaws. Notwithstanding that investors in this offering will have the right
to vote their shares of Common Stock, the Company and its management will
continue to be controlled by Messrs. Simpson and Fitzmyers. See "Management,"
"Principal and Selling Shareholders" and "Description of Capital Stock."
CONFLICTS OF INTEREST
Barclay Simpson, Thomas J Fitzmyers and Stephen B. Lamson, the Company's
principal executive officers (see "Management"), have and will continue to have
significant conflicts of interest regarding certain properties that the Company
leases from partnerships in which those officers participate. Those partnerships
were organized principally to purchase, own and lease to the Company
manufacturing and warehouse facilities that the Company currently uses. Based on
formal and informal third-party appraisals, the Company believes that some of
the rent and other terms under these leases are less favorable to the Company
than terms that could be obtained from unrelated persons in the current real
estate markets. The Company intends to continue to lease and occupy most of
these facilities for the foreseeable future, and, subject to the approval of the
Company's independent directors, the
11
<PAGE> 13
leases may be amended, renewed or replaced at any time or from time to time. In
such event, Messrs. Simpson, Fitzmyers and Lamson would be subject to
conflicting interests in their capacities as partners in the partnerships and as
officers, directors and controlling shareholders of the Company. See
"Description of Capital Stock" and Note 9 to the Consolidated Financial
Statements.
COLLECTIVE BARGAINING AGREEMENTS
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, one of which (covering approximately 125
employees) will expire in July 1998. A work stoppage or interruption by a
significant number of the Company's employees could have a material and adverse
effect on the Company and its business and financial condition. See
"Business -- Employees and Labor Relations."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on certain key management and technical personnel,
including Barclay Simpson, Thomas J Fitzmyers, Stephen B. Lamson and Donald M.
Townsend. The loss of one or more key employees could have a material adverse
effect on the Company. The Company's success will also depend on its ability to
attract and retain additional highly qualified technical, marketing and
management personnel necessary for the maintenance and expansion of the
Company's activities. The Company faces strong competition for such personnel
and there can be no assurance that the Company will be able to attract or retain
such personnel. See "Management."
ISSUANCE OF PREFERRED STOCK
The Board of Directors of the Company is authorized by the Company's Articles of
Incorporation to determine the terms of one or more series of preferred stock
and to authorize the issuance of shares of any such series on such terms as the
Board of Directors may approve. See "Description of Capital Stock." No plans or
proposals currently are pending to issue any preferred stock, but any such
issuance in the future could be used to impede an acquisition of the Company
that the Board of Directors does not approve, could further dilute the equity
investments of purchasers of Common Stock in this offering and could reduce the
Company's funds potentially available for the payment of dividends to holders of
Common Stock. See "Risk Factors -- Control by Principal Shareholders" and
"Dividend Policy."
SHARE PRICE VOLATILITY
The trading price of the Common Stock could be subject to wide fluctuations in
response to quarter to quarter variations in operating results, changes in
earnings estimates by analysts, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the
construction and construction materials industries, relatively low trading
volume in the Common Stock and other events or factors. In addition, in recent
years the stock market has experienced extreme price fluctuations. This
volatility has had a substantial effect on the market prices of securities
issued by many companies for reasons unrelated to the operating performance of
those companies. These broad market fluctuations may adversely affect the market
price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after this
offering could adversely affect the prevailing market price for the Common
Stock. On completion of this offering, all of the outstanding shares of Common
Stock will be freely tradeable without restriction under the Securities Act,
other than the 4,438,234 outstanding shares (as of December 31, 1997) that will
be held by persons who are "affiliates" of the Company as that term is defined
in Rule 144 under the Securities Act. Options to purchase 978,417 shares of
Common Stock were outstanding as of December 31, 1997, including options to
purchase 700,497 shares that were exercisable. If a substantial number of shares
were sold in the public market pursuant to Rule 144 or on exercise of options,
the trading price of the Common Stock in the public market could be adversely
affected.
12
<PAGE> 14
USE OF PROCEEDS
The Company will not receive any proceeds from this offering. The net proceeds
to the Selling Shareholders (after deducting underwriting discounts and
estimated offering expenses) from the sale of 1,250,000 shares of Common Stock
offered hereby by the Selling Shareholders are estimated to be $ million
($ million if the Underwriters' overallotment option is exercised in full).
Of that total, the Principal Selling Shareholder will receive approximately
$ million ($ million if the Underwriters' overallotment option is
exercised in full), which it will apply principally to its charitable purposes
and to its administrative and operating expenses.
DIVIDEND POLICY
The Company has not paid any dividends since 1993 and currently intends to
retain its future earnings, if any, to finance operations and fund its growth.
The Company 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, financial
condition and other factors deemed relevant by the Board of Directors.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been listed on the NYSE under the symbol "SSD"
since October 13, 1997. Prior to that time, the Common Stock was traded on the
Nasdaq National Market tier of The Nasdaq Stock Market under the trading symbol
"SMCO." The following table shows the range of high and low closing sale prices
per share of the Common Stock as reported by The Nasdaq Stock Market or the
NYSE, as applicable, for the calendar quarters indicated:
<TABLE>
<CAPTION>
----------------------------------------------------
QUARTER HIGH LOW CLOSE
------------------ ------ ---- ------
<S> <C> <C> <C> <C>
1995 First $11 1/8 $ 9 3/8 $ 9 3/4
Second 12 1/2 9 1/2 12 1/2
Third 12 1/2 11 5/8 12 1/2
Fourth 15 1/4 11 5/8 13 1/2
1996 First 15 3/4 13 15 3/4
Second 20 3/4 15 3/4 20
Third 21 18 1/2 20
Fourth 24 20 23
1997 First 29 1/2 22 25 1/2
Second 27 1/2 21 3/4 26 1/2
Third 41 7/8 26 3/16 41 7/8
Fourth 40 1/4 32 1/4 33 5/16
First (through
1998 1/30) 34 3/8 32 3/4 34 3/8
</TABLE>
13
<PAGE> 15
CAPITALIZATION
The table below sets forth the capitalization of the Company as of December 31,
1997. The information in the table below is qualified in its entirety by, and
should be read in conjunction with, the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
------------
AS OF
DECEMBER 31,
1997
------------
<S> <C>
Dollars in thousands
Cash and cash equivalents $ 19,419
========
Notes payable(1) $ 30
--------
Shareholders' equity
Common stock, 20,000,000 shares authorized, 11,517,113 shares outstanding(2) 32,378
Retained earnings 96,849
Cumulative translation adjustment (276)
--------
Total shareholders' equity 128,951
--------
Total capitalization $ 128,981
========
</TABLE>
- ---------------
(1) See Note 8 to Consolidated Financial Statements for a discussion of the
Company's outstanding debt. The Company expects to borrow, repay and reborrow
from time to time under revolving credit agreements amounts needed for
facilities expansion and improvement and general corporate purposes.
(2) Excludes an aggregate of 978,417 shares of Common Stock issuable on exercise
of stock options that were outstanding as of December 31, 1997. See
"Business -- Employees and Labor Relations."
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information with
respect to the Company for each of the five years ended December 31, 1993, 1994,
1995, 1996 and 1997, 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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
<TABLE>
<CAPTION>
------------------------------------------------------------------
Dollars in thousands, YEARS ENDED DECEMBER 31,
except per share data 1993 1994 1995 1996 1997
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $ 113,923 $ 151,290 $ 167,958 $ 202,409 $ 246,074
Cost of sales 72,387 96,984 109,368 124,394 149,279
-------- -------- -------- -------- --------
Gross profit 41,536 54,306 58,590 78,015 96,795
Selling expense 12,137 14,714 17,110 20,104 23,113
General and administrative
expense 14,156 18,608 18,512 25,036 30,053
Compensation related to stock
plans(1)(2) 693 6,909 61 180 305
-------- -------- -------- -------- --------
Income from operations 14,550 14,075 22,907 32,695 43,324
Interest income (expense), net (997) (559) 142 595 429
-------- -------- -------- -------- --------
Income before income taxes and
minority interest 13,553 13,516 23,049 33,290 43,753
Provision for income taxes 5,517 8,098 8,927 13,569 17,767
Minority interest 66 (33) -- -- --
-------- -------- -------- -------- --------
Net income $ 7,970 $ 5,451 $ 14,122 $ 19,721 $ 25,986
======== ======== ======== ======== ========
Net income per share
Basic $ 1.07 $ .56 $ 1.25 $ 1.73 $ 2.26
Diluted(3) $ .89 $ .51 $ 1.23 $ 1.68 $ 2.17
Weighted average shares
outstanding
Basic 7,495,894 9,717,004 11,316,673 11,424,945 11,474,592
Diluted(3) 9,051,425 10,561,641 11,460,567 11,755,184 11,965,950
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------
AS OF DECEMBER 31,
1993 1994 1995 1996 1997
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $ 24,526 $ 44,127 $ 51,984 $ 70,676 $ 83,297
Property, plant and equipment,
net 13,551 20,843 26,420 28,688 42,925
Total assets 58,325 80,311 96,642 122,521 150,765
Total debt 14,998 -- 20 -- 30
Total liabilities 25,487 13,789 15,089 20,224 21,814
Total shareholders' equity(1) 32,535 66,522 81,553 102,297 128,951
</TABLE>
15
<PAGE> 17
(continued from preceding page)
<TABLE>
<CAPTION>
------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1993 1994 1995 1996 1997
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OTHER DATA
EBITDA(4) $ 17,656 $ 24,820 $ 28,260 $ 39,927 $ 50,140
Net cash provided by operating
activities 4,366 9,613 13,398 24,610 21,133
Net cash used in investing
activities (4,480) (11,096) (13,109) (12,256) (21,824)
Net cash provided by financing
activities 1,778 5,484 855 506 294
Capital expenditures 3,656 9,939 10,050 7,364 16,548
Depreciation and amortization 2,636 3,973 5,291 7,198 6,712
</TABLE>
- ---------------
(1) In 1994, a reorganization was effected to consolidate shareholdings in
Simpson Strong-Tie and Simpson Dura-Vent (the "1994 Reorganization"). As part of
the 1994 Reorganization, the Company recorded a one-time, non-cash,
non-deductible compensation charge of approximately $6.4 million, resulting from
an exchange of Company shares for outstanding SST and SDV shares held by
employees. After giving affect to all components of the 1994 Reorganization,
including this non-cash compensation charge, shareholders' equity increased by
$1.1 million. The Company also recorded in 1994 other non-cash compensation
charges aggregating approximately $400,000 and a cash compensation charge of
approximately $100,000.
(2) The year ended December 31, 1993, includes $470,000 in one-time, non-cash
expense for options earned by employees pursuant to compensation arrangements
with exercise prices less than fair value. The balance for the year 1993
includes dividends paid to and repurchases of shares of common stock from
employees, which shares are deemed to be stock options (deemed options) for
financial reporting purposes.
(3) For purposes of calculating net income per share, common stock and common
stock equivalent shares issued during the 12-month period prior to the Company's
initial public offering in 1994 have been included as if they were outstanding
for all periods presented using the treasury stock method.
(4) Represents net income before minority interest, income taxes, interest
income (expense), net, depreciation and amortization, and non-cash compensation
related to stock plans as described in notes (1) and (2) above.
16
<PAGE> 18
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, 1995, 1996 and 1997, 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.
Certain matters discussed below are forward-looking statements that involve
risks and uncertainties, certain of which are discussed in this Prospectus and
in reports filed by the Company with the Securities and Exchange Commission. See
"Incorporation of Certain Documents by Reference," "Additional Information" and
"Risk Factors." Actual results might differ materially from results suggested by
any forward-looking statements in this Prospectus.
OVERVIEW
From 1995 through 1997, annual net sales of the Company increased 46.5% from
$168.0 million in 1995 to $246.1 million in 1997. The increase in net sales
resulted primarily from increased geographic distribution and a broadening of
the Company's customer base and product lines, both internally and through
acquisitions. Net sales increased from 1995 to 1997 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 net sales
growth over the last three years. During the year ended December 31, 1997, gross
profit margin increased to 39.3%, from 34.9% in 1995. The increase over the past
two years was due primarily to lower material costs as a percentage of net
sales, LIFO gains recorded in 1996 and 1997 as compared to a LIFO loss in 1995
and lower overhead costs as a percentage of net sales. Income from operations as
a percentage of net sales, increased to 17.6% in 1997 from 13.6% in 1995,
despite a 0.5% increase in selling, general and administrative costs as a
percentage of net sales.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, the percentage of net
sales of certain items in the Company's consolidated statements of operations.
<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31,
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 65.1% 61.5% 60.7%
----- ----- -----
Gross profit 34.9% 38.5% 39.3%
Selling expense 10.2% 9.9% 9.4%
General and administrative expense 11.0% 12.4% 12.2%
Compensation related to stock plans * 0.1% 0.1%
----- ----- -----
Income from operations 13.6% 16.1% 17.6%
Interest income, net 0.1% 0.3% 0.2%
----- ----- -----
Income before income taxes 13.7% 16.4% 17.8%
Provision for income taxes 5.3% 6.7% 7.2%
----- ----- -----
Net income 8.4% 9.7% 10.6%
===== ===== =====
</TABLE>
- ---------------
* Less than 0.05%
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Sales
Net sales increased 21.6% to $246.1 million in 1997 from $202.4 million in 1996.
Net sales of Simpson Strong-Tie's products increased 25.3% to $190.6 million in
1997, while net sales of Simpson Dura-Vent's products
17
<PAGE> 19
increased by 10.3% to $55.5 million in 1997. SDV accounted for approximately
22.6% of the Company's total net sales, a decrease from 24.9% in 1996. The
increases in net sales at both SST and SDV were primarily due to volume
increases, with relatively small increases in average prices. The increase in
net sales reflected sales growth throughout the United States, particularly in
California and the Northeastern region of the country. International sales
increased at a substantial rate, with a significant portion of this increase
resulting from the businesses acquired earlier in the year. Contractor
distributors and homecenters were the fastest growing connector sales channels.
The growth rate of Simpson Strong-Tie's epoxy, seismic and engineered wood
product sales remained strong, and SST's acquisition of the Isometric Group's
line of mechanical anchor products also contributed significantly to the
increase in net sales. Simpson Dura-Vent's sales of chimney products and
Direct-Vent products experienced above-average growth.
Gross Profit
Gross profit increased 24.1% to $96.8 million in 1997 from $78.0 million in
1996. As a percentage of net sales, gross profit increased to 39.3% in 1997 from
38.5% in 1996. The increase was primarily due to a reduction as a percentage of
net sales in the non-material components of cost of sales, including
depreciation on factory equipment, research and development costs, labor,
factory overhead costs and shipping and freight. These costs decreased as a
percentage of net sales primarily due to the improved absorption of fixed
components of these costs because of the increased sales volume. Material costs
as a percentage of net sales also decreased slightly relative to 1996. These
improvements were offset somewhat by a smaller LIFO gain recorded in 1997 as
compared to 1996.
Selling Expense
Selling expense increased 15.0% to $23.1 million in 1997 from $20.1 million in
1996, but decreased as a percentage of net sales. The increase was primarily due
to higher personnel costs, including agent commissions, related to the increase
in the size of the sales force, which was expanded in 1997 to include
manufacturers' representatives who distribute the Company's mechanical anchor
product line. This increase was offset slightly by reduced spending on
advertising and promotional materials.
General and Administrative Expense
General and administrative expenses increased 20.0% to $30.1 million in 1997
from $25.0 million in 1996, and increased as a percentage of net sales. The
increase was primarily due to increased cash profit sharing, as a result of
higher operating profit, as well as higher personnel costs, including those
associated with the two acquisitions earlier in the year. Partially offsetting
the increase was a decrease in expenses because of the 1996 write-off of
intangible assets related to Simpson Strong-Tie's operations in the UK.
Acquired European Operations
The Company recorded an after-tax net loss in its combined European operations
of $2.4 million in 1997, including $1.0 million in intercompany interest
charges, compared to after-tax net losses of $2.8 million in 1996. These losses
are primarily associated with the Company's UK operations. Depreciation on
purchased capital equipment and administrative and other overhead costs incurred
related to the growing operations contributed significantly to the losses. The
Company expects the losses in the UK to continue through at least 1998.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Sales
Net sales in 1996 increased 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 net 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 increases in net sales at both SST and SDV were
primarily due to volume increases, with relatively small increases in average
prices. The increase in net sales occurred 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
18
<PAGE> 20
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 DIY, epoxy and seismic products led
SST 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
net 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 net sales
remained relatively flat during 1996.
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 advertising and sales promotion
expenses, a large percentage of which was targeted toward 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 higher cash and short-term investment
balances during the year.
Provision for Income 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
The Company's United Kingdom operations continue to report losses. While sales
there have increased substantially since 1995, largely because of acquisitions,
current gross margins are substantially lower than those of the rest of the
Company's operations.
In December 1996, the Company completed the purchase of the assets, including
$675,000 in equipment, of the Builders Products Division of MiTek Industries
Ltd. for approximately $1.0 million. As a result of this acquisition, the
Company concluded that additional manufacturing space was needed and that the
consolidation of its UK facilities into a single location was 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.
