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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(Mark One)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
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OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-26228
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MARTIN INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 63-0133054
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
301 EAST TENNESSEE STREET, FLORENCE, ALABAMA 35630
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (205) 767-0330
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
NONE NONE
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Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01 PAR VALUE
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Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by referenced in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.
AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NONAFFILIATES AS OF MARCH 16,
1998: $25,227,596
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
COMMON STOCK, $0.01 PAR VALUE, AS OF MARCH 16, 1998: 8,644,980 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
(1) Proxy Statement for 1998 annual meeting of stockholders - Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a manufacturer of gas space heaters, gas logs and
pre-engineered fireplaces. The Company's gas heating products are marketed under
the Martin Gas Products, Martin Fireplace, Atlanta Stove, Warm Morning and
Hunter brand names, representing over 150 combined years in the gas heating
appliance marketplace. The Company's Ashley brand of wood- and coal-burning
stoves is one of the oldest names in the solid fuel heating industry. Through
acquisitions, the Company has also become a producer of premium gas barbecue
grills and do-it-yourself utility trailer kits. The Company manufactures its
products at four facilities, of which two are located in North Alabama, one is
located in Southwest Illinois and one is located in Southern Ontario, Canada,
and markets its products throughout the United States and parts of Canada
through a variety of distribution channels.
Prior to 1997, the Company manufactured metal office furniture through
its Filex line. In February of 1997, the Company elected to discontinue its
metal office furniture operations. The recent consolidation in the office
furniture industry increased competition and margin pressures in this business
segment to the point of an unacceptable return to the Company.
In July 1995 the Company completed its initial public offering of
2,300,000 shares of Common Stock. On February 1, 1996, the Company completed
its acquisition of Hunter Energy and Technologies Inc. and 1061099 Ontario Inc.
through the direct and indirect purchase of all of the outstanding shares of
these companies. Effective January 1, 1997, these two corporations were
amalgamated to form Hunter Technology Inc. ("HEAT").
The Company is incorporated under the laws of the State of Delaware.
Its principal executive offices are located at 301 East Tennessee Street,
Florence, Alabama 35630, and its telephone number is (205) 767-0330. Unless the
context indicates otherwise, all references herein to the "Company" include
Martin Industries, Inc. and its subsidiaries.
INDUSTRY SEGMENT INFORMATION
The Company's operations by industry segment are presented below.
These segments have been determined based on the type of business and
distribution channel utilized.
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Year Ended December 31,
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1997 1996 1995
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CONTINUING OPERATIONS:
Net sales:
Home heating products $ 69,371,000 $ 76,413,000 $ 61,618,000
Leisure and other products 17,980,000 13,781,000 14,287,000
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$ 87,351,000 $ 90,194,000 $ 75,905,000
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Gross profit:
Home heating products $ 16,135,000 $ 22,284,000 $ 18,464,000
Leisure and other products 3,695,000 2,576,000 2,328,000
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$ 19,830,000 $ 24,860,000 $ 20,792,000
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Segment contribution(1):
Home heating products $ 8,662,000 $ 14,804,000 $ 12,986,000
Leisure and other products 1,254,000 1,001,000 1,135,000
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$ 9,916,000 $ 15,805,000 $ 14,121,000
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Identifiable net assets:
Home heating products $ 34,657,000 $ 31,097,000 $ 19,681,000
Leisure and other products 7,180,000 4,724,000 4,684,000
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$ 41,837,000 $ 35,821,000 $ 24,365,000
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DISCONTINUED OPERATIONS:
Net sales $ 5,498,000 $ 16,516,000 $ 21,420,000
Gross profits $ (1,822,000) $ 1,851,000 $ 3,965,000
Segment contribution(1) $ (2,371,000) $ 99,000 $ 2,162,000
Identifiable net assets $ 1,969,000(2) $ 9,346,000 $ 11,872,000
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(1) Segment contribution consists of gross profit less selling expenses.
(2) Represents Property, Plant and Equipment - $978,000; Accounts
Receivable - $739,000; and Inventory - $252,000 (each net of
respective reserves).