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<PAGE> 21
The losses were primarily due to depreciation on purchased capital equipment and
administrative and other overhead costs incurred as a result of the growing
operations. The Company expects these losses to continue through at least 1998.
QUARTERLY RESULTS
The following table sets forth unaudited consolidated statement of income data
for each quarter of 1996 and 1997. This quarterly information has been prepared
on the same basis as the annual consolidated financial statements and, in the
opinion of management, reflects all adjustments, consisting only of normal
recurring adjustments, necessary to state fairly the information set forth
herein. The operating results for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
1996 1997
------------------------------------- -------------------------------------
Dollars in thousands, except per FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
share data QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $43,457 $51,760 $57,129 $50,063 $51,927 $65,555 $68,825 $59,767
Cost of sales 28,356 31,509 34,441 30,088 32,609 39,228 40,364 37,079
------- ------ ------ ------ ------ ------ ------ ------
Gross profit 15,101 20,251 22,688 19,975 19,318 26,327 28,461 22,688
Selling expense 4,510 5,463 4,929 5,202 5,208 6,367 5,893 5,645
General and administrative
expense 5,128 6,225 7,034 6,648 6,226 8,078 8,665 7,084
Compensation related to stock -- -- -- 180 -- -- 290 15
------- ------ ------ ------ ------ ------ ------ ------
Income from operations 5,463 8,563 10,725 7,945 7,884 11,882 13,613 9,944
Interest income (expense), net 54 97 175 269 160 (18) 106 181
------- ------ ------ ------ ------ ------ ------ ------
Income before income taxes 5,517 8,660 10,900 8,214 8,044 11,864 13,719 10,125
Provision for income taxes 2,254 3,492 4,507 3,316 3,287 4,843 5,531 4,106
------- ------ ------ ------ ------ ------ ------ ------
Net income $ 3,263 $ 5,168 $ 6,393 $ 4,898 $ 4,757 $ 7,021 $ 8,188 $ 6,019
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company's results of operations fluctuate from quarter to quarter. The
fluctuations are caused by various factors, primarily the increase in
construction activity during warmer months of the year. Historically, demand for
the Company's products has tended to be somewhat higher in the second and third
quarters and somewhat lower in the first and fourth quarters.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's liquidity needs arise principally from working capital
requirements, capital expenditures and asset acquisitions. During the three
years ended December 31, 1997, the Company relied primarily on internally
generated funds and its credit facilities to finance these needs. The Company's
working capital requirements are seasonal with the highest working capital needs
typically occurring in the second and third quarters of the year. Cash and cash
equivalents were $19.4 million and $19.8 million at December 31, 1997 and 1996,
respectively. Working capital was $83.3 million and $70.7 million at December
31, 1997 and 1996, respectively. As of December 31, 1997, the Company had no
significant debt and had available to it unused credit facilities of
approximately $22.9 million.
The Company had cash flows from operating activities of $21.1 million, $24.6
million and $13.4 million for 1997, 1996 and 1995, respectively. In 1997, cash
was provided by net income of $26.0 million, noncash expenses (such as
depreciation and amortization) of $6.7 million and increases in accrued profit
sharing and other accrued liabilities totaling $1.6 million. The Company's
primary operating cash flow requirements resulted from increased levels of
inventory and accounts receivable that are required as the Company's sales
increase. In 1997, 1996 and 1995, the Company used cash of $9.1 million, $7.7
million and $5.6 million, respectively, to fund accounts receivable and
inventory requirements. In addition, trade accounts payable balances decreased
and the deferred tax asset balance increased in 1997, accounting for an
aggregate use of an additional $3.4 million in cash. The balance of the cash
used in 1997 resulted from changes in the other current asset and liability
accounts.
Cash used in investing activities was $21.8 million, $12.3 million and $13.1
million for 1997, 1996 and 1995, respectively. Capital expenditures, related
primarily to expanding capacity, increased in 1997 to $16.5 million from
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<PAGE> 22
$7.4 million in 1996. Included in the 1997 investing activities are the
Company's two acquisitions for a total of $9.3 million. The first was an equity
purchase for $7.6 million plus an earnout based on future sales increases of
three Canadian companies and a related U.S. company, the Isometric Group, that
manufactures and distributes a line of mechanical anchors and related products.
The second was the purchase of the remaining 66% equity in Patrick Bellion,
S.A., a French manufacturer of connector products, for $1.7 million. In
addition, $7.3 million in cash was used for real estate and related purchases in
1997. Partially offsetting these purchases was the sale of a short-term
investment providing nearly $4.0 million in cash.
Financing activities provided net cash of $0.3 million, $0.5 million and $0.9
million in 1997, 1996 and 1995, respectively. The cash was provided primarily
through the exercise of stock options by current and former employees of the
Company.
The Company believes that cash generated by operations, borrowings available
under its existing credit agreements, the majority of which have been renewed
through June 1998, and other available financing will be sufficient for the
Company's working capital needs and planned capital expenditures through at
least 1998.
INFLATION
The Company believes that the effect of inflation on the Company has not been
material in recent years, as inflation rates have remained low.
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<PAGE> 23
BUSINESS
OVERVIEW
The Company, through its subsidiary, Simpson Strong-Tie, 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, designs, engineers
and manufactures venting systems for gas and wood burning appliances. 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 SST benefits from strong brand name recognition among
architects and engineers who frequently specify in building plans the use of SST
products, and that SDV benefits from strong brand name recognition among
contractors, dealers, distributors and original equipment manufacturers ("OEMs")
to which SDV markets its products. The Company has continuously manufactured
structural connectors since 1956.
From 1993 through 1997, the Company's annual net sales grew from $113.9 million
to $246.1 million, a compound annual growth rate of 21.2%. During the same
period, the Company's annual net income grew from $8.0 million to $26.0 million,
a compound annual growth rate of 34.4%. Growth has been derived primarily from
frequent new product introductions, expansion into new geographic markets and
growth of distribution channels.
Connectors produced by Simpson Strong-Tie typically are steel devices that are
used to strengthen, support and connect joints in residential and commercial
construction and DIY projects. 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.
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 some products introduce outside
air into the appliance. SDV designs its products 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.
The Company emphasizes continuous new product development and often obtains
patent protection for its new products. The Company's products are marketed in
all 50 states of the United States and in England, France, Germany, Canada,
Mexico, Japan and Australia. Both Simpson Strong-Tie and Simpson Dura-Vent
products are distributed through a contractor and dealer distributor network,
home centers and OEMs.
The Company has developed and uses automated manufacturing processes. Its
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. The Company's development of
specialized manufacturing processes has also permitted increased operating
flexibility and enhanced product design innovation. The Company has developed a
quality management system that employs numerous quality-control procedures.
Since 1996, SST's quality management system has been registered under ISO 9001.
The Company has 11 manufacturing locations in the United States, Canada, France
and the United Kingdom.
The Company is a California corporation and was reorganized in 1994 as a holding
company for Simpson Strong-Tie and Simpson Dura-Vent.
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.
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<PAGE> 24
Increased Awareness of Need for Building Safety
Recent natural disasters throughout the world have focused attention on safety
concerns relating to the structural integrity of homes and other buildings. The
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 "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.
Increased Environmental Awareness
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 Simpson
Strong-Tie's engineered wood connector products increased significantly in 1996
and 1997.
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 single-family houses in 1996 heated with natural gas was 69%, a
slight increase from 67% in 1994. 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, Simpson Dura-Vent
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.
Expanding Home Center Markets and DIY Activity
The Company has developed its distribution through home centers throughout the
United States. The National Retail Hardware Association estimates that there are
44,500 home centers and lumber and building material outlets in the United
States. The Company's sales to home centers increased significantly in 1996 and
1997.
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 customer-driven
strategies. 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.
23
<PAGE> 25
Increase Specification by Architects and Engineers
Specification in architects' and engineers' plans and drawings influences which
products will be used for particular purposes and therefore is key to the use of
the Company's products in construction projects. The Company encourages
architects and engineers to specify the installation of the Company's products
in projects they design and supervise, and encourages acceptance of the
Company'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. The Company sponsors seminars to inform
architects, engineers and building officials on appropriate use and proper
installation of the Company's products.
Expand Product and Distribution Coverage
The Company seeks to expand its product and distribution coverage through
several channels:
Distributors. 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 programs to evaluate distributor product
mix and conducts promotions to encourage distributors to add Company products
that complement their mix of product offerings in 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.
Home Centers. The Company intends to continue to increase penetration of the DIY
markets by solicitation of home centers. The Company's Sales Representatives and
Retail Specialists maintain on-going contact with home centers to provide timely
product availability and product knowledge training. To satisfy specialized
requirements of the home center market, the Company has developed extensive bar
coding and merchandising aids and has concentrated a portion of its research
efforts into the development of DIY products.
OEM Relationships. The Company works closely with manufacturers of engineered
wood products and OEMs in developing and expanding the application and sales of
Simpson Strong-Tie's engineered wood connector products and Simpson Dura-Vent'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.
Continue Geographic Expansion of Customer Base
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 has planned to expand nearly
all of its manufacturing and warehouse facilities. Sales in the 37 states east
of the Rocky Mountains grew approximately 44% from 1995 to 1997 and represented
approximately 48% of the Company's 1997 domestic sales. In the last four years,
the Company commenced manufacturing in England, opened a warehouse facility in
Western Canada, purchased manufacturers in Eastern Canada and in France, made an
equity investment in a product design and distribution company in Germany and
entered into a distribution arrangement in Japan. 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.
Provide Rapid Delivery of High Quality Products to Customers
The Company's goal is to manufacture and warehouse its products in geographic
proximity to its markets to provide availability and rapid delivery of products
to customers and prompt response to customer requests for specially
24
<PAGE> 26
designed products and services. With respect to the DIY and dealer markets, the
Company's strategy is to keep the customer's retail stores continuously stocked
with adequate supplies of the full line of the Company's products that those
stores carry. The Company manages its inventory to assure continuous product
availability. Most customer orders are filled within a few days. High levels of
manufacturing automation and flexibility allow the Company to maintain its
quality standards while continuing to provide prompt delivery. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Create New Proprietary Products Responsive to Customer Needs
The Company's product research and development is based largely on needs that
customers communicate to the Company. The Company typically has developed 10 to
15 new products annually (some of which may be produced in a range of sizes).
The Company's strategy is to develop new products on a proprietary basis where
possible. Of more than 80 patents that the Company owns, 70 cover products that
the Company currently manufactures and markets. The Company has filed 39 patent
applications that are pending.
Acquire Complementary Product Lines
The Company's long-term strategy is to develop, acquire or invest in product
lines or businesses that (a) complement the Company's existing product lines,
(b) can be marketed through its existing distribution channels, (c) might
benefit from use of the Simpson Strong-Tie and Simpson Dura-Vent brand names,
and (d) are responsive to needs of the Company's customers.
SIMPSON STRONG-TIE
Overview
Connectors produced by Simpson Strong-Tie typically are steel devices that are
used to strengthen, support and connect joints in residential and commercial
construction and DIY projects. 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 Simpson Strong-Tie 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. SST
operates manufacturing and warehouse facilities in California, Texas, Ohio,
Florida, Illinois, British Columbia, Ontario, England and France.
Products
Simpson Strong-Tie is a recognized brand name in the markets it serves. Over a
quarter of SST's 1997 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. 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.
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<PAGE> 27
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 constructed by a homeowner to a multi-story
structure designed by an architect or engineer in an earthquake zone.
Simpson Strong-Tie also 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 net sales of
engineered wood connectors through dealer and contractor distributors and
engineered wood product manufacturers have 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 65 U.S. and 15 foreign patents
that SST owns, 67 cover products that SST currently manufactures and markets.
SST typically has developed 10 to 15 new products each year. SST's research and
development expense for the three years ended December 31, 1995, 1996 and 1997,
was $922,000, $1,025,000 and $957,000, 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 recently developed and introduced a line of
powder-coat painted shelf brackets primarily for the DIY market, high-strength
chemical epoxy anchor systems, and reduced deflection hold-downs and associated
fasteners. The Company believes that existing distribution channels are
receptive to product line extensions, thereby enhancing SST's ability to enter
new markets.
Sales and Marketing
Sales Organization. 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, England and France. 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 domestic branch is an independent profit center with a cash
profit sharing bonus program based on its own performance. At the same time, the
domestic branches closely integrate their manufacturing activities to enhance
product availability. Branch sales forces in the U.S. are supported by 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.
Distribution Channels. 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 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 and Canada.
Customer Service. 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
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<PAGE> 28
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 users in the U.S. and elsewhere who do not speak
English, SST employs bilingual sales people and prints some of its publications
in other languages.
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.
Prompt Delivery of Products. 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.
Keeping the Racks Full. 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.
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. 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 of its
distribution channels, 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 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"),
approximately 4.9 million gas water heaters and approximately 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
27
<PAGE> 29
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, 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.
Since early 1995, nearly all wood stove manufacturers have introduced direct
vent gas stoves. Simpson Dura-Vent 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.
New Product Development
Simpson Dura-Vent has gained industry recognition by offering innovative new
products that meet changing needs of customers. SDV representatives serve on
industry committees concerned with issues such as new appliance standards and
government regulations. SDV also maintains working relationships with research
and development departments of major appliance manufacturers, providing
prototypes for field testing and conducting tests in SDV's testing laboratory.
SDV believes that such relationships provide competitive advantages. For
example, several years ago, SDV introduced the first special vent for the newly
invented pellet stoves, and more recently, SDV introduced the first direct vent
system for the increasingly popular direct vent gas appliances.
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. SDV 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.
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<PAGE> 30
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.
The Company has developed and uses automated manufacturing processes. The
Company'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. The Company's development of specialized
manufacturing processes also has permitted increased operating flexibility and
enhanced product design innovation.
The Company is committed to helping people build safer structures economically
through the design, engineering and manufacturing of structural connector and
related products. To this end, the Company 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. Since 1996, Simpson Strong-Tie's quality
management system has been registered under ISO 9001, an internationally
recognized set of quality-assurance standards. The Company believes that ISO
registration is a significant asset in doing business with European companies
and is becoming increasingly important to U.S. companies.
Most of Simpson Strong-Tie'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 multiple dies
rapidly and design them to high standards. The Company is constantly reviewing
its product line to reduce manufacturing costs and increase automation.
Simpson Dura-Vent produces component parts for venting systems using
NC-controlled punch presses equipped with high-speed progressive and compound
tooling. SDV's vent pipe and elbow assembly lines are automated, to produce
finished products efficiently from large coils of steel and aluminum. UPC bar
coding and computer tracking systems provide SDV's industrial engineers and
production supervisors with real-time productivity tools to measure and evaluate
current production rates, methods and equipment.
REGULATION
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
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<PAGE> 31
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. See "Risk
Factors -- Regulatory Matters." 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 or
international corporations to small regional manufacturers. While price is an
important factor, the Company competes primarily on the basis of quality,
breadth of product line, technical support, service, field support and product
innovation. Simpson Strong-Tie 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.
The venting industry is highly competitive. Many of Simpson Dura-Vent's
competitors have greater financial and other resources than SDV. SDV's principal
competitors include the Selkirk Metalbestos Division of Eljer Industries Inc. (a
subsidiary of Zurn Industries), 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. See "Risk Factors -- Competition."
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 Simpson
Dura-Vent, 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. See "Risk Factors -- Effect of Increased Raw
Materials Costs" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PATENTS AND PROPRIETARY RIGHTS
The Company's subsidiaries own more than 80 U.S. and foreign patents, of which
70 cover products that they currently manufacture and market. Its subsidiaries
have filed 14 U.S. and 25 foreign patent applications that are currently
pending. These patents and patent applications cover various design aspects of
the subsidiaries' products
30
<PAGE> 32
as well as 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. See "Risk Factors -- Dependence on Intellectual
Property Protection."
The Company's subsidiaries hold 99 trademark registrations in the U.S. and
foreign countries covering 48 trademarks, have 40 trademark registration
applications pending in the U.S. and foreign countries covering seven
trademarks, and use several other trademarks that they have not yet attempted to
register.
ACQUISITIONS AND STRATEGIC INVESTMENTS
The Company's future growth, if any, may depend to some extent on its ability to
penetrate new markets, both domestically and internationally. See
"Business -- Business Strategy" and "Business -- Industry and Market Trends."
Therefore, the Company may in the future pursue acquisitions of product lines or
businesses. See "Risk Factors -- Dependence on New Markets; Expansion Outside
the United States" and "Risk Factors -- Ability to Assimilate Acquisitions."
In 1996, the Company 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, the Company purchased three Canadian companies
and a related U.S. company, the Isometric Group, which manufacture and
distribute a line of mechanical anchors and related products, for approximately
$7.6 million plus an earnout based on future sales increases. Also during the
first quarter of 1997, the Company purchased, for approximately $1.7 million,
the remaining 66% equity in Patrick Bellion, S.A., a French manufacturer of
connector products. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Sources of Capital."
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1997, the Company had 1,272 full-time employees, of whom 885
were hourly employees and 387 were salaried employees. The Company believes that
its overall compensation and benefits for the most part exceed industry averages
and that its relations with its employees are good.