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PRODUCTS
Home Heating Products. Home heating products represent the largest
segment of the Company's business, contributing $69.4 million, or 79.4%, of net
sales of continuing operations in 1997. The Company manufactures a broad line
of vented and vent-free gas heaters and furnaces under the Martin Gas Products,
Atlanta Stove, Warm Morning and Hunter brand names and a variety of models of
gas logs and pre-engineered fireplaces under the Martin Gas Products, Martin
Fireplaces, Atlanta Stove and Hunter brand names. The Company also manufactures
and markets several models of wood- and coal-burning free-standing heaters and
fireplace inserts under the Ashley brand name. Prior to 1997, the Company also
marketed solid fuel heaters under the King brand name.
In 1997, the Company produced a variety of vent-free and vented room
heaters, direct-vent wall furnaces, wall furnaces and floor furnaces. Gross
sales of vent-free room heaters were $10.3 million, $11.2 million and $12.0
million in 1997, 1996 and 1995, respectively, which represented 11.3%, 11.9%
and 15.2% of total gross sales of continuing operations in the respective
periods. Gross sales of vented heaters were $8.9 million, $10.0 million and
$9.0 million in 1997, 1996 and 1995, respectively, which represented 9.7%,
10.7% and 11.4% of total gross sales of continuing operations in the respective
periods.
The Company manufactures and distributes its fireplaces in a range of
prices for each of the common fuel categories (i.e., wood and gas logs that
burn natural gas or liquefied petroleum) and in a wide variety of designs.
Gross sales of fireplaces were $24.4 million, $23.5 million and $17.4 million
in 1997, 1996 and 1995, respectively, which represented 26.7%, 25.0% and 22.0%
of total gross sales of continuing operations in those respective periods.
Leisure and Other Products. The Company manufactures and markets a
number of models of its Broilmaster grills with premium features. In 1996, one
of the Company's Broilmaster models won the Consumers Digest Best Buy Award.
Gross sales of gas grills were $11.7 million, $8.2 million and $6.9 million in
1997, 1996 and 1995, respectively, which represented 12.8%, 8.7% and 8.7% of
total gross sales of continuing operations in the respective periods.
The Company also produces several models of unassembled metal trailer
kits. In 1995, the Company introduced a trailer kit that is 85% pre-assembled.
The Company's trailers comply with Department of Transportation requirements
for highway use and can be used for a variety of light cargo transportation
purposes.
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PRODUCT DEVELOPMENT
The Company's business strategy involves commitment to the development
of new products and enhancements to the Company's existing products. The
Company's investment in research and development totaled $1.8 million in 1997.
MANUFACTURING
Each of the Company's plants maintains a variety of metal fabrication
equipment, including extensive shearing, press and metal forming and welding
equipment, paint systems, machine shops, maintenance equipment, warehouse space,
shipping and receiving departments, and computerized materials requirements
planning ("MRP"), production and inventory control systems.
The principal materials used in the production of the Company's
products include aluminized, galvanized, stainless, hot-rolled and cold-rolled
steel, cast iron, valves, controls, burners, paint and other finishing
materials and packaging. All raw materials used in finished products are
obtained by the central purchasing department. The Company is not a party to
any long-term supply contracts which are material to its business. Management
believes that the materials used in the production of the Company's products
are available at competitive prices from an adequate number of alternative
suppliers and does not believe that the loss of any single supplier would have
a material adverse effect on the Company's business. Because the Company is
dependent upon outside suppliers for all of its raw material needs, no
assurance can be given that the Company will continue to have available
necessary raw materials at reasonable prices or that any increases in raw
material costs would not have a material adverse effect on the Company's
financial condition or results of operations.
Fireplaces, gas grills and utility trailers are typically shipped from
the manufacturing plant to the Company's customers. All other home heating
products are shipped from the manufacturing plant to the Company's central
warehouse located in Huntsville, Alabama via Company trucks. Shipments to gas
and wood heating customers are made from the central warehouse and are
scheduled by the customer service department through the use of a computerized
product tracking system, allowing the Company to inform customers of product
availability and facilitating timely shipment of orders. These programs also
help reduce outbound freight costs by taking advantage of load-pooling and
combination loading.
SALES AND MARKETING
The Company markets its products through a variety of distribution
channels, including retail stores that sell directly to the consumer;
wholesalers that typically offer a wide variety of products for resale to
retailers; specialty fireplace distributors that usually offer a limited variety
of products for resale to retailers and builders and often provide installation
of the product; specialty fireplace dealers; hardware dealer cooperatives, which
are associations of retailers formed to benefit from large quantity purchasing;
liquefied petroleum and natural gas fuel suppliers; farm equipment supply
stores; mail order catalog houses; wholesale clubs that sell to a membership
consisting of both consumers and commercial purchasers; and a variety of
regional and national retail chains and mass merchandisers. The Company's
products are marketed through several divisions, each of which is focused on
specific channels of distribution. Similar home heating products are offered
under different brand names through different divisions and the distribution
channels associated therewith.
Sales of the Company's gas and solid fuel heating appliances are
concentrated in the eastern half of the United States and in Canada. The
Company sells its Martin Gas Products and Warm Morning gas heating products
through gas equipment wholesalers, hardware wholesalers and retailers and its
Atlanta Stove gas heating products through gas equipment wholesalers,
retailers, liquefied petroleum chains and natural gas utilities. The Company's
solid fuel heating appliances are sold principally to wholesale hardware
distributors, dealer cooperatives and retailers. The Company sells its
fireplace products throughout the United States and Canada. Most of the
Company's fireplace products are sold through specialty distributors that
resell to retailers as well as directly to builders, often on an "installed"
basis using the distributor's own installation crews.
The Company's premium gas barbecue grills are marketed through gas
equipment wholesalers and hardware wholesalers. NuWay utility trailer kits are
sold through a national network of mass merchandisers, wholesale clubs, catalog
houses and farm equipment supply houses.
The Company employs a sales staff of 63 field sales and support
personnel, including 14 full-time Company employees identified as factory
representatives who receive a base salary and commissions, and also utilizes 42
independent manufacturers' agencies, which work on a commission basis and in
many cases have several salesmen
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representing the Company's products. Although most manufacturers'
representatives utilized by the Company also sell products other than those
produced by the Company, none sell products in direct competition with those of
the Company. The Company's sales force covers the United States and Canada,
with field sales personnel generally living in or near the sales territories
for which they are responsible. The Company holds regular regional and national
sales meetings at which product development sessions, performance reviews and
planning workshops are conducted. All field sales efforts for the Company are
supported by a sales and marketing staff of 49 people located at the Company's
corporate headquarters.
The Company promotes its products principally through direct contact
with its customers, published sales programs, participation in numerous
national and regional trade shows and print advertising. A majority of the
Company's media advertising is through trade publications. The Company
maintains an in-house media buying service as well as extensive printing
capabilities.
The Company has developed its distribution channels in its gas heating
appliance business over a 50-year period and in its solid fuel heating business
over a 90-year period. To maintain its relationships with its distributors,
members of management and the Company's sales staff visit the Company's
customers on a regular basis. The Company believes that frequent personal
contact contributes significantly to its ability to attract and maintain
quality distributors. The Company also believes that customer service is
integral to its marketing efforts and has invested significant resources in
overhauling its approach to customer service over the past several years, with
the objective of responding more quickly and accurately to customer inquiries.
The Company holds registered and unregistered trademarks including
"Martin Industries," "Martin," "Warm Morning," "Ashley," "King," "Broilmaster"
and "Hunter," among others. Several of the Company's trademarks are registered
with the United States Patent and Trademark Office.
BACKLOG
The Company's backlog is based upon customer purchase orders that the
Company believes are firm. At December 31, 1997, the Company's backlog of
orders was approximately $8.6 million, as compared to a backlog of $7.5 million
at December 31, 1996. While backlog volume generally indicates the production
levels at which the Company will operate at any particular time, it is not
usually indicative of sales for a full year or future operating performance.