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. 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 craftsmen 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, expires in July 2000.
The Company maintains several profit sharing, stock option and bonus plans to
provide incentives to its employees. The Company's cash profit sharing bonus
plan gives participating employees the opportunity to benefit from the Company's
operating profits above certain minimum levels established by the Board of
Directors. The Company's subsidiaries maintain defined contribution profit
sharing plans for their U.S.-based salaried employees and nonunion hourly
employees, and the Company contributes annually to these plans from 10% to 15%
of eligible earnings, as defined in the plans. The Company's 1994 Stock Option
Plan provides for the grant of options to employees, directors and consultants
of the Company and currently authorizes the grant of stock options to purchase
up to an aggregate of 1,500,000 shares of Common Stock; options to purchase an
aggregate of 970,417 shares were outstanding under this Option Plan as of
December 31, 1997. In addition, employees who have been employed by the Company
for more than ten years and who the Company determines are not eligible to
participate in the 1994 Stock Option Plan may be awarded stock and cash bonuses
under the Company's 1994 Employee Stock Bonus Plan, based on their years of
service with the Company.
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<PAGE> 33
PROPERTIES
The Company maintains its home office in Pleasanton, California, and other
offices, manufacturing and warehouse facilities elsewhere in California and in
Texas, Ohio, Florida, Mississippi, Illinois, British Columbia, Ontario, England
and France. As of December 31, 1997, the Company owned or leased office,
manufacturing and warehouse facilities occupying an aggregate of approximately
1,840,000 square feet. See Note 9 to the Consolidated Financial Statements.
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 1998. The manufacturing facilities currently are being
operated with two shifts at most plants. The Company anticipates that it may
require additional facilities to accommodate its growth in later years.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation that it considers to be
in the normal course of its business. No such litigation within the last five
years resulted in any material loss. The Company is not engaged in any legal
proceedings as of the date hereof, which the Company expects individually or in
the aggregate to have a material adverse effect on the Company's financial
condition or results of operations.
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<PAGE> 34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND ITS SUBSIDIARIES
The name, age, and current position(s) of each director and executive officer of
the Company are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRESENT PRINCIPAL POSITION AND OFFICES WITH THE
COMPANY
NAME AGE AND ITS SUBSIDIARIES
- ----------------------------------- ---- ---------------------------------------------------
<S> <C> <C>
Barclay Simpson(1)(4) 76 Chairman of the Board and Director of the Company,
SST and SDV
Thomas J Fitzmyers 57 President, Chief Executive Officer and Director of
the Company and SST; Director of SDV
Stephen B. Lamson 45 Chief Financial Officer, Treasurer, Secretary and
Director of the Company, SST and SDV
Donald M. Townsend 50 President, Chief Executive Officer and Director of
SDV
Earl F. Cheit(2)(4) 71 Director of the Company
Alan R. McKay(2)(4) 72 Director of the Company
Sunne Wright McPeak(1)(3)(4) 49 Director of the Company
Barry Lawson Williams(1)(2)(3)(4) 53 Director of the Company
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of 1994 Stock Option Plan Committee
(4) Member of the Growth Committee
The Board of Directors has not established a nominating committee. The Board of
Directors currently comprises seven members. All directors hold office until the
next annual meeting of the shareholders or until their successors are elected.
BARCLAY SIMPSON has been the Chairman of the Board of Directors and a director
of the Company since 1956. Since 1982, Mr. Simpson and his wife have owned
Barclay Simpson Fine Arts Gallery, a commercial art gallery in Lafayette,
California. Mr. Simpson is also a member of the Boards of Directors of Civic
Bancorp, Calender Robinson Insurance, the University Art Museum of the
University of California at Berkeley, the California College of Arts and Crafts
and other charitable and educational institutions.
THOMAS J FITZMYERS has served as President and a director of the Company since
1978, as the President and a director of Simpson Strong-Tie since 1983 and as a
director of Simpson Dura-Vent since 1982. He was appointed as the Company's
Chief Executive Officer in 1994. Mr. Fitzmyers was employed by Union Bank from
1971 to 1978. He was a Regional Vice President when he left Union Bank to join
the Company in 1978.
STEPHEN B. LAMSON has served as the Company's, Simpson Strong-Tie's and Simpson
Dura-Vent's Chief Financial Officer and Treasurer since 1989, as the Company's
and SDV's Secretary since 1989, as SST's Secretary since 1992, as a director of
the Company since 1990, as a director of SST since 1992 and as a director of SDV
since 1989. From 1980 to 1989, Mr. Lamson was with Coopers & Lybrand. He was an
audit manager when he left that firm to join the Company in 1989.
EARL F. CHEIT has been a Senior Advisor to the Asia Foundation on Asia-Pacific
Economic Affairs since 1984 and became Dean Emeritus of the Haas School of
Business at the University of California, Berkeley, in 1992. He is currently a
director of The Shaklee Corporation and CNF Transportation, Inc. and a Trustee
of Mills College.
ALAN R. MCKAY has been the President of Alan R. McKay & Associates, an
engineering consulting firm based in Lafayette, California, since 1959. He is a
registered civil, structural and geotechnical engineer in the State of
California with extensive experience in connector applications.
SUNNE WRIGHT MCPEAK is the President and Chief Executive Officer of the Bay Area
Council, a business sponsored organization founded in 1945 that promotes
economic activity and environmental quality in the region.
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<PAGE> 35
Prior to this position, she was the President and Chief Executive Officer of the
Bay Area Economic Forum, a partnership of government, business, academic and
foundation sectors of the nine San Francisco Bay Area counties. From 1979
through 1994, she served on the Board of Supervisors of Contra Costa County,
California, including several terms as Chair. Her most recent term as Chair
concluded in 1992. In addition, Ms. McPeak served as President of the California
State Association of Counties and has been a member of the advisory boards of
the Urban Land Institute and California State University, Hayward. She is
currently a director of the California Foundation for the Environment and the
Economy.
BARRY LAWSON WILLIAMS has been President of Williams Pacific Ventures Inc., a
venture capital and real estate consulting firm, since 1987. From 1989 until its
sale in 1992, he was also Chief Executive Officer and owner of C.N. Flagg Power
Inc. He is a director of PG&E Corporation, CH2M HILL Companies, Ltd., The U.S.A.
Group, Inc., Newhall Land and Farming Co. Inc., Northwestern Mutual Life
Insurance Co. and CompUSA, Inc.
DONALD M. TOWNSEND has been employed by the Company since 1981 and has served as
a director of Simpson Dura-Vent since 1984 and as its President and Chief
Operating Officer since 1991. He was appointed as SDV's Chief Executive Officer
in 1994. From 1984 to 1991, he was the Vice President and General Manager of
SDV.
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<PAGE> 36
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information, as of December 31, 1997, and
as adjusted to reflect the sale of shares offered hereby, with respect to the
beneficial ownership of the Company's Common Stock by (1) each Selling
Shareholder and each shareholder known by the Company to be the beneficial owner
of more than 5% of the Company's Common Stock, (2) each director of the Company,
(3) each person currently serving as an executive officer of the Company, and
(4) all current executive officers and directors of the Company as a group.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------
NUMBER OF
PERCENT SHARES TO
PRIOR BE PERCENT
NAME AND, FOR EACH 5% PRIOR TO TO SOLD IN AFTER
BENEFICIAL OWNER, ADDRESS OFFERING(1) OFFERING OFFERING OFFERING
- ------------------------------------------------- --------- ------ --------- ------
<S> <C> <C> <C> <C>
Barclay Simpson(2) 3,700,872 32.1% -- 32.1%
4637 Chabot Drive, Suite 200
Pleasanton, CA 94588
Simpson PSB Fund 1,400,000 12.2% 1,200,000(3) 1.7%
3669 Mount Diablo Blvd.
Lafayette, CA 94549
Thomas J Fitzmyers(4) 783,242 6.7% 50,000 6.3%
4637 Chabot Drive, Suite 200
Pleasanton, CA 94588
Scudder Kemper Investments, Inc.(5) 678,900 5.9% -- 5.9%
Two International Place
Boston, MA 02110-4103
Stephen B. Lamson(6) 251,000 2.2% -- 2.2%
Donald M. Townsend(7) 118,947 1.0% -- 1.0%
Alan R. McKay(8) 4,500 * -- *
Earl F. Cheit(8) 2,500 * -- *
Sunne Wright McPeak(8) 2,500 * -- *
Barry Lawson Williams(9) 500 * -- *
All current executive officers and directors as a
group(10) 4,564,061 38.5% 50,000 38.2%
</TABLE>
- ---------------
* Less than one percent
(1) The information in this table is based on information supplied by the
Selling Shareholders and officers and directors, and, with respect to other
principal shareholders, statements on Schedule 13D or 13G filed with the
Securities and Exchange Commission. Unless otherwise indicated below, the
persons named in the table had sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable.
(2) Includes 150,000 shares owned by the Company's profit sharing trusts, of
which Messrs. Simpson, Fitzmyers and Lamson are the trustees and share voting
and dispositive power, as to which shares such trustees disclaim beneficial
ownership except to the extent of their participation as beneficiaries of one of
such trusts. Includes 500 shares subject to options granted under the 1994 Stock
Option Plan that are exercisable within 60 days.
(3) Assumes the Underwriters' overallotment option will not be exercised. See
"Underwriting."
(4) Includes 211,610 shares subject to options granted under the 1994 Stock
Option Plan that are exercisable within 60 days. Includes 150,000 shares owned
by the Company's profit sharing trusts, of which Messrs. Simpson, Fitzmyers and
Lamson are the trustees and share voting and dispositive power, as to which
shares such trustees disclaim beneficial ownership except to the extent of their
participation as beneficiaries of one of such trusts.
(5) Based on filings by Scudder Kemper Investments, Inc. ("Scudder") with the
Commission under section 13(f) of the Exchange Act, as of September 30, 1997,
Scudder beneficially owned 678,900 shares of the Company's Common Stock. Scudder
had investment power with respect to all 678,900 shares, sole power to vote or
to direct the vote of 203,600 shares and shared power to vote or direct the vote
of 321,300 shares.
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<PAGE> 37
(6) Includes 54,548 shares subject to options granted under the 1994 Stock
Option Plan that are exercisable within 60 days. Includes 150,000 shares owned
by the Company's profit sharing trusts, of which Messrs. Simpson, Fitzmyers and
Lamson are the trustees and share voting and dispositive power, as to which
shares such trustees disclaim beneficial ownership except to the extent of their
participation as beneficiaries of one of such trusts.
(7) Includes 51,169 shares subject to options granted under the 1994 Stock
Option Plan that are exercisable within 60 days.
(8) Includes 2,500 shares subject to options granted under the Company's 1995
Independent Director Stock Option Plan that are exercisable within 60 days.
(9) Includes 500 shares subject to options granted under the Company's 1995
Independent Director Stock Option Plan that are exercisable within 60 days.
(10) Includes 325,827 shares subject to options exercisable within 60 days,
including the options described in the above notes, and 150,000 shares owned by
the Company's profit sharing trusts as described in notes 3, 4 and 6 above.
Of the shares offered hereby, 1,200,000 shares (1,387,500 shares if the
Underwriters' overallotment option is exercised in full) are being offered by
Simpson PSB Fund, a California nonprofit public benefit corporation, which is
the Principal Selling Shareholder. The Board of Directors of the Principal
Selling Shareholder comprises Charles A. Lee and Jules F. Bonjour, Jr. The
Principal Selling Shareholder is qualified as an organization exempt from
federal and California income taxation under section 501(c)(3) of the Internal
Revenue Code of 1986, as amended. In September 1997, Barclay Simpson donated
1,400,000 shares of Common Stock to the Principal Selling Shareholder.
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<PAGE> 38
DESCRIPTION OF CAPITAL STOCK
The total number of shares of capital stock that the Company is authorized to
issue is 25,000,000 shares, consisting of 20,000,000 shares of Common Stock
without par value, of which 11,517,113 shares were issued and outstanding as of
December 31, 1997, and 5,000,000 shares of Preferred Stock without par value,
none of which is outstanding. The Company had approximately 248 shareholders of
record as of that date.
COMMON STOCK
Subject to the rights of holders of any Preferred Stock that may be issued in
the future, holders of Common Stock are entitled to receive such dividends, if
any, as may be declared from time to time by the Board of Directors out of funds
legally available therefor (see "Dividend Policy") and in the event of
liquidation, dissolution or winding-up of the Company, to share ratably in all
assets available for distribution. The holders of Common Stock have no
preemptive or conversion rights. Subject to the rights of holders of any
Preferred Stock that may be issued in the future, the holders of Common Stock
are entitled to one vote per share on any matter submitted to a vote of the
shareholders, except that, on giving notice as required by law and subject to
compliance with other statutory conditions, shareholders may cumulate their
votes in an election of directors, and each shareholder may give one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of shares held by such shareholder or may distribute such shareholder's
votes on the same principle among as many candidates as such shareholder thinks
fit. All shares of Common Stock offered hereby are outstanding and fully paid
and are not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock.
PREFERRED STOCK
The Board of Directors has the authority to issue the authorized and unissued
Preferred Stock in one or more series with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without shareholder approval,
to issue Preferred Stock with dividend, liquidation, conversion, voting or other
rights that could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the Preferred
Stock could be used under certain circumstances, as a method of discouraging,
delaying or preventing an acquisition or change in control of the Company. The
Company does not currently have any plan to issue any shares of its Preferred
Stock.
LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
As authorized by the California General Corporation Law ("GCL"), the Company's
Articles of Incorporation include provisions limiting the liability of directors
of the Company for monetary damages. The effect of these provisions is to
eliminate the rights of the Company and its shareholders (through shareholders'
derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligence) except in certain limited situations. This
provision does not limit or eliminate the rights of the Company or any
shareholder to seek nonmonetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. The Company's Bylaws require
that the Company indemnify its directors and officers, and any employee who
serves as a director or officer of any corporation at the Company's request, to
the fullest extent permitted under and in accordance with the GCL. The Company
has entered into agreements to indemnify the directors and officers of the
Company, Simpson Strong-Tie and Simpson Dura-Vent, in addition to
indemnification provided in the Company's and its subsidiaries' Bylaws. These
agreements, among other things, require that the Company indemnify the directors
and officers for certain expenses, including attorneys' fees, judgments, fines
and settlement amounts incurred by any such person in any action or proceeding
or any threatened action or proceeding, whether civil or criminal, arising out
of such person's actions as a director or officer of the Company or any of its
subsidiaries or as a trustee of a Company profit-sharing plan. The Company
believes that these provisions and agreements will assist the Company in
attracting and retaining qualified individuals to serve as directors and
officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is BankBoston, N.A., c/o
Boston EquiServe, L.P.
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<PAGE> 39
UNDERWRITING
Under the terms and subject to the conditions of an Underwriting Agreement dated
the date of this prospectus (the "Underwriting Agreement"), the Selling
Shareholders have agreed to sell to the Underwriters named below, and each of
such Underwriters, for whom J.P. Morgan Securities Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and BancAmerica Robertson Stephens are acting as
representatives, has severally agreed to purchase from the Selling Shareholders,
the respective number of shares of Common Stock set forth opposite its name
below:
<TABLE>
<CAPTION>
----------
NUMBER
UNDERWRITERS OF SHARES
----------
<S> <C>
J.P. Morgan Securities Inc.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
BancAmerica Robertson Stephens
---------
Total 1,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and certain other conditions. Under the terms
and conditions of the Underwriting Agreement, the Underwriters are obligated to
take and pay for all such shares, if any are taken.
The Underwriters propose initially to offer the shares of Common Stock directly
to the public at the price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the
initial public offering of the Common Stock, the public offering price and such
concession may be changed.
The Principal Selling Shareholder has granted to the Underwriters an option,
expiring at the close of business on the 30th day after the date of this
Prospectus, to purchase up to an additional 187,500 shares of Common Stock from
the Principal Selling Shareholder, at the initial public offering price, less
the underwriting discount. The Underwriters may exercise such option solely for
the purpose of covering overallotments, if any. To the extent that the
Underwriters exercise the option, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase approximately the same proportion of
option shares as the number of shares of Common Stock to be purchased by each
Underwriter shown in the foregoing table bears to the total number of shares of
Common Stock initially offered hereby.
The Company and each of the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Company and certain of its shareholders, including the Selling Shareholders,
have agreed that they will not, without the prior written consent of J.P. Morgan
Securities Inc., issue, sell, offer, agree to sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock, any options, rights or
warrants to purchase Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock until the 90th day after the date
of this Prospectus, except for stock options issued under the 1994 Stock Option
Plan or the 1995 Independent Director Stock Option Plan, and issuances of shares
of Common Stock pursuant to the exercise of stock options
38
<PAGE> 40
granted under the 1994 Stock Option Plan or the 1995 Independent Director Stock
Option Plan or pursuant to the Company's 1994 Employee Stock Bonus Plan. J.P.
Morgan Securities Inc. may in its exclusive discretion and at any time without
notice, release all or a portion of the securities subject to these
restrictions.