This is due primarily to the seasonal nature of the Company's business and its
use of early booking programs for its gas and solid fuel heating appliances and
premium gas barbecue grills. Orders under these programs often represent
approximately 60% of the customer's projected annual requirements and, because
of program terms, the shipping period often extends over several months. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview," at Item 7 below.
COMPETITION
Each of the industries in which the Company manufactures and sells
products is highly competitive. Although competitive factors vary by product
line, competition in all product lines is based primarily on product quality,
product innovation, customer service and price. The Company also believes that
a manufacturer's relationship with its distributors is a key factor in the
industries in which the Company competes.
The Company competes with a number of manufacturers in the home
heating products industry. Within this industry, there are several large
manufacturers of gas heaters and numerous producers of gas logs, pre-engineered
fireplaces and solid fuel heaters.
There are a number of manufacturers producing pre-engineered
fireplaces, gas logs and related accessories similar to those produced by the
Company. The pre-engineered fireplace market is the largest market in which the
Company participates and is very competitive, with six principal manufacturers
comprising a large portion of this industry. Over the last three years, a
number of additional manufacturers have joined the already highly competitive
gas log market.
The Company believes that its premium Broilmaster grills compete
principally with products produced by three major manufacturers. Brand
recognition and product quality play essential roles in the competitive
marketing of this
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product. The Company's principal competitor in the do-it-yourself utility
trailer market is a Taiwanese manufacturer. Although there are numerous
manufacturers of pre-assembled utility trailers, because of the difficulty in
shipping preassembled trailers in large quantities, these products do not tend
to compete with the Company's NuWay products on a national basis.
EMPLOYEES
At March 16, 1998, the Company had 725 full-time and 5 part-time
employees. The Company also from time to time utilizes temporary employees in
its operations and in 1997 the number of temporary employees ranged from 82 to
218. The hourly employees located at the Company's plant in Orillia, Ontario
are subject to a collective bargaining agreement with the Company. No other
employees of the Company are subject to a collective bargaining agreement with
the Company. The Company believes that its employee relations are good.
GOVERNMENTAL REGULATIONS
A substantial number of the products manufactured by the Company must
comply with federal, state and local laws and regulations. In Canada, products
manufactured by the Company must comply with federal, provincial, territorial
and local laws and regulations. Domestically and in Canada, a number of the
Company's products are also subject to certain voluntary standards. These laws,
regulations and standards relate, among other things, to product safety,
construction, instruction, efficiency, packaging, installation, operation and
emissions. The Company's gas and solid fuel heating appliances and gas grills
sold in the United States must comply with standards established by the
American National Standards Institute ("ANSI") and the American Gas Association
("AGA")/ International Approval Service ("IAS"). All gas-fired and solid-fuel
appliances manufactured by the Company for sale in the United States must also
comply with the standards for performance of the National Fire Protection
Association. All gas-fired vented heaters and furnaces manufactured for sale in
the United States further must comply with the standards for minimum efficiency
for direct heating appliances established by the National Appliance Energy
Conservation Act, and the Company's wood-burning heaters must comply with the
standards for performance for residential wood heaters established by the
United States Environmental Protection Agency. The Company's pre-engineered
fireplaces and solid fuel heating appliances sold in the United States must
meet standards established by Underwriters' Laboratories. The Company's gas
heating appliances manufactured for sale in Canada must comply with standards
developed by the Canadian Standards Association (the "CSA"). The CSA is
accredited by the Standards Council of Canada to prepare National Standards in
Canada for natural gas and propane equipment which standards provide the basis
for provincial approval where no provincial standards exist. Certain provinces
have established certification requirements and standards. In the province of
British Columbia, gas appliances may be certified only by the provincial gas
safety authority to provincial standards for sale in British Columbia only. The
Company's gas heating appliances manufactured for sale in Europe must conform
to all applicable directives on appliances.