In connection with the offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot the offering, creating a syndicate
short position. In addition, the Underwriters may bid for, and purchase, shares
of Common Stock in the open market to cover syndicate shorts or to stabilize the
price of the Common Stock. Finally, the underwriting syndicate may reclaim
selling concessions allowed for distributing the Common Stock in the offering,
if the syndicate repurchases previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Selling Shareholders
hereby will be passed on for the Selling Shareholders by Shartsis, Friese &
Ginsburg LLP, San Francisco, California. Partners and associates of Shartsis,
Friese & Ginsburg LLP and members of their immediate families own an aggregate
of 6,041 shares of Common Stock. Certain legal matters will be passed on for the
Underwriters by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1997, and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997, included in this
Prospectus, have been audited by Coopers & Lybrand L.L.P., independent
accountants. These consolidated financial statements audited by Coopers &
Lybrand L.L.P. have been included herein in reliance on the reports given on the
authority of that firm as experts in accounting and auditing.
39
<PAGE> 41
SIMPSON MANUFACTURING CO., INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1996
and 1997 F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1995, 1996 and 1997 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997 F-6
Notes to the Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Simpson Manufacturing Co., Inc.:
We have audited the consolidated balance sheets of Simpson Manufacturing Co.,
Inc. as of December 31, 1996 and 1997, and the consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 29, 1998
F-2
<PAGE> 43
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------
DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 19,815,297 $ 19,418,689
Short-term investments 3,896,428 --
Trade accounts receivable, net 20,930,490 24,625,568
Inventories 42,247,777 54,982,945
Deferred income taxes 2,919,455 3,536,750
Other current assets 956,565 1,723,586
------------ ------------
Total current assets 90,766,012 104,287,538
Property, plant and equipment, net 28,687,635 42,925,088
Investments 1,382,578 559,200
Other noncurrent assets 1,684,548 2,993,114
------------ ------------
Total assets $122,520,773 $150,764,940
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ -- $ 29,605
Trade accounts payable 10,063,828 8,813,196
Accrued liabilities 4,137,648 5,506,903
Accrued profit sharing trust contributions 2,446,001 2,886,875
Accrued cash profit sharing and commissions 2,292,057 3,094,834
Accrued workers' compensation 809,272 659,272
Income taxes payable 341,626 --
------------ ------------
Total current liabilities 20,090,432 20,990,685
Long-term liabilities 133,333 823,732
------------ ------------
Total liabilities 20,223,765 21,814,417
------------ ------------
Commitments and contingencies (Note 9)
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
11,517,113 at December 31, 1996 and 1997 31,233,648 32,377,563
Retained earnings 70,862,906 96,848,685
Cumulative translation adjustment 200,454 (275,725)
------------ ------------
Total shareholders' equity 102,297,008 128,950,523
------------ ------------
Total liabilities and shareholders' equity $122,520,773 $150,764,940
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 44
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------------------
YEARS ENDED DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $167,957,955 $202,408,917 $246,074,446
Cost of sales 109,368,027 124,394,086 149,279,718
------------ ------------ ------------
Gross profit 58,589,928 78,014,831 96,794,728
------------ ------------ ------------
Operating expenses
Selling 17,109,325 20,104,344 23,113,344
General and administrative 18,512,003 25,035,874 30,052,669
Compensation related to stock plans (Note 13) 61,250 180,155 305,038
------------ ------------ ------------
35,682,578 45,320,373 53,471,051
------------ ------------ ------------
Income from operations 22,907,350 32,694,458 43,323,677
Interest income, net 141,535 595,180 429,102
------------ ------------ ------------
Income before income taxes 23,048,885 33,289,638 43,752,779
Provision for income taxes 8,927,000 13,569,000 17,767,000
------------ ------------ ------------
Net income $ 14,121,885 $ 19,720,638 $ 25,985,779
============ ============ ============
Net income per common share
Basic $ 1.25 $ 1.73 $ 2.26
Diluted $ 1.23 $ 1.68 $ 2.17
Number of shares outstanding
Basic 11,316,673 11,424,945 11,474,592
Diluted 11,460,567 11,755,184 11,965,950
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 45
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
------------------------------------------------------------------
COMMON STOCK CUMULATIVE
------------------------ RETAINED TRANSLATION
SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL
---------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 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
Options exercised 61,595 451,282 -- -- 451,282
Tax benefit of options
exercised -- 589,133 -- -- 589,133
Common stock issued at $23.00
per share 4,500 103,500 -- -- 103,500
Translation adjustment -- -- -- (476,179) (476,179)
Net income -- -- 25,985,779 -- 25,985,779
---------- ----------- ----------- --------- ------------
Balance, December 31, 1997 11,517,113 $32,377,563 $96,848,685 $(275,725) $128,950,523
========== =========== =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 46
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------------------------
YEARS ENDED DECEMBER 31,
1995 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,121,885 $19,720,638 $25,985,779
------------ ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss (gain) on sale of capital equipment 11,558 (16,262) (11,194)
Depreciation and amortization 5,291,466 7,197,718 6,712,157
Deferred income taxes and other long-term
liabilities 65,000 (212,450) (946,542)
Equity in income of affiliates (24,554) (107,000) (142,500)
Noncash compensation related to stock plans 61,250 35,100 103,500
Changes in operating assets and liabilities,
net of effects of acquisitions:
Trade accounts receivable, net (2,916,665) (190,608) (2,277,797)
Inventories (2,655,355) (7,500,960) (6,867,089)
Other current assets (951,314) 278,047 (700,537)
Other noncurrent assets (256,380) (800,840) (14,450)
Trade accounts payable 665,976 2,688,814 (2,429,650)
Accrued liabilities 307,968 751,120 379,910
Accrued profit sharing trust contributions 279,135 446,262 440,874
Accrued cash profit sharing and commissions (45,982) 1,002,913 802,777
Accrued workers' compensation (55,000) (32,853) (150,000)
Income taxes payable (500,661) 1,349,876 247,507
------------ ----------- -----------
Total adjustments (723,558) 4,888,877 (4,853,034)
------------ ----------- -----------
Net cash provided by operating
activities 13,398,327 24,609,515 21,132,745
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (10,049,629) (7,364,326) (16,548,350)
Proceeds from sale of equipment 22,225 57,787 65,327
Asset acquisitions, net of cash acquired and
equity interest already owned (2,414,114) (1,041,780) (9,336,142)
Purchase of short-term investment -- (3,896,428) --
Proceeds from sale of short-term investments -- -- 3,995,333
Equity investments (667,002) (11,637) --
------------ ----------- -----------
Net cash used in investing
activities (13,108,520) (12,256,384) (21,823,832)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debt 20,037 -- --
Repayment of debt -- (20,037) (260,304)
Issuance of Company's common stock 835,351 526,415 554,783
------------ ----------- -----------
Net cash provided by financing
activities 855,388 506,378 294,479
------------ ----------- -----------
Net increase (decrease) in cash
and cash equivalents 1,145,195 12,859,509 (396,608)
Cash and cash equivalents at beginning of period 5,810,593 6,955,788 19,815,297
------------ ----------- -----------
Cash and cash equivalents at end of period $ 6,955,788 $19,815,297 $19,418,689
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR
Interest $ 35,045 $ 31,311 $ 80,071
============ =========== ===========
Income taxes $ 8,961,714 $13,036,713 $19,564,663
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 47
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. and its other subsidiaries
(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. Investments in less than 50%-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 and Canada, where
inventories of approximately $1,483,000 and $4,782,000 at December 31, 1996 and
1997, 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.
F-7
<PAGE> 48
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Depreciation and Amortization
Depreciation of property, plant and equipment is provided for using accelerated
methods over the following estimated useful lives:
<TABLE>
<S> <C>
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
</TABLE>
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 $1,180,000, $1,312,000
and $1,280,000 in 1995, 1996 and 1997, 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 operating
branches in Europe and Canada. Assets and liabilities denominated in foreign
currencies 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.
Common Stock
Subject to the rights of holders of any Preferred Stock that may be issued in
the future, holders of Common Stock are entitled to receive such dividends, if
any, as may be declared from time to time by the Board of Directors (the
"Board") out of funds legally available therefor and in the event of
liquidation, dissolution or winding-up of the Company, to share ratably in all
assets available for distribution. The holders of Common Stock have no
preemptive or conversion rights. Subject to the rights of any Preferred Stock
that may be issued in the future, the holders of Common Stock are entitled to
one vote per share on any matter submitted to a vote of the shareholders, except
that, on giving notice as required by law and subject to compliance with other
statutory conditions, shareholders may cumulate their votes in an election of
directors, and each shareholder may give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of shares held
by such shareholder or may distribute such shareholder's votes on the same
principle among as many candidates as such shareholder thinks fit. There are no
redemption or sinking fund provisions applicable to the Common Stock.
Preferred Stock
The Board has the authority to issue the authorized and unissued Preferred Stock
in one or more series with such designations, rights and preferences as may be
determined from time to time by the Board. Accordingly, the Board
F-8
<PAGE> 49
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
is empowered, without shareholder approval, to issue Preferred Stock with
dividend, liquidation, conversion, voting or other rights that could adversely
affect the voting power or other rights of the holders of the Company's Common
Stock.
Net Income per Common Share
Basic 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 diluted per-share calculations for
all periods when the effect of their inclusion is dilutive.
The following is a reconciliation of basic earnings per share ("EPS") to diluted
EPS:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
1995 1996 1997
--------------------------------- --------------------------------- ---------------------------------
PER PER PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
----------- ---------- ------ ----------- ---------- ------ ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available
to common
shareholders $14,121,885 11,316,673 $ 1.25 $19,720,638 11,424,945 $ 1.73 $25,985,779 11,474,592 $ 2.26
EFFECT OF DILUTIVE
SECURITIES
Stock options -- 143,894 (0.02) -- 330,239 (0.05) -- 491,358 (0.09)
----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
DILUTED EPS
Income available
to common
shareholders $14,121,885 11,460,567 $ 1.23 $19,720,638 11,755,184 $ 1.68 $25,985,779 11,965,950 $ 2.17
=========== ========== ===== =========== ========== ===== =========== ========== =====
</TABLE>
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 June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS No. 131 specifies
revised guidelines for determining an entity's operating segments and the type
and level of financial information to be disclosed. SFAS Nos. 130 and 131 are
effective for financial statements issued for periods beginning after December
15, 1997, and accordingly, management has not determined the effect, if any, on
the Company's financial statements for its fiscal year ended December 31, 1997.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1997
presentation with no effect on net income as previously reported.
2. ACQUISITIONS
In March 1997, the Company and its subsidiaries completed two acquisitions. The
first was 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 was approximately $7.6 million plus
an earnout based on future sales increases. The second was the purchase, for
approximately $1.7 million, of the remaining 66% equity in Patrick Bellion,
S.A., a French manufacturer of connector products (see Note 6).
F-9
<PAGE> 50
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
determined that additional manufacturing space was needed and began the
consolidation of its UK facilities into a single location. 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 6). 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.
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 all years presented.
3. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consist of the following:
<TABLE>
<CAPTION>
---------------------------
DECEMBER 31,
1996 1997
----------- -----------
<S> <C> <C>
Trade accounts receivable $22,242,827 $26,398,046
Allowance for doubtful accounts (1,108,950) (1,539,691)
Allowance for sales discounts (203,387) (232,787)
----------- -----------
$20,930,490 $24,625,568
=========== ===========
</TABLE>
The Company sells product on credit and generally does not require collateral.
4. INVENTORIES
The components of inventories consist of the following:
<TABLE>
<CAPTION>
---------------------------
DECEMBER 31,
1996 1997
----------- -----------
<S> <C> <C>
Raw materials $15,107,660 $17,882,930
In-process products 3,763,634 5,384,709
Finished products 23,376,483 31,715,306
----------- -----------
$42,247,777 $54,982,945
=========== ===========
</TABLE>
At December 31, 1996 and 1997, the replacement value of LIFO inventories
exceeded LIFO cost by approximately $1,186,000 and $852,000, respectively.
F-10
<PAGE> 51
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
-----------------------------
DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Land $ 2,065,682 $ 3,366,519
Buildings and site improvements 10,379,901 17,165,509
Leasehold improvements 2,869,612 3,474,278
Machinery and equipment 46,311,624 55,400,034
------------ ------------
61,626,819 79,406,340
Less accumulated depreciation and amortization (35,916,354) (41,986,005)
------------ ------------
25,710,465 37,420,335
Capital projects in progress 2,977,170 5,504,753
------------ ------------
$ 28,687,635 $ 42,925,088
============ ============
</TABLE>
Included in property, plant and equipment at December 31, 1996 and 1997, are
fully depreciated assets with an original cost of approximately $17,181,665 and
$20,104,000, respectively. These fully depreciated assets are still in use in
the Company's operations.
6. 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 exercised its option to purchase the
remaining 66% in March 1997 and no longer accounts for this investment under the
equity method (see Note 2). The Company's 49% investment in Bulldog-Simpson GmbH
is accounted for using the equity method. The Company's equity in the earnings
or losses of its equity investments was not material in any of the three years
in the period ended December 31, 1997.
In 1995, Simpson Strong-Tie Company Inc. acquired the remaining 75% interest in
Ackerman-Johnson Fastening Systems Inc. (see Note 2) and no longer accounts for
this investment under the equity method.
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
-------------------------
DECEMBER 31,
1996 1997
---------- ----------
<S> <C> <C>
Sales incentive and advertising allowances $1,470,656 $2,686,390
Vacation liability 1,062,569 1,091,718
Other 1,604,423 1,728,795
---------- ----------
$4,137,648 $5,506,903
========== ==========
</TABLE>
F-11
<PAGE> 52
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT
The outstanding debt at December 31, 1996 and 1997, and the available credit at
December 31, 1997, consisted of the following:
<TABLE>
<CAPTION>
---------------------------------------
AVAILABLE ON DEBT OUTSTANDING
CREDIT FACILITY AT DECEMBER 31,
AT DECEMBER 31, -------------------
1997 1996 1997
--------------- ------- -------
<S> <C> <C> <C>
Revolving line of credit, interest at bank's reference
rate (at December 31, 1997, the bank's reference rate
was 8.50%), matures June 1998, commitment fees are
paid at the annual rate of 0.125% on the unused
portion of the facility $13,537,127 $ -- $ --
Revolving line of credit, interest at bank's prime rate
(at December 31, 1997, the bank's prime rate was
8.50%), matures June 1998, commitment fees are paid at
the annual rate of 0.125% on the unused portion of the
facility 4,937,129 -- --
Revolving term commitment, interest at bank's prime rate
(at December 31, 1997, the bank's prime rate was
8.50%), matures June 1998, 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 rate at the bank's
base rate of interest plus 2% (at December 31, 1997,
this rate was 9.25%), matures June 1998, has an annual
commission charge of 0.45% 411,000 -- --
Standby letter of credit facilities 525,744 -- --
Other notes payable -- -- 29,605
----------- ------- -------
23,411,000 $ -- $29,605
======= =======
Less standby letters of credit issued and outstanding (525,744)
-----------
Net credit available $22,885,256
===========
</TABLE>
The revolving lines of credit are guaranteed by the Company and its
subsidiaries. At December 31, 1997, the Company has two outstanding standby
letters of credit. These letters of credit, in the aggregate amount of $525,744,
are used to support the Company's self-insured workers' compensation insurance
requirements. These letters of credit mature in June 1998. Other notes payable
represent debt associated with foreign businesses acquired in March 1997.
9. COMMITMENTS AND CONTINGENCIES
Leases
Certain properties occupied by the Company are leased. The leases expire at
various dates through 2012 and generally require the Company to assume the
obligations for insurance, property taxes, and maintenance of the facilities.
F-12
<PAGE> 53
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 are as follows:
<TABLE>
<CAPTION>
----------------------------------------
YEARS ENDED DECEMBER 31,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Simpson Investment Company $ 185,100 $ 185,100 $ 185,100
Doolittle Investors 230,438 231,096 239,400
Vacaville Investors 437,640 437,640 437,640
Vicksburg Investors 322,289 329,017 334,279
Columbus Westbelt Investment Co. 418,525 581,064 581,064
McKinney Investors 70,620 -- --
---------- ---------- ----------
$1,664,612 $1,763,917 $1,777,483
========== ========== ==========
</TABLE>
Rental expense for 1995, 1996 and 1997 with respect to all other leased property
was approximately $1,120,000, $1,170,000 and $2,128,000, respectively.
At December 31, 1997, minimum rental commitments under all noncancelable leases
are as follows:
<TABLE>
<S> <C>
1998 $ 4,567,098
1999 4,106,596
2000 4,012,430
2001 3,511,765
2002 2,752,470
Thereafter 10,161,126
-----------
$29,111,485
===========
</TABLE>
Some 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.
In January 1998, Simpson Strong-Tie International, Inc. ("SSTI") signed the
lease, to which it was previously committed, for its recently completed facility
in the United Kingdom. The facility is approximately 78,000 square feet and will
be used for SSTI's UK operations. The nominal term of the lease is 25 years but
includes an option to terminate without penalty in either the fifteenth or
twentieth year upon one year written notice by SSTI. As such, future minimum
rental payments associated with the first 15 years of this lease are included in
minimum rental commitments in the table above. Also in January 1998, the Company
issued a letter of credit in the amount of approximately $773,000 to guarantee
performance with regard to this lease.