The Company maintains facilities and equipment for testing the
Company's products for compliance with these and other laws, regulations and
standards applicable to the Company's products. These laws, regulations and
standards generally require that all compliance testing either be performed by
an independent testing agency at the agency's laboratories or witnessed by an
agent of the independent testing agency at the Company's facilities. The
Company utilizes both alternatives for compliance testing.
Many state and local governments in the United States have adopted and
have in place building codes regulating the installation of certain of the
Company's home heating products. These building codes are based generally upon
one or more of the model codes drafted by three regional associations: the
Building Officials and Code Administrators International, Inc. ("BOCA"), the
International Conference of Building Officials, Inc. ("ICBO") and the Southern
Building Code Congress International, Inc. ("SBCCI"). The current model code
produced by ICBO, which has historically been the basis for building codes
adopted in Alaska, California, Colorado, Massachusetts, Montana, New York,
Utah, Washington and Wisconsin, prohibits installation of vent-free gas
heaters. The model codes of BOCA and SBCCI do not contain this prohibition, but
do regulate where such heaters may be installed within a structure and certain
other aspects of the product. In 1996, the International Code Council (the
"ICC"), a body formed by BOCA, ICBO and SBCCI to produce a model building code
to be proposed for adoption by all states and localities, released its model
code. This uniform model code reflects the historical position of BOCA and
SBCCI allowing the installation of vent-free gas heaters. However, there can be
no assurance that the current version of the ICC model code regarding the
Company's products
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will be the position contained in the version ultimately adopted by the ICC
members, or that individual states and localities will adopt the ICC model
code.
Provincial, territorial and local governments in Canada have adopted
and have in place building codes regulating building construction. These
building codes are based generally upon a model code, the National Building
Code of Canada. This code is produced by the Canadian Commission on Building
and Fire Codes. In the Province of Ontario, the Ministry of Municipal Affairs &
Housing regulates construction under the Ontario Building Code. Vent-free gas
appliances are only permitted for sale in the provinces of British Columbia and
Manitoba which have their own provincial standards for such appliances. The
sale of these appliances is restricted to a maximum gas input and is restricted
to certain rooms in a residence.
The Company believes that the products which it currently produces and
sells are in compliance in all material respects with the laws, regulations and
standards applicable to such products. Nevertheless, no assurance can be given
as to the impact of future governmental regulations and product standards on
the Company's operations, or the future capital expenditure requirements or the
costs of compliance associated therewith, nor can any assurance be given that
future governmental regulations or product standards will not have a material
adverse effect on the Company. Further, in the event that national or regional
building codes are drafted in the future which prevent or restrict the
installation of, or require modification to, certain gas heaters or other
products manufactured by the Company, or if individual federal, state,
territorial, provincial or local governmental entities or agencies adopt their
own codes to such effect, these events could have a material adverse effect on
the financial condition or results of operations of the Company.
ENVIRONMENTAL MATTERS
Manufacturing concerns such as the Company involve operations that are
subject to numerous federal, state, provincial and local laws, regulations and
standards relating to human health and safety and the environment. In the
United States, the Clean Air Act, the Clean Water Act, and similar state and
local counterparts of these federal laws regulate air and water emissions and
discharges into the environment. The Resource Conservation and Recovery Act and
the Comprehensive Environmental Response, Compensation and Liability Act, among
other federal, state and local laws, address the generation, storage,
treatment, handling, transportation and disposal of solid and hazardous waste
and releases of hazardous substances into the environment. In Canada, the
Canadian Environmental Protection Act and provincial environmental protection
legislation, along with local laws, regulate a similar range of environmental
issues. The Company's manufacturing operations require compliance with these
environmental laws and regulations, among others, as well as the workplace
safety and health standards established by the Occupational Safety and Health
Acts in both countries. Under these environmental laws and regulations, third
parties and governmental agencies in some cases have the power to require
remediation of environmental conditions and, in the case of governmental
agencies, to impose fines and penalties.