The Company has a commitment to purchase a 48,000 square foot building which it
currently leases in San Leandro, California, for approximately $1,975,000. This
purchase is expected to close in the third quarter of 1998 and future minimum
rental payments associated with this property have been excluded from the
minimum rental commitments in the above table after the expected purchase date.
In addition, the Company has commenced the construction of a new manufacturing
and distribution facility for Simpson Dura-Vent Company, Inc. in Ceres,
Mississippi, to replace its existing facility in Vicksburg, Mississippi. The
facility is expected to be 302,000 square feet and is expected to cost
approximately $5.9 million. The Company plans to complete and occupy this
facility in mid 1998.
F-13
<PAGE> 54
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Environmental
At two of the Company's operating facilities, evidence of contamination
resulting from activities of prior occupants was discovered. The Company took
certain remedial actions at one facility in 1990 and is considering what
additional action, if any, may be required. The Company has been informed by the
lessor of the other facility, Vicksburg Investors, that appropriate remedial
action has been taken. The Company does not believe that either of these matters
will have a material adverse effect on its financial position or results of
operations.
Litigation
From time to time, the Company is involved in various legal proceedings and
other matters arising in the normal course of business.
10. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
------------------------------------------
YEARS ENDED DECEMBER 31,
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $7,536,000 $11,989,000 $15,546,000
State 1,526,000 2,353,000 3,115,000
Foreign -- -- 145,000
Deferred (135,000) (773,000) (1,039,000)
---------- ----------- -----------
$8,927,000 $13,569,000 $17,767,000
========= ========== ==========
</TABLE>
Reconciliations between the statutory federal income tax rates and the Company's
effective income tax rates as percentages of income before income taxes are as
follows:
<TABLE>
<CAPTION>
--------------------------
YEARS ENDED DECEMBER 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 5.0 % 4.7 % 4.2 %
Other (1.3)% 1.1 % 1.4 %
---- ---- ----
Effective income tax rate 38.7% 40.8% 40.6%
==== ==== ====
</TABLE>
F-14
<PAGE> 55
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of the significant temporary differences that constitute the
deferred tax assets and liabilities at December 31, 1995, 1996 and 1997, are as
follows:
<TABLE>
<CAPTION>
----------------------------------------
YEARS ENDED DECEMBER 31,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current deferred tax assets
State tax $ 533,943 $ 795,671 $1,037,753
Compensation related to stock plans 246,514 165,967 140,579
Workers' compensation 101,815 89,657 155,416
Health claims 198,333 213,476 272,393
Vacation 367,379 422,392 416,268
Accounts receivable allowance 456,977 464,681 602,802
Inventory allowance 235,923 359,646 477,304
Sales incentive and advertising allowances 508,457 237,050 206,210
Other 101,114 170,915 228,025
---------- ---------- ----------
$2,750,455 $2,919,455 $3,536,750
========== ========== ==========
Long-term deferred tax assets (liabilities)
Depreciation $ 222,355 $ 255,683 $ 639,063
Goodwill amortization (6,866) 545,068 574,269
Other (238,706) (174,255) (402,545)
---------- ---------- ----------
$ (23,217) $ 626,496 $ 810,787
========== ========== ==========
</TABLE>
No valuation allowance has been recorded for deferred tax assets for the years
ended December 31, 1995, 1996 and 1997, due to the Company's taxable income in
1997 and prior years.
11. 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 these four profit sharing plans for the years
ended December 31, 1995, 1996 and 1997, was approximately $2,036,000, $2,469,000
and $2,775,000, 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 $486,000, $667,000 and $708,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
12. RELATED PARTY TRANSACTIONS
The Chairman and the President and Chief Executive Officer of the Company, who
are directors and principal shareholders of the Company, served as directors and
officers of the Simpson PSB Fund (a charitable organization) until October 1997.
The Company contributed $50,000 and $207,156 to this organization in 1996 and
1997, respectively.
Refer to Note 9 regarding related party transactions involving Company leases.
F-15
<PAGE> 56
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCK BONUS AND STOCK OPTIONS PLANS
The Company applies Accounting Principles Board 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 SFAS No. 123, the pro
forma effect on the Company's net income and earnings per share in 1995, 1996
and 1997 would have been:
<TABLE>
<CAPTION>
-------------------------------------------
YEARS ENDED DECEMBER 31,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income as reported $14,121,885 $19,720,638 $25,985,779
Pro forma 14,006,182 19,442,196 25,479,439
Diluted earnings per share, as reported 1.23 1.68 2.17
Pro forma 1.22 1.65 2.13
</TABLE>
The fair value of each option granted in 1995, 1996 and 1997 was estimated on
the date of grant using the Black-Sholes option-pricing model with the following
assumptions for 1995, 1996 and 1997, respectively: risk-free interest rate of
5.5% for all years; no dividend yield for all years; expected lives of 6.0, 6.0
and 6.1 years; and volatility of 27.5% for all years. The weighted average fair
value per share of options granted during 1995, 1996 and 1997 was $5.29, $9.07
and $13.17, respectively.
The Company currently has two stock option plans. The first is principally for
the Company's employees and the second is for the Company's independent
directors. During the last three years, the Company met most of the operating
goals established for its two stock option plans and accordingly, has granted
options to purchase 92,250 and 119,750 shares for 1995 and 1996, and has
committed to granting options to purchase 122,250 shares for 1997. These options
have an exercise price of $13.50 per share for 1995, a range of $23.00 to $29.25
per share for 1996 and a range of $33.31 to $36.64 per share for 1997.
The following table summarizes the Company's stock option activity for the years
ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
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 895,429 $ 8.77 904,114 $ 9.22 922,734 $11.29
Granted 92,250 13.50 110,750 23.12 122,250 33.32
Additional grants -- -- 9,000 23.00 -- --
Exercised (82,231) 9.11 (90,191) 5.84 (61,595) 7.33
Forfeited (1,334) 10.25 (10,939) 13.30 (4,972) 18.66
------- ------- -------
Outstanding at end of year 904,114 9.22 922,734 11.29 978,417 14.27
======= ======= =======
</TABLE>
The number of stock options exercisable at the end of 1995, 1996 and 1997 was
736,740, 694,779 and 700,497, respectively.
F-16
<PAGE> 57
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about the Company's stock options
outstanding at December 31, 1997:
<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, 1997 LIFE PRICE 31, 1997 PRICE
------------------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$3.64 170,028 3.3 years $ 3.64 170,028 $ 3.64
$11.50 401,974 3.4 years 11.50 401,974 11.50
$10.00 to $11.28 93,248 4.1 years 10.24 66,181 10.23
$13.50 75,209 5.0 years 13.50 36,038 13.50
$23.00 to $29.25 115,708 6.0 years 23.12 24,276 23.51
$33.31 to $36.64 122,250 7.0 years 33.32 2,000 33.00
----------- -----------
$3.64 to $36.64 978,417 4.3 years 14.27 700,497 9.96
========== ==========
</TABLE>
The Company also maintains a Stock Bonus Plan whereby for each ten years of
continuous employment with the Company each employee who does not participate in
the Company's stock option plans receives 100 shares of common stock. In 1995,
1996 and 1997, the Company committed to issue 2,600, 4,500 and 5,300 shares,
resulting in compensation charges of $61,250, $180,155 and $305,038,
respectively. The shares are issued in the year following the year in which they
are earned.
F-17
<PAGE> 58
Simpson Manufacturing Co. Logo
<PAGE> 59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses (other than underwriting discounts and commissions) in connection
with the distribution of the securities being registered, which will be paid by
the Principal Selling Shareholder (except that the Registrant has agreed to
donate to Simpson PSB Fund an amount in cash equal to the lesser of $250,000 and
one-half of such expenses payable by Simpson PSB Fund), are as follows:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 13,941
NASD Filing Fee................................................... 5,226
Blue Sky Expenses................................................. 4,000*
Printing Fees..................................................... 150,000*
Registrar and Transfer Agent Fees................................. 2,500*
Legal Fees and Expenses........................................... 120,000*
Accounting Fees and Expenses...................................... 30,000*
Miscellaneous..................................................... 4,333*
--------
Total........................................................... $330,000*
========
</TABLE>
- ---------------
* Estimate.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the California General Corporation Law ("GCL"), the Articles of
Incorporation ("Articles") of the Registrant provide that the liability of the
directors of the Registrant for monetary damages shall be eliminated to the
fullest extent permissible under California law, except (a) for acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of law, (b) for acts or omissions that a director believes to be
contrary to the best interests of the Registrant or its shareholders or that
involve the absence of good faith on the part of the director, (c) for any
transaction from which a director derived an improper personal benefit, (d) for
acts or omissions that show a reckless disregard for the director's duty to the
Registrant or its shareholders in circumstances in which the director was aware,
or should have been aware, in the ordinary course of performing a director's
duties, of a risk of serious injury to the Registrant or its shareholders, (e)
for acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Registrant or its
shareholders, (f) under GCL section 310 or (g) under GCL section 316. While the
Articles provide protection from awards of monetary damages for breaches of the
duty of care, they do not eliminate the directors' duty of care. The Articles do
not affect the availability of equitable remedies, such as injunctions, based on
a director's breach of the duty of care. These provisions apply to officers of
the Registrant only if they are also directors of the Registrant acting in their
capacity as directors, and do not apply to officers who are not directors of the
Company.
In addition, the Bylaws of the Registrant require that the Registrant indemnify
its officers and directors to the maximum extent permissible under the GCL,
including indemnification against any claims, damages or liabilities in
connection with any acts or omissions other than those for which a director may
not be relieved of liability as described in the preceding paragraph and other
than in circumstances in which indemnity is expressly prohibited by GCL section
317.
The Registrant has entered into agreements to indemnify the directors and
officers of the Registrant and its subsidiaries, in addition to indemnification
provided in the Registrant's Bylaws. These agreements, among other things,
require that the Registrant indemnify the directors and officers for certain
expenses, including attorney's fees, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding or any threatened action
or proceeding, whether civil or criminal, arising out of such person's actions
as a director or officer of the Registrant of any of its subsidiaries or as a
trustee of a profit-sharing trust of the Registrant or any of its subsidiaries.
II-1
<PAGE> 60
The Underwriters named in the Prospectus have agreed to indemnify the Registrant
and its directors and officers against certain liabilities as set forth in
section 9 of the Underwriting Agreement appearing as Exhibit 1.1 to this
Registration Statement.
ITEM 16. EXHIBITS
The following exhibits are filed herewith and made a part hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement among the Registrant, the Selling Shareholders and the
Underwriters.
5.1 Opinion of Shartsis, Friese & Ginsburg LLP.
23.1 Consent of Independent Certified Public Accountants.
23.2 Consent of Shartsis, Friese & Ginsburg LLP (included in Exhibit 5.1)
24.1 Power of Attorney (previously filed).
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance on Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Pleasanton, State of California, on February 3,
1998.
SIMPSON MANUFACTURING CO., INC.
By /s/ THOMAS J FITZMYERS
------------------------------------
Thomas J Fitzmyers, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ THOMAS J FITZMYERS President, Chief Executive February 3, 1998
- --------------------------------------------- Officer and Director
Thomas J Fitzmyers
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ STEPHEN B. LAMSON Chief Financial Officer, February 3, 1998
- --------------------------------------------- Secretary and Director
Stephen B. Lamson
OTHER DIRECTORS:
/s/ BARCLAY SIMPSON Chairman of the Board and February 3, 1998
- --------------------------------------------- Director
Barclay Simpson
EARL F. CHEIT* Director February 3, 1998
- ---------------------------------------------
Earl F. Cheit
ALAN R. MCKAY* Director February 3, 1998
- ---------------------------------------------
Alan R. McKay
SUNNE WRIGHT MCPEAK* Director February 3, 1998
- ---------------------------------------------
Sunne Wright McPeak
BARRY LAWSON WILLIAMS* Director February 3, 1998
- ---------------------------------------------
Barry Lawson Williams
*By: /s/ STEPHEN B. LAMSON
- ---------------------------------------------
Attorney-in-Fact
</TABLE>
II-3
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Underwriting Agreement among the Registrant, the Selling Shareholders
and
the Underwriters.......................................................
5.1 Opinion of Shartsis, Friese & Ginsburg LLP.............................
23.1 Consent of Independent Certified Public Accountants....................
23.2 Consent of Shartsis, Friese & Ginsburg LLP (included in Exhibit 5.1)...
24.1 Power of attorney (previously filed)...................................
</TABLE>
<PAGE> 1
UNDERWRITING AGREEMENT
1,250,000 Shares
Simpson Manufacturing Co., Inc.
Common Stock
(Without Par Value)
, 1998
J.P. MORGAN SECURITIES INC.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
as Representatives of the
several Underwriters
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Dear Sirs:
The persons named in Schedule B hereto (the "Firm Selling Shareholders")
propose to sell to the underwriters listed in Schedule A hereto (collectively,
the "Underwriters"), for whom you are acting as representatives (in such
capacity, the "Representatives"), and the Underwriters propose to purchase from
such Firm Selling Shareholders, an aggregate of 1,250,000 shares of common
stock, without par value (the "Common Stock"), of Simpson Manufacturing Co.,
Inc., a California corporation (the "Company"), which are referred to herein as
the "Underwritten Shares."
In addition, for the sole purpose of covering over-allotments in
connection with the sale of the Underwritten Shares, the person named in
Schedule C hereto (the "Optional Selling Shareholder," and together with the
Firm Selling Shareholders, the "Selling Shareholders") propose to sell to the
several Underwriters, at the option of the Underwriters, up to an additional
187,500 shares of Common Stock (the "Option Shares"). The Underwritten Shares
and any Option Shares purchased by the Underwriters are herein referred to as
the "Shares."
<PAGE> 2
-2-
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement on Form S-3 (File No. 333-44603), including a prospectus, relating to
the Shares. The registration statement as amended at the time when it became or
shall become effective, or, if post-effective amendments are filed with respect
thereto, as amended by such post-effective amendments at the time of their
effectiveness, including in each case information (if any) deemed to be part of
the registration statement at the time of effectiveness pursuant to Rule 430A
under the Securities Act, is hereinafter referred to as the "Registration
Statement," and the prospectus constituting a part of the Registration Statement
in the form first used to confirm sales of Shares is hereinafter referred to as
the "Prospectus," except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares which differs from the Prospectus (whether or not any such revised
prospectus is required to be filed by the Company pursuant to Rule 424(b) under
the Securities Act), the term "Prospectus" shall refer to each such revised
prospectus from and after the time it is first provided to the Underwriters for
such use. If the Company has filed an abbreviated registration statement to
register additional Shares pursuant to Rule 462(b) under the Securities Act (the
"Rule 462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement. Any reference herein to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3, as
of the effective date of the Registration Statement or the date of such
preliminary prospectus or the Prospectus, as the case may be, and any reference
to "amend," "amendment" or "supplement" with respect to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to refer
to and include any documents filed after such date under the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Commission
thereunder (collectively, the "Exchange Act") that are deemed to be incorporated
by reference therein.
The Company and the Selling Shareholders agree with you and the other
several Underwriters on whose behalf you are acting, in connection with the
several purchases of the Shares by the Underwriters, as follows:
<PAGE> 3
-3-
1. Each of the Firm Selling Shareholders hereby agrees, severally
and not jointly, to sell the number of Underwritten Shares set forth opposite
its or his name on Schedule B hereto to the several Underwriters as hereinafter
provided, and each Underwriter, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
agrees, severally and not jointly, to purchase from each Firm Selling
Shareholder the number of Underwritten Shares (subject to such adjustment as the
Representatives may determine to avoid fractional shares) which bears the same
proportion to the number of Underwritten Shares to be sold by such Firm Selling
Shareholder as the number of Underwritten Shares set forth opposite the name of
such Underwriter in Schedule A hereto bears to the total number of Underwritten
Shares, in each case at a purchase price of $ per Share (the "Purchase Price").
In addition, the Optional Selling Shareholder agrees to sell the number
of Option Shares set forth opposite its name on Schedule C hereto to the several
Underwriters as hereinafter provided, and the Underwriters, upon the basis of
the representations and warranties herein contained, but subject to the
conditions hereinafter stated, shall have the option to purchase, severally and
not jointly, from the Optional Selling Shareholder up to the maximum number of
Option Shares set forth opposite the Optional Selling Shareholder's name on
Schedule C hereto at the Purchase Price, for the sole purpose of covering
over-allotments (if any) in the sale of Underwritten Shares by the several
Underwriters.
If any Option Shares are to be purchased, the number of Option Shares to
be purchased by each Underwriter shall be the number of Option Shares which
bears the same ratio to the aggregate number of Option Shares being purchased as
the number of Underwritten Shares set forth opposite the name of such
Underwriter in Schedule A hereto bears to the aggregate number of Underwritten
Shares, subject, however, to such adjustments to eliminate any fractional
interests as the Representatives in their sole discretion shall make. If any,
but fewer than all, Option Shares are to be purchased, the respective numbers of
Option Shares to be purchased by each Underwriter from the Optional Selling
Shareholder hereto shall be proportionate to the maximum number of Option Shares
that the Underwriters have the option hereunder to purchase from such person.
The Underwriters may exercise the option to purchase the Option Shares
at any time (but not more than once) on or before the thirtieth day following
the date of the Prospectus
<PAGE> 4
-4-
(in the form first used to confirm sales of Shares), by written notice from the
Representatives to the Optional Selling Shareholder. Such notice shall set forth
the aggregate number of Option Shares as to which the option is being exercised
and the date and time when such Option Shares are to be delivered and paid for,
which may be the same date and time as the Closing Date (as hereinafter defined)
but shall not be earlier than the Closing Date or later than the tenth full
Business Day (as hereinafter defined) after the date of such notice. Any such
notice shall be given at least two Business Days prior to the date and time of
delivery specified therein.
Pursuant to powers of attorney (the "Powers of Attorney"), which shall
be satisfactory to counsel for the Underwriters, granted by each Selling
Shareholder, Thomas J Fitzmyers and Stephen B. Lamson will act as
representatives of the Selling Shareholders. The foregoing representatives (the
"Representatives of the Selling Shareholders") are authorized, on behalf of each
Selling Shareholder, to execute any documents necessary or desirable in
connection with the sale of the Underwritten Shares and Option Shares to be sold
hereunder by each Selling Shareholder, to make delivery of the certificates of
such Underwritten Shares and Option Shares, to receive the proceeds of the sale
of such Underwritten Shares and Option Shares, to give receipts for such
proceeds, to pay therefrom the expenses, if any, to be borne by each Selling
Shareholder in connection with the sale and public offering of the Underwritten
Shares and Option Shares, to pay therefrom any amounts owed to the Company by
Selling Shareholders, to distribute the balance of such proceeds to the Selling
Shareholders, to receive notices on behalf of each Selling Shareholder and to
take such other action as may be necessary or desirable in connection with the
transactions contemplated by this Agreement.
2. The Company and each of the Selling Shareholders understand that
the Underwriters intend (i) to make a public offering of the Underwritten Shares
as soon as the Representatives deem advisable after the Registration Statement
and this Agreement have become effective and (ii) initially to offer the
Underwritten Shares upon the terms set forth in the Prospectus.
3. Payment for the Shares shall be made by wire transfer in
immediately available funds to the accounts specified by the Representatives of
the Selling Shareholders to the Representatives, in the case of the Underwritten
Shares, on , 1998, or at such other time on the same or such other date, not
later than the fifth Business Day thereafter, as the Representatives and the
Representatives of the Selling Share-
<PAGE> 5
-5-
holders may agree upon in writing or, in the case of the Option Shares, on the
date and time specified by the Representatives in the written notice of the
Underwriters' election to purchase such Option Shares. The time and date of such
payment for the Underwritten Shares are referred to herein as the "Closing
Date," and the time and date of such payment for the Option Shares, if other
than the Closing Date, are referred to herein as the "Additional Closing Date."
As used herein, the term "Business Day" means any day other than a day on which
banks are permitted or required to be closed in New York City.
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery to
the Representatives for the respective accounts of the several Underwriters of
the certificates for the Shares to be purchased on such date registered in such
names and in such denominations as the Representatives shall request in writing
not later than two full Business Days prior to the Closing Date or the
Additional Closing Date, as the case may be, with any transfer taxes payable in
connection with the transfer to the Underwriters of the Shares duly paid by the
Selling Shareholders. The certificates for the Shares will be made available for
inspection and packaging by the Representatives at the office of J.P. Morgan
Securities Inc. set forth above not later than 1:00 P.M., New York City time, on
the Business Day prior to the Closing Date or the Additional Closing Date, as
the case may be.
4. The Company represents and warrants to each of the Underwriters
that:
(a) no order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission, and each preliminary
prospectus filed as part of the Registration Statement, as originally filed
or as part of any amendment thereto, or filed pursuant to Rule 424 under the
Securities Act, complied when so filed in all material respects with the
Securities Act, and did not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by such Underwriter expressly for use
therein;
<PAGE> 6
-6-
(b) all of the issued and outstanding shares of Common Stock have been
duly authorized by the Company, are validly issued and are fully paid and
nonassessable and are not subject to any preemptive or other similar rights;
when the Shares are delivered by the Selling Shareholders and paid for by
the Underwriters in accordance with the terms of this Agreement, such Shares
will be validly issued, fully paid and nonassessable and will not be subject
to any preemptive or other similar rights; the Company's capital stock
conforms in all material respects to the description thereof contained in
the Registration Statement and the Prospectus;
(c) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been
instituted or, to the knowledge of the Company, threatened by the
Commission; and the Registration Statement and the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) comply, or will comply, as the case may be, in all
material respects with the Securities Act and as of the date of filing
thereof did not, and did not and will not, as of the applicable effective
date as to the Registration Statement and any amendment thereto and as of
the date of the Prospectus and any amendment or supplement thereto, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectus, as amended or supplemented at the
Closing Date and the Additional Closing Date, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that this
representation and warranty shall not apply to statements or omissions in
the Registration Statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Company in writing by such Underwriter expressly for use therein; and the
documents incorporated by reference in the Prospectus, when they were filed
with the Commission, conformed in all material respects to the requirements
of the Exchange Act and none of such documents contained an untrue statement
of a material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and any further documents so filed and incorporated by
<PAGE> 7
-7-
reference in the Prospectus, when such documents are filed with the
Commission, will conform in all material respects to the requirements of the
Exchange Act, and will not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they are made, not misleading;
(d) Coopers & Lybrand L.L.P., who are reporting upon the audited
consolidated financial statements of the Company and its subsidiaries (the
"Subsidiaries") and the related schedules included or incorporated by
reference in the Registration Statement as of December 31, 1996 and 1997 and
for each of the three years in the period ended December 31, 1997, are
independent public accountants as required by the Securities Act;
(e) the audited consolidated financial statements referred to in
subsection (d) of this Section 4, as well as the unaudited interim
consolidated financial statements included or incorporated by reference in
the Registration Statement and the Prospectus, present fairly (i) the
consolidated financial position of the Company and the Subsidiaries taken as
a whole as of the dates indicated and (ii) the combined results of
operations and combined cash flows of the Company and the Subsidiaries taken
as a whole for the periods specified; such financial statements have been
prepared in conformity with generally accepted accounting principles applied
on a consistent basis throughout the periods involved (subject, in the case
of the unaudited interim financial statements, if any, to normal year end
adjustments); and the supporting schedules included or incorporated by
reference in the Registration Statement present fairly the information
required to be stated therein;
(f) the Company and its Subsidiaries are conducting and intend to
conduct their businesses so as to comply in all material respects with
applicable federal, state and local government statutes and regulations,
except where such failure to comply would not have a material adverse effect
on the business, prospects, operations or condition, financial or otherwise,
of the Company and the Subsidiaries taken as a whole (a "Material Adverse
Effect"); and neither the Company nor any of its Subsidiaries is charged
with or, to the knowledge of the Company, is under investigation with
respect to, any violation of any of such statutes or regulations or is the
subject of any
<PAGE> 8
-8-
pending or, to the knowledge of the Company, threatened proceeding by any
regulatory authority relating to any such violation, except where such
violation or proceeding would not have a Material Adverse Effect;
(g) the Company owns, beneficially and of record, free and clear of any
mortgage, pledge, security interest, lien, claim or other encumbrance or
restriction on transferability or voting, directly or indirectly through
Subsidiaries, all of the outstanding equity securities of each of the
Subsidiaries listed on Annex A hereto, which constitute all of the
subsidiaries of the Company; all of the issued and outstanding capital stock
of the Subsidiaries has been duly authorized and validly issued and is fully
paid and nonassessable; and except as set forth in the Registration
Statement and the Prospectus, there are no outstanding (i) securities or
obligations convertible into or exchangeable for any shares of capital stock
of the Company or any Subsidiary, (ii) rights, warrants or options to
acquire or purchase any shares of capital stock of the Company or any
Subsidiary or any such convertible or exchangeable securities or
obligations, or (iii) obligations or understandings to issue or sell any
shares of capital stock of the Company or any Subsidiary, any such
convertible or exchangeable securities or obligations, or any such warrants,
rights or options;
(h) the statistical and market-related data included in the Registration
Statement and the Prospectus are based on or derived from sources which are
believed by the Company to be reliable and accurate;
(i) except for compensation to be paid to the Underwriters under this
Agreement, the Company knows of no outstanding claims for services, either
in the nature of a finder's fee or origination fee, with respect to any of
the transactions contemplated hereby;
(j) since the date of the latest consolidated financial statements of
the Company and the Subsidiaries included or incorporated by reference in
the Registration Statement and the Prospectus, except as disclosed or
contemplated or incorporated by reference in the Registration Statement and
the Prospectus, there has not been (A) any change in the Company's issued
capital stock or options, except pursuant to the exercise of options, or (B)
any material adverse change in the management, business, prospects,
operations or condition, financial or otherwise, of
<PAGE> 9
-9-
the Company and the Subsidiaries, taken as a whole (a "Material Adverse
Change," and any event or state of facts which could result in a Material
Adverse Change is herein referred to as "Prospective Material Adverse
Change");
(k) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as disclosed or
contemplated or incorporated by reference therein, (i) there have been no
transactions entered into by the Company or any of the Subsidiaries, other
than those in the ordinary course of business, which are material to the
Company and the Subsidiaries, taken as a whole, and (ii) there has been no
dividend or distribution of any kind declared, paid or made by the Company
on any class of its capital stock;
(l) each of the Company and the Subsidiaries has been duly organized
under the laws of its jurisdiction of incorporation; and each of the Company
and the Subsidiaries is a validly existing corporation in good standing
under the laws of its jurisdiction of incorporation, has full corporate
power and authority to own its properties and conduct its business as
described in the Registration Statement and the Prospectus and is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions where the ownership of its property or the conduct of
its business requires such qualification and where the failure so to qualify
could have a Material Adverse Effect;
(m) this Agreement and the custody agreement among the Company, as
custodian, and the Selling Shareholders (the "Custody Agreement") have been
duly authorized, executed and delivered by the Company;
(n) the execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Agreement, and the consummation
of the transactions contemplated herein, (i) have been duly authorized by
all necessary corporate action on the part of the Company, (ii) do not and
will not result in any violation of the articles of incorporation or by-laws
of the Company and (iii) do not and will not conflict with, or result in a
breach or violation of, any of the terms or provisions of, or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or give rise to any right to accelerate the
maturity or require the prepayment of any indebtedness un-
<PAGE> 10
-10-
der, or result in the creation or imposition of any lien, charge or
encumbrance upon any material property or assets of the Company or any
Subsidiary under (A) any indenture, mortgage, loan agreement, note, lease,
partnership agreement or other agreement or instrument to which the Company
or any Subsidiary is a party or by which any of them may be bound or to
which any of their properties or assets may be subject, (B) any existing
applicable law, rule or regulation (other than the securities or Blue Sky
laws of the various states and other jurisdictions of the United States of
America) or (C) any judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their respective
properties or assets;
(o) no authorization, approval, consent or license of, or filing with,
any government, governmental instrumentality or court, domestic or foreign
(other than as have been made and obtained and are in full force and effect
under the Securities Act or as may be required under the securities or Blue
Sky laws of the various states and other jurisdictions of the United States
of America), is required for the performance of the Company's obligations
under this Agreement;
(p) neither the Company nor any Subsidiary (i) is in violation of its
articles of incorporation or by-laws or (ii) is or with the giving of notice
or lapse of time or both would be in violation of, or in default under or in
the performance or observance of, any obligation, agreement, covenant or
condition contained in any indenture, mortgage, loan agreement, note, lease,
partnership agreement or other agreement or instrument to which it is a
party or by which it is bound or to which any of its respective properties
or assets are subject or of any permit, order, decree, judgment, statute,
rule or regulation applicable to the Company or any Subsidiary, except for
such violations or defaults that, individually or in the aggregate, would
not have a Material Adverse Effect;
(q) except as described in the Registration Statement and the
Prospectus, there is no action, suit or proceeding before or by any
government, governmental instrumentality or court, domestic or foreign, now
pending or, to the knowledge of the Company, threatened against or affecting
the Company or any Subsidiary or any affiliate of the Company that (i) is
reasonably likely to have a Mate-
<PAGE> 11
-11-
rial Adverse Effect or that is reasonably likely to have a material adverse
effect on the consummation of the transactions contemplated in this
Agreement or (ii) is required to be described in the Registration Statement
or the Prospectus or any document incorporated by reference therein that is
not so described. The aggregate of all pending legal and governmental
proceedings known to the Company, to which the Company or any Subsidiary or
any affiliate of the Company is a party or that affect any of their
properties or assets that are not described in the Registration Statement
and the Prospectus, including ordinary routine litigation incidental to its
business, is not reasonably likely to have a Material Adverse Effect;
(r) there are no contracts or documents that are required to be
described or referred to in the Registration Statement or the Prospectus, or
to be filed as exhibits to the Registration Statement, that are not
described, referred to or filed as required;
(s) the Company and each Subsidiary has good and marketable title to all
properties and assets described in the Registration Statement and the
Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except (i) as described or reflected in the
Registration Statement and the Prospectus or any document incorporated by
reference therein or (ii) for liens, charges, encumbrances or restrictions
which would not have a Material Adverse Effect. All of the leases and
subleases material to the business of the Company and the Subsidiaries are
in full force and effect, with such exceptions as would not have a Material
Adverse Effect, and neither the Company nor any Subsidiary has received any
notice of any material claim that has been asserted by anyone adverse to the
rights of the Company or any Subsidiary under any of the leases or subleases
mentioned above, or affecting or questioning the rights of such entity to
the continued possession of the leased or subleased premises under any such
lease or sublease;
(t) each of the Company and each of its Subsidiaries owns, possesses or
has obtained all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all declarations and
filings with, all federal, state, local and other governmental authorities
(including foreign regulatory agencies), all self-regulatory organizations
and all courts and other tribunals, domestic or foreign, necessary to own
<PAGE> 12
-12-
or lease, as the case may be, and to operate its properties and to carry on
its business as conducted as of the date hereof, except in each case where
the failure to obtain licenses, permits, certificates, consents, orders,
approvals and other authorizations, or to make all declarations and filings,
would not have a Material Adverse Effect, and neither the Company nor any
Subsidiary has received any notice of any proceeding relating to revocation
or modification of any such license, permit, certificate, consent, order,
approval or other authorization, except as described in the Registration
Statement and the Prospectus or any document incorporated by reference
therein and except, in each case, where such revocation or modification
would not have a Material Adverse Effect; and the Company and each
Subsidiary is in compliance with all laws and regulations relating to the
conduct of its business as conducted as of the date hereof, except where
noncompliance with such laws or regulations would not have a Material
Adverse Effect;
(u) each of the Company and each of its Subsidiaries owns or possesses
the patents, patent licenses, trademarks, service marks, trade names,
copyrights and know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures)
(collectively, the "Intellectual Property") reasonably necessary to carry on
the business conducted by each as of the date hereof, except to the extent
that the failure to own or possess such Intellectual Property would not have
a Material Adverse Effect, and, except as described in the Registration
Statement and the Prospectus or any document incorporated by reference
therein, neither the Company nor any Subsidiary has received any notice of
infringement of or conflict with asserted rights of others with respect to
any Intellectual Property, except for notices the content of which if
accurate would not have a Material Adverse Effect;
(v) there are no labor disputes with the employees of the Company or any
of the Subsidiaries which are likely to have a Material Adverse Effect;
(w) each of the Company and each of its Subsidiaries is in compliance
with all applicable existing federal, state, local and foreign laws and
regulations relating to protection of human health or the environment or
imposing liability or standards of conduct concerning any Hazardous Material
(as hereinafter defined) (collectively, the
<PAGE> 13
-13-
"Environmental Laws"), except, in each case, where noncompliance,
individually or in the aggregate, would not have a Material Adverse Effect.
The term "Hazardous Material" means (i) any "hazardous substance" as defined
by the Comprehensive Environmental Response, Compensation and Liabiity Act
of 1980, as amended, (ii) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended, (iii) any petroleum or petroleum
product, (iv) any polychlorinated biphenyl and (v) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material, waste or
substance regulated under or within the meaning of any other Environmental
Law. There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries under any Environmental Law which, singly or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect;
(x) except as set forth in the Registration Statement and the Prospectus
or any document incorporated by reference therein, no authorization,
approval or consent of any governmental authority or agency is required
(other than those which have already been obtained) under the laws of any
jurisdiction in which the Company or any of its Subsidiaries conduct their
respective businesses in connection with the ownership by the Company of
capital stock of any Subsidiary, any foreign exchange controls or the
repatriation of any amount from or to the Company and the Subsidiaries,
except to the extent that the failure to obtain such authorization, approval
or consent will not have a Material Adverse Effect;
(y) the Company has not taken and will not take, directly or indirectly,
any action designed to, or that might be reasonably expected to, cause or
result in stabilization or manipulation of the price of the Common Stock,
and the Company has not distributed and will not distribute any prospectus
or other offering material in connection with the offering and sale of the
Shares other than any preliminary prospectus filed with the Commission or
the Prospectus;
(z) neither the filing of the Registration Statement or any amendment
thereto nor the offer or sale of the Shares as contemplated by this
Agreement gives rise to any rights for or relating to the registration under
the Securities Act of any securities of the Company or any Subsidiary;
<PAGE> 14
-14-
(aa) the Company and the Subsidiaries have filed all federal, state,
local and foreign tax returns which have been required to be filed and have
paid all taxes shown thereon and all assessments received by them or any of
them to the extent that such taxes have become due and are not being
contested in good faith, except for such filings and payments the failure to
timely make or contest would not have a Material Adverse Effect; and, except
as disclosed in the Registration Statement and the Prospectus, there is no
tax deficiency which has been or might reasonably be expected to be asserted
or threatened against the Company or any Subsidiary which could have a
Material Adverse Effect; and
(bb) the Company has delivered to the Underwriters written agreements,
in form and substance satisfactory to the Underwriters, of the persons named
in Schedule D hereto, pursuant to which each has agreed not to sell, offer,
agree to sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock, any options, warrants or rights to purchase Common Stock, or
any securities exercisable for or convertible into Common Stock for a period
of 90 days after the date of this Agreement, without the prior written
consent of J.P. Morgan Securities Inc.
5. Each Selling Shareholder, severally and not jointly, represents
and warrants to each Underwriter that:
(a) such Selling Shareholder now is and at the Closing Date and
Additional Closing Date (if applicable to such Selling Shareholder) will be,
the lawful owner of the number of Shares to be sold by such Selling
Shareholder pursuant to this Agreement and has and, at the time of delivery
thereof, will have valid and marketable title to such Shares, and upon
delivery of and payment for such Shares the Underwriters will acquire valid
and marketable title to such Shares free and clear of any claim, lien,
encumbrance, security interest, restriction on transfer or other defect in
title;
(b) such Selling Shareholder has, and at the Closing Date and Additional
Closing Date (if applicable to such Selling Shareholder) will have, full
legal right, power and capacity, and any approval required by law or
otherwise (other than those imposed by the Securities Act and the securities
or blue sky laws of certain jurisdictions), to sell, assign, transfer and
deliver such Shares in the
<PAGE> 15
-15-
manner provided in this Agreement; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
the fulfillment of the terms hereof will not conflict with or result in the
breach of any of the terms, provisions or conditions of, or constitute a
default under, any note, indenture, mortgage, deed or declaration of trust,
agreement, will or other instrument, if any, to which such Selling
Shareholder is a party or by which such Selling Shareholder is bound, or, to
the best of such Selling Shareholder's knowledge, any existing law, order,
rule, regulation, writ, injunction, judgment or decree of any government,
governmental instrumentality, agency or body, arbitration tribunal, or
court, domestic or foreign, having jurisdiction over such Selling
Shareholder or such Selling Shareholder's property;
(c) this Agreement and the Custody Agreement have been duly executed and
delivered by such Selling Shareholder;
(d) when the Registration Statement becomes effective and at all times
subsequent thereto through the latest of the Closing Date, the Additional
Closing Date or the termination of the offering of the Shares, such parts of
the Registration Statement and Prospectus, and any supplements or amendments
thereto, as they relate to such Selling Shareholder will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(e) such Selling Shareholder has duly and irrevocably authorized the
Representatives of the Selling Shareholders, on behalf of such Selling
Shareholder, to execute and deliver this Agreement and any other document
necessary or desirable in connection with the transactions contemplated
hereby and to deliver the Shares to be sold by such Selling Shareholder and
receive payment therefor pursuant hereto;
(f) the sale of such Selling Shareholder's Shares pursuant to this
Agreement is not prompted or influenced by any information concerning the
Company which is not set forth in the Prospectus; and
(g) such Selling Shareholder has no reason to believe that the
representations and warranties of the Com-
<PAGE> 16
-16-
pany contained in this Agreement are not true and correct in all material
respects.
6. The Company covenants and agrees with the several Underwriters
as follows:
(a) to use its best efforts to cause the Registration Statement to
become effective (if the Registration Statement shall not have been declared
effective prior to the execution hereof) at the earliest possible time and,
if applicable, to file the Prospectus with the Commission within the time
periods specified by Rule 424(b) and Rule 430A under the Securities Act;
(b) to deliver, at the expense of the Selling Shareholders, to the
Representatives four signed copies of the Registration Statement (as
originally filed) and each amendment thereto, in each case including
exhibits, and, during the period mentioned in paragraph (e) below, to each
of the Underwriters and to dealers effecting transactions in the Common
Stock as many copies of the Prospectus (including all amendments and
supplements thereto) as the Underwriters and such dealers may reasonably
request;
(c) before filing any amendment or supplement to the Registration
Statement or the Prospectus, whether before or after the time the
Registration Statement becomes effective, to furnish to the Representatives
a copy of the proposed amendment or supplement for review and not to file
any such proposed amendment or supplement to which the Representatives
reasonably object;
(d) to advise the Representatives promptly, and to confirm such advice
in writing, (i) when the Registration Statement shall have become or becomes
effective, (ii) when any amendment to the Registration Statement shall have
become effective, (iii) of any request by the Commission for any amendment
to the Registration Statement or any amendment or supplement to the
Prospectus or for any additional information, (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation or threatening of any proceeding
for that purpose and (v) of the receipt by the Company of any notification
with respect to any suspension of the qualification of the Shares for offer
and sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and to use its best efforts to prevent the
issuance of any such stop
<PAGE> 17
-17-
order or notification and, if issued, to obtain as soon as possible the
withdrawal thereof;
(e) if, during such period of time after the first date of the public
offering of the Shares as in the reasonable opinion of counsel for the
Company or the Underwriters a prospectus relating to the Shares is required
by law to be delivered in connection with sales by an Underwriter or dealer,
any event shall occur as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if it is necessary to amend or supplement the Prospectus
to comply with law, forthwith to prepare and furnish, at the expense of the
Company, to the Underwriters and to the dealers (whose names and addresses
the Representatives will furnish to the Company) to which Shares may have
been sold by the Underwriters and to any other dealers upon written request,
such amendments or supplements to the Prospectus as may be necessary so that
the statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus will comply with law;
(f) to use its best efforts to register or qualify the Shares for offer
and sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives shall reasonably request and to continue such registration
or qualification in effect so long as reasonably required for distribution
of the Shares; provided that the Company shall not be required to qualify
the Shares in any jurisdiction where, as a result of such qualification, the
Company would be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction;
(g) not later than April 1, 1999, to make generally available to its
security holders and to the Underwriters as soon as practicable an earnings
statement covering a period of at least twelve months beginning with the
first fiscal quarter of the Company occurring after the effective date of
the Registration Statement, which shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 of the Commission promulgated
thereunder;
(h) so long as the Shares are outstanding, for one year after the
Closing Date, to furnish to the Rep-
<PAGE> 18
-18-
resentatives copies of all reports or other communications (financial or
other) furnished to holders of the Shares, and copies of any reports and
financial statements furnished to or filed with the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or any national
securities exchange;
(i) for a period of 90 days after the date of this Agreement, not to,
issue, sell, offer, agree to sell, or otherwise dispose of, directly or
indirectly, any shares of Common Stock, any options, rights or warrants to
purchase Common Stock or any securities convertible into or exchangeable or
exercisable for Common Stock without the prior written consent of J.P.
Morgan Securities Inc.; provided that, without such prior written consent,
the Company may grant options or issue or sell shares under its 1994 Stock
Option Plan, 1994 Employee Stock Bonus Plan or 1995 Independent Director
Stock Option Plan and the Company may issue shares of Common Stock pursuant
to the exercise of stock options; and
(j) to have furnished to the Representatives at or prior to the date of
this Agreement true and correct copies of all of the Powers of Attorney, the
fully executed Custody Agreement and all other currently effective written
agreements between the Company or any of its Subsidiaries and each Selling
Shareholder and relating to the transactions contemplated by this Agreement.
7. (a) Each of the Selling Shareholders covenants and agrees with the
several Underwriters as follows:
(i) to do or perform all things required to be done or performed
by such Selling Shareholder prior to the Closing Date or any
Additional Closing Date, as the case may be, to satisfy all
conditions precedent to the delivery of the Shares pursuant to this
Agreement; and
(ii) to pay or cause to be paid all taxes, if any, on the
transfer and sale of the Shares being sold by such Selling
Shareholder.
(b) Simpson PSB Fund covenants and agrees with the several
Underwriters to pay all costs and expenses incident to the performance of
the Company's and the Selling Shareholders' obligations hereunder, including
without limiting the generality of the foregoing, all costs and expenses (i)
incident to the preparation, issuance, execution and delivery of the
<PAGE> 19
-19-
Shares, (ii) incident to the preparation, printing and filing under the
Securities Act of the Registration Statement, the Prospectus and any
preliminary prospectuses (including in each case all exhibits, amendments
and supplements thereto), (iii) incurred in connection with the registration
or qualification of the Shares under the laws of such jurisdictions as the
Representatives may designate (including fees of counsel for the
Underwriters and their disbursements related to such registration or
qualification), (iv) in connection with the listing of Shares on the New
York Stock Exchange, (v) related to any filing with, and review by, the
NASD, and (vi) in connection with the printing (including word processing
and duplication costs) and delivery of this Agreement, all other agreements
relating to underwriting and syndication arrangements, the Custody
Agreement, the Powers of Attorney, the Blue Sky Survey and the furnishing to
the Underwriters and dealers of copies of the Registration Statement and the
Prospectus, including mailing and shipping, as herein provided
(collectively, the "Offering Expenses").
8. The several obligations of the Underwriters hereunder to
purchase the Underwritten Shares are subject to the performance by each of the
Company and the Selling Shareholders of its obligations hereunder and to the
following additional conditions:
(a) If the Registration Statement shall not have been declared effective
prior to the execution hereof, the Registration Statement shall have become
effective (or if a post-effective amendment is required to be filed under
the Securities Act, such post-effective amendment shall have become
effective) not later than 5:00 P.M., New York City time, on the date hereof;
and no stop order suspending the effectiveness of the Registration Statement
shall be in effect, and no proceedings for such purpose shall be pending
before or threatened by the Commission; and any requests for additional
information by the Commission shall have been complied with to the
reasonable satisfaction of the Representatives.
(b) The representations and warranties of the Company and the Selling
Shareholders contained herein shall be true and correct on and as of the
Closing Date as if made on and as of the Closing Date, and each of the
Company and each Selling Shareholder shall have complied with all agreements
and all conditions on his, her or its part
<PAGE> 20
-20-
to be performed or satisfied hereunder at or prior to the Closing Date.
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall not have been any
Material Adverse Change or any development involving a Prospective Material
Adverse Change other than as set forth or contemplated in the Registration
Statement and the Prospectus, the effect of which in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Underwritten Shares on the terms and
in the manner contemplated in the Registration Statement and the Prospectus.
(d) (i) The Underwriters shall have received on and as of the Closing
Date, a certificate of an executive officer of the Company reasonably
satisfactory to the Representatives to the effect set forth in subsections
(a) and (b) (as subsection (b) pertains to the Company) of this Section 8
and to the further effect that since the respective dates as of which
information is given in the Registration Statement and the Prospectus there
has not occurred any Material Adverse Change or any development involving a
Prospective Material Adverse Change other than as set forth or contemplated
in the Registration Statement and the Prospectus; and (ii) the Underwriters
shall have received on and as of the Closing Date, a certificate from the
Representatives of the Selling Shareholders to the effect set forth in
subsection (b) of this Section 8 (as subsection (b) pertains to the Selling
Shareholders).
(e) The Underwriters shall have received on the Closing Date a signed
opinion of Shartsis, Friese & Ginsburg LLP, counsel for the Company and the
Selling Shareholders, dated the Closing Date and addressed to the
Underwriters and satisfactory to Cahill Gordon & Reindel, counsel for the
Underwriters, to the effect that:
(i) the Company has been duly organized and is validly existing and
in good standing under the laws of the State of California and has the
corporate power and corporate authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus;
<PAGE> 21
-21-
(ii) each of the Subsidiaries organized under the laws of a State of
the United States has been duly organized and is validly existing and in
good standing under the laws of the state of its organization and has
the corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus;
(iii) Simpson Dura-Vent Company, Inc., a California corporation, is
qualified to do business and is in good standing as a foreign
corporation under the laws of the State of Mississippi; and Simpson
Strong-Tie Company Inc., a California corporation, is qualified to do
business and is in good standing as a foreign corporation under the laws
of the States of Florida, Illinois, Ohio and Texas;
(iv) all of the shares of capital stock of the Company and each
Subsidiary outstanding immediately prior to the date of this Agreement
have been duly authorized and validly issued and are fully paid and
nonassessable;
(v) the Shares to be sold by the Selling Shareholders, when issued
and delivered to and paid for by the Underwriters in accordance with the
terms of this Agreement, will be validly issued, fully paid and
nonassessable and free of preemptive or other similar rights;
(vi) this Agreement and the Custody Agreement have been duly
authorized, executed and delivered by the Company;
(vii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement, and
the consummation by the Company of the transactions contemplated herein,
do not and will not (a) violate any provision of the articles of
incorporation or by-laws of the Company or any Subsidiary organized
under the laws of a State of the United States; (b) contravene any
provision of any law, rule or regulation known to such counsel to be
applicable to the Company or any of its Subsidiaries (the "Applicable
Laws"); (c) contravene any judgment, order or decree known to such
counsel by which the Company or any Subsidiary
<PAGE> 22
-22-
is bound or by which any of their properties or assets may be affected;
(d) conflict with, result in any breach of or constitute a default (or
an event which, with notice or lapse of time, or both, would constitute
a default) under, or give rise to any right to accelerate the maturity
or require the prepayment of any indebtedness under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company or any Subsidiary pursuant to the
terms of, any agreement known to such counsel to which the Company or
any Subsidiary is a party or any of their properties or assets is
subject; or (e) require any consent, approval or authorization or order
of, or qualification with, any government, governmental instrumentality
or court, domestic or foreign, except such as have been obtained under
the Securities Act and such as may be required by securities laws of the
states and other jurisdictions of the United States and other countries
in connection with the offer and sale of the Shares;
(viii) to such counsel's knowledge, there is no (a) action, suit or
proceeding before or by any government, governmental instrumentality or
court now pending or threatened against or affecting the Company or any
Subsidiary or any of their respective properties or assets that is
required to be described in the Registration Statement or the Prospectus
or in a document incorporated by reference therein and is not so
described or (b) contract, license, agreement, lease or other document
that is required to be described in or referred to in the Registration
Statement or the Prospectus or in a document incorporated by reference
therein, or to be filed as an exhibit to the Registration Statement or
such document, that is not described, referred to or filed as required,
and such contracts and documents as are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material
respects;
(ix) the capital stock of the Company, including the Shares,
conforms as to legal matters in all material respects to the description
thereof contained in the Registration Statement and the Prospectus;
(x) to such counsel's knowledge, neither the filing of the
Registration Statement nor the offer or
<PAGE> 23
-23-
sale of the Shares to the Underwriters in the manner contemplated in
this Agreement gives rise to any rights for or relating to the
registration under the Securities Act of any other securities of the
Company or any Subsidiary;
(xi) the Registration Statement and the Prospectus and all
amendments and supplements thereto (except for the financial statements,
schedules and other financial and statistical data and information
included in the Registration Statement and the Prospectus, as to which
counsel need not express an opinion) comply as to form in all material
respects with the requirements of the Securities Act;
(xii) each document incorporated by reference in the Registration
Statement and the Prospectus (except for the financial statements
included therein as to which such counsel need express no opinion)
complied as to form in all material respects, when filed with the
Commission, with the Exchange Act;
(xiii) to such counsel's knowledge, each of the Company and each
Subsidiary incorporated under the laws of a State of the United States
holds all material licenses, approvals, certificates and permits from
governmental and regulatory authorities in the United States which are
necessary to own or lease their respective properties and assets and to
the conduct of their respective businesses;
(xiv) the Registration Statement has been declared effective under
the Securities Act and, to such counsel's knowledge, no stop order
proceedings with respect thereto are pending or threatened under the
Securities Act;
(xv) to such counsel's knowledge, neither the Company nor any
Subsidiary incorporated under the laws of a State of the United States
is in violation of its articles of incorporation or by-laws or in breach
of or default (nor has any event occurred which, with notice or lapse of
time or both would constitute a default) under or in performance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease, license or other
agreement or instrument known to such counsel to which the Company
<PAGE> 24
-24-
or any such Subsidiary is a party or by which any of them may be bound
or to which any of their properties or assets is subject or affected or
of any permit, order, decree, judgment, statute, rule or regulation
applicable to the Company or any such Subsidiary known to such counsel
except such as would not have a Material Adverse Effect;
(xvi) this Agreement, the Custody Agreement and a Power of Attorney
have been duly authorized, executed and delivered by or on behalf of
each of the Selling Shareholders and constitute valid and binding
agreements of each Selling Shareholder;
(xvii) to such counsel's knowledge, each Selling Shareholder has
full legal right and power, and has obtained any authorization or
approval required by law (other than those imposed by the Securities Act
and the securities or blue sky laws of certain jurisdictions), to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Shareholder in the manner provided in this Agreement;
(xviii) to such counsel's knowledge, delivery of certificates for
the Shares to be sold by each Selling Shareholder pursuant hereto will
pass valid and marketable title thereto to the Underwriters, free and
clear of any claim, lien, encumbrance, security interest, restriction on
transfer or other defect in title; and
(xix) each of the Representatives of the Selling Shareholders has
been duly authorized by each Selling Shareholder to execute and deliver
on behalf of each Selling Shareholder this Agreement and any other
document necessary or desirable in connection with the transactions
contemplated hereby and to deliver the Shares to be sold by the Selling
Shareholders and receive payment therefor pursuant hereto.
In rendering such opinions, such counsel may rely as to factual matters
on, and may assume the accuracy of, the representations and warranties of the
Company and the Selling Shareholders in this Agreement, the Custody Agreement
and the Powers of Attorney. Such counsel may also rely on customary and
reasonable assumptions and render such opinions subject to customary and
reasonable qualifications and exceptions. The opinions rendered pursuant to
clause (xvii) of this Sec-
<PAGE> 25
-25-
tion 8(e) may be rendered subject to (1) the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws relating to or
affecting the rights of creditors, and (2) limitations imposed by law or general
principles of equity on the availability of equitable remedies or the
enforcement of provisions of any agreement. In rendering any such opinion
relating to or regarding the Optional Selling Shareholder, such counsel may rely
on the opinion of Guidotti and Lee, general counsel for the Optional Selling
Shareholder.
Such counsel shall also state that no facts have come to such counsel's
attention which would lead such counsel to believe that the Registration
Statement, at the time it became effective, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus, as of its date and as of the Closing Date, contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (such counsel need not make any statement with respect to
the financial statements, schedules and other financial and statistical data
included in the Registration Statement and the Prospectus).
(f) On the effective date of the Registration Statement (the "Effective
Date") and the effective date of the most recently filed post-effective
amendment, if any, to the Registration Statement and also on the Closing
Date, Coopers & Lybrand L.L.P. shall have furnished to the Underwriters
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to the Representatives, containing statements and
information of the type customarily included in accountants' "comfort
letters" to underwriters with respect to certain financial information
relating to the Company and the Subsidiaries contained or incorporated by
reference in the Registration Statement and the Prospectus.
(g) The Underwriters shall have received on the Closing Date, an opinion
of Cahill Gordon & Reindel, counsel for the Underwriters, with respect to
the validity of the Shares, the Registration Statement, the Prospectus and
other related matters as the Representatives may reasonably request, and
such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters.
<PAGE> 26
-26-
(h) The Underwriters shall have received on and as of the Closing Date a
certificate of the chief financial officer of the Company to the effect that
neither the Company nor any of the Subsidiaries is in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
note, lease, license or other agreement or instrument to which it is a party
or by which it may be bound or to which any of its properties may be subject
and which default could have a Material Adverse Effect.
(i) On or prior to the Closing Date, the Company shall have furnished to
the Representatives such further certificates and documents as the
Representatives shall reasonably request.
The several obligations of the Underwriters to purchase Option Shares
are subject to the conditions set forth in paragraphs (a)-(i) above on and as of
the Additional Closing Date (references therein to the Closing Date shall be
deemed references to the Additional Closing Date for this purpose), except that
the certificates called for by paragraphs (d) and (h), the opinions called for
by paragraphs (e) and (g) and the letter called for by paragraph (f) shall be
dated as of, and delivered on, the Additional Closing Date.
9. The Company agrees to indemnify and hold harmless each
Underwriter, its officers and directors, and each person, if any, who controls
any Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, the legal fees and other
expenses incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Underwriter furnished to the Company
in writing by such Underwriter expressly for use therein.
<PAGE> 27
-27-
Each of the Selling Shareholders agrees, jointly and severally, to
indemnify and hold harmless each Underwriter, its officers and directors, and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, the legal fees and other expenses incurred in connection with any
suit, action or proceeding or any claim asserted) caused by any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by such
Underwriter expressly for use therein; provided, that no Selling Shareholder
shall be liable hereunder for any amount in excess of the total proceeds (before
deducting expenses) received by such Selling Shareholder from the Underwriters
for the Shares sold by such Selling Shareholder hereunder.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, each person who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act and the Selling
Shareholders to the same extent as the foregoing indemnity from the Company and
the Selling Shareholders to each Underwriter, but only with reference to
information relating to such Underwriter furnished to the Company in writing by
such Underwriter expressly for use in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any preliminary prospectus.
For purposes of this Section 9, the only written information furnished by the
Underwriters to the Company expressly for use in the Registration Statement and
the Prospectus is the information in the last paragraph on the cover page of the
Prospectus, the paragraph at the bottom of the second page of the Prospectus
and, under the caption "Underwriting" in the Prospectus, the first paragraph
(including the table listing the Underwriters) and the second and sixth
paragraphs below the table listing the Underwriters.
<PAGE> 28
-28-
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person or persons against whom such indemnity may be sought (each an
"Indemnifying Person") in writing, and such Indemnifying Person, upon request of
the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses incurred by such counsel related to such
proceeding. In any such proceeding, any Indemnified Person shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Person unless (i) such Indemnifying Person and
such Indemnified Person shall have mutually agreed to the contrary, (ii) such
Indemnifying Person has failed within a reasonable time to retain counsel
reasonably satisfactory to such Indemnified Person or (iii) the named parties in
any such proceeding (including any impleaded parties) include an Indemnifying
Person and an Indemnified Person and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that an Indemnifying Person shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all Indemnified Persons, and that all such fees and
expenses shall be reimbursed as they are incurred. Any such separate firm for
the Underwriters and such control persons of Underwriters shall be designated in
writing by J.P. Morgan Securities Inc.; any such separate firm for the Company,
its directors, its officers who sign the Registration Statement, control persons
of the Company and the Selling Shareholders shall be designated in writing by
the Company. The Indemnifying Person shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, such Indemnifying
Person agrees to indemnify each Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
preceding sentence, if at any time an Indemnified Person shall have requested an
Indemnifying Person to reimburse the Indemnified Person for fees and expenses
incurred by counsel as contemplated by the third sentence of this paragraph,
such Indemnifying Person agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such set-
<PAGE> 29
-29-
tlement is entered into more than 30 days after receipt by such Indemnifying
Person of the aforesaid request and (ii) such Indemnifying Person shall not have
reimbursed the Indemnified Person in accordance with such request prior to the
date of such settlement. No Indemnifying Person shall, without the prior written
consent of the Indemnified Person, effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement includes an unconditional release of
such Indemnified Person from all liability on claims that are the subject matter
of such proceeding.
If the indemnification provided for in the first three paragraphs of
this Section 9 is unavailable to an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each Indemnifying
Person under such paragraph, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders in the aggregate on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Shareholders in the aggregate on the one hand and the Underwriters
on the other hand in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholders in the aggregate on the one hand and the Underwriters on
the other hand shall be deemed to be in the same respective proportions as the
net proceeds from the offering (before deducting expenses payable by the Company
and the Selling Shareholders) received by the Selling Shareholders and the total
underwriting discounts received by the Underwriters, in each case as set forth
on the cover of the Prospectus, bear to the aggregate public offering price of
the Shares. The relative fault of the Company and the Selling Shareholders in
the aggregate on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company and the Selling
Shareholders or by the Under-
<PAGE> 30
-30-
writers and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Each of the Company, the Selling Shareholders and the Underwriters
agrees that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the Company and the
Selling Shareholders on the one hand and the Underwriters on the other were each
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an Indemnified
Person as a result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 9, (i) in no event
shall an Underwriter be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission and (ii)
in no event shall a Selling Shareholder be required to contribute any amount in
excess of the amount paid by the Underwriters to the Selling Shareholder upon
the sale of such Selling Shareholder's Underwritten Shares. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of shares of Common Stock constituting Underwritten Shares set
forth opposite their names in Schedule A hereto, and not joint. The Selling
Shareholders' obligations to contribute pursuant to this Section 9 are several
in proportion to the respective number of shares of Common Stock constituting
Underwritten Shares set forth opposite their names in Schedule B hereto, and not
joint.
The indemnity and contribution agreements contained in this Section 9
are in addition to any liability which the Indemnifying Persons may otherwise
have to the Indemnified Persons referred to above.
<PAGE> 31
-31-
The indemnity and contribution agreements contained in this Section 9
and the representations and warranties of the Company and the Selling
Shareholders as set forth in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any other person who controls the Company or any Selling Shareholder and (iii)
acceptance of and payment for any of the Shares.
10. Notwithstanding anything herein contained, this Agreement may be
terminated in the absolute discretion of the Representatives, by notice given to
the Company and the Selling Shareholders, if after the execution and delivery of
this Agreement and prior to the Closing Date (or, in the case of the Option
Shares, prior to the Additional Closing Date) (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
London Stock Exchange, the New York Stock Exchange, the American Stock Exchange,
the Nasdaq National Market, the Chicago Board Option Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) a general moratorium on
commercial banking activities in New York shall have been declared by Federal or
New York State authorities, or (iii) there shall have occurred an outbreak of
hostilities or an escalation of hostilities or any change in financial markets
or any calamity or crisis that, in the judgment of the Representatives, is
material and adverse and which, in the judgment of the Representatives, makes it
impracticable or inadvisable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
11. If this Agreement shall be terminated by the Representatives
because of any failure or refusal on the part of the Company or any Selling
Shareholder to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Company or any Selling Shareholder shall be
unable to perform its or his respective obligations under this Agreement, the
Company agrees to reimburse the Underwriters for all out-of-pocket expenses
(including the fees and expenses of their counsel) incurred by the Underwriters
in connection with this Agreement or the offering contemplated hereunder.
12. If, on the Closing Date or the Additional Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase the Shares which it or they have agreed to purchase hereunder on such
date, and the
<PAGE> 32
-32-
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
number of Shares to be purchased on such date, the other Underwriters shall be
obligated severally, in the proportions that the numbers of Underwritten Shares
set forth opposite their respective names in Schedule A hereto bears to the
aggregate number of Underwritten Shares set forth opposite the names of all such
nondefaulting Underwriters, or in such other proportions as the Representatives
may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 12 by an
amount in excess of one-ninth of the number of Shares which such Underwriter is
obligated to purchase on such date hereunder without the written consent of such
Underwriter. If, on the Closing Date or the Additional Closing Date, as the case
may be, any Underwriter or Underwriters shall fail or refuse to purchase Shares
which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares with respect to which such default occurs is more
than one-tenth of the aggregate number of Shares to be purchased on such date,
and arrangements satisfactory to the Representatives and the Company for the
purchase of such Shares are not made within 36 hours after such default, this
Agreement (or the obligations of the several Underwriters to purchase the Option
Shares, as the case may be) shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or any Selling Shareholder. In any such
case either the Representatives or the Company shall have the right to postpone
the Closing Date (or, in the case of the Option Shares, the Additional Closing
Date), but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in any
other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
13. Any action by the Representatives hereunder may be taken by the
Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the
Representatives, and any such action taken by J.P. Morgan Securities Inc. alone
shall be binding upon the Representatives. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be given to the Representatives, c/o J.P. Morgan Securities
<PAGE> 33
-33-
Inc., 60 Wall Street, New York, New York 10260 (facsimile (212) 648-5705),
Attention: Syndicate Department. Notices to the Company shall be given to it at
4637 Chabot Drive, Suite 200, Pleasanton, California 94588 (facsimile (510)
847-9114), Attention: Stephen B. Lamson, with copies to Thomas J Fitzmyers and
Barclay Simpson, and if to the Selling Shareholders notices should be delivered
or sent to the Representatives of the Selling Shareholders at the offices of
the Company at 4637 Chabot Drive, Suite 200, Pleasanton, California 94588
(facsimile (510) 847-9114), Attention: Stephen B. Lamson and Thomas J Fitzmyers,
with a copy to Barclay Simpson.
14. This Agreement shall inure to the benefit of and be binding upon
the Underwriters, the Company and the Selling Shareholders and any controlling
person referred to herein and their respective successors, heirs and legal
representatives. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters, the Company and the Selling Shareholders and their respective
successors, heirs and legal representatives and the controlling persons and
officers and directors referred to in Section 9 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. No purchaser of
Shares from any Underwriter shall be deemed to be a successor by reason merely
of such purchase.
15. This Agreement may be signed in counterparts, each of which
shall be an original and all of which together shall constitute one and the same
instrument. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to the conflicts of
laws provisions thereof.
<PAGE> 34
S-1
If the foregoing is in accordance with your understanding, please sign
and return four counterparts hereof.
Very truly yours,
SIMPSON MANUFACTURING CO., INC.
By: _____________________________________
Name: Stephen B. Lamson
Title: Chief Financial Officer
By: _____________________________________
Name: Thomas J Fitzmyers
Title: President and Chief
Executive Officer
THE FIRM SELLING SHAREHOLDERS
By: _____________________________________
Name: Stephen B. Lamson
Title: Attorney-in-Fact
Accepted: , 1998
J.P. MORGAN SECURITIES INC.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
For themselves and as the
Representatives of the several
Underwriters named in
Schedule A hereto.
By: J.P. MORGAN SECURITIES INC.
By: _____________________________
Name:
Title:
<PAGE> 35
SCHEDULE A
Number of Shares of
Common Stock Constituting
Underwritten Shares
To Be Purchased
---------------
Underwriter
- -----------
J.P. Morgan Securities Inc.
Merrill Lynch, Pierce, Fenner
& Smith
BancAmerica Robertson Stephens
---------
Total 1,250,000
<PAGE> 36
SCHEDULE B
FIRM SELLING SHAREHOLDERS
Number of
Name Shares
- ---- ---------
Simpson PSB Fund 1,200,000
Thomas J Fitzmyers 50,000
---------
Total 1,250,000
<PAGE> 37
SCHEDULE C
OPTIONAL SELLING SHAREHOLDER
Number of
Name Option Shares
- ---- -------------
Simpson PSB Fund 187,500
-------
Total 187,500
<PAGE> 38
SCHEDULE D
LOCKUP AGREEMENTS
Barclay Simpson
John B. Simpson
Anne Simpson Gattis
Jean D. Simpson
Jeffrey P. Gainsborough
Julie Marie Simpson
Elizabeth Simpson Murray
Amy Simpson
Thomas J Fitzmyers
Simpson Manufacturing Co., Inc. Profit Sharing Trust for
Salaried Employees
Simpson Manufacturing Co., Inc. Profit Sharing Trust for Hourly
Employees
Jeannie K. Perkins Trust DTD August 21, 1992
Richard C. Perkins Trust DTD August 21, 1992
Donald M. Townsend
Stephen B. Lamson
Simpson PSB Fund
<PAGE> 39
ANNEX A
DIRECT AND INDIRECT SUBSIDIARIES
Percentage
Subsidiary Name Owned
- --------------- ----------
Simpson Strong-Tie Company Inc.
a California corporation 100%
Simpson Dura-Vent Company, Inc.
a California corporation 100%
Simpson Manufacturing International
Corporation
a Barbados corporation 100%
Simpson Strong-Tie International, Inc.
a California corporation 100%
Simpson Strong-Tie France, Limited
a French corporation 100%
Patrick Bellion, S.A.
a French corporation 100%
Simpson Strong-Tie Canada, Limited
a Canadian corporation 100%
Simpson Strong-Tie Japan, Inc.
a California corporation 100%
Simpson Strong-Tie Australia, Inc.
a California corporation 100%
<PAGE> 1
EXHIBIT 5.1
OPINION OF COUNSEL
FEBRUARY 3, 1998
Simpson Manufacturing Co., Inc.
4637 Chabot Drive, Suite 200
Pleasanton, California 94588-0789
Ladies and Gentlemen:
We have acted as counsel for Simpson Manufacturing Co., Inc. (the "Company") in
connection with its Registration Statement on Form S-3 (File No. 333-44603)
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, relating to up to 1,437,500 shares of the Company's Common
Stock, without par value, to be sold by certain Selling Shareholders named in
such Registration Statement. We are of the opinion that the shares being so
registered for sale by such Selling Shareholders have been duly authorized and
validly issued and are fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as Exhibit 5.1 to such Registration Statement.
Very truly yours,
SHARTSIS, FRIESE & GINSBURG LLP
/s/ DOUGLAS L. HAMMER
By
Douglas L. Hammer
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to Registration Statement on
Form S-3 of our report dated January 29, 1998, on our audits of the financial
statements of Simpson Manufacturing Co., Inc. We also consent to the
incorporation by reference of our report dated January 31, 1997, except the date
for Note 15 is March 11, 1997, on our audits of the financial statements and
financial statement schedule of the Company's Annual Report on Form 10-K for the
year ended December 31, 1996. We also consent to the reference to our Firm under
the caption "Experts".
COOPERS & LYBRAND L.L.P.
San Francisco, California
February 3, 1998