Several of the facilities currently and previously owned or operated
by the Company are located in industrial areas and have historically been used
for extensive periods, in some cases dating back to the turn of the century,
for industrial operations such as dyeing, foundry, petroleum, painting,
plating, textile and manufacturing. These historic operations have used
materials and generated wastes that would be considered to be regulated
substances under current environmental laws. Prior to the enactment of modern
environmental laws and regulations, industrial operations took fewer
precautions relative to the generation, handling, storage, treatment, disposal
and release of substances now known or believed to threaten human health and
safety or the environment. The Company has implemented recordkeeping and
management practices and procedures in order to help ensure compliance with
applicable environmental laws and regulations. Each plant has personnel
responsible for environmental compliance that work closely with the Company's
corporate director of environmental management. The corporate director of
environmental management assists these personnel by supplying technical advice
and guidance in interpreting regulations, transfers of technology, procedures
and obtaining permits. The Company believes that it is currently in compliance
in all material respects with these laws and regulations. Nevertheless, given
the foregoing circumstances, there can be no assurance that past operations at
or near the Company's presently or previously owned or operated facilities or
the Company's present or future operations will not necessitate action by the
Company or give rise to actions by governmental agencies or private parties
that could cause the Company to incur response costs, fines, penalties or other
liabilities, damages or expenses, or incur operational shut-downs, business
interruptions or other similar losses that either individually or in the
aggregate would have a material adverse effect on the Company's financial
condition or results of operations.
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ITEM 2. PROPERTIES
The Company's corporate headquarters are located in a single story
facility in Florence, Alabama, consisting of 50,000 square feet. The Company's
engineering center, also in Florence, is located in a separate facility,
consisting of 20,000 square feet. In Huntsville, Alabama, the Company has two
facilities, the Huntsville plant, a 250,000 square foot facility which produces
certain gas and solid fuel heating products and NuWay utility trailer kits, and
the Huntsville warehouse, a 210,000 square foot facility which provides
additional warehousing space for the Company's gas and solid fuel heating
products. The Athens, Alabama plant is a 300,000 square foot facility which
produces certain of the Company's gas heating products and pre-engineered
fireplace products. The Washington Park, Illinois plant is a 120,000 square
foot facility where the Company manufactures its Broilmaster gas grills, gas
logs and certain of the Company's gas heaters. The Company's plant in Orillia,
Ontario, Canada is a 100,000 square foot facility which produces certain of the
Company's gas heating products and pre-engineered fireplace products. The
Company's Sheffield, Alabama plant is a 236,000 square foot facility at which
the Company manufactured its metal office furniture prior to discontinuing this
business segment. The Company currently leases its corporate headquarters and
its Athens manufacturing facility pursuant to lease agreements associated with
the industrial development financing arrangements utilized to acquire and
develop these properties. Although the debt associated with these properties
has been retired, the Company has continued to hold these facilities subject to
the lease arrangements in order to receive certain tax benefits. Each property
may be purchased at the Company's option for a nominal amount. Other than these
two properties, the Company owns all of its major facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party from time to time to various legal proceedings
that are incidental to its business. Certain of these cases filed against the
Company and other companies engaged in businesses similar to the Company often
allege, among other things, product liability, personal injury and breach of
contract and warranty. These types of suits sometimes seek the imposition of
large amounts of compensatory and punitive damages and trials by juries. In the
opinion of the Company's management, the ultimate liability, if any, with
respect to the proceedings in which the Company is currently involved is not
presently expected to have a material adverse effect on the Company. However,
the potential exists for unanticipated material adverse judgements against the
Company. See Note 9 to Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the
Company, through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In July 1997, the Board of Directors of the Company established a
policy of declaring quarterly cash dividends of $.04 per share on the Common
Stock. The Company declared regular quarterly cash dividends of $.04 per share
in July and October 1997 and $.038 per share in January and April 1997, for a
total of $.156 in per share dividends declared in 1997. The Company declared
cash dividends of $.148 per share in 1996. The future payment of dividends,
however, will be within the discretion of the Board of Directors of the Company
and depends on the Company's profitability, capital requirements, financial
condition, growth, business opportunities and other factors which the Board of
Directors may deem relevant. In addition, the Company's credit agreement with
its primary lender (the "Amended Credit Agreement") restricts the payment of
cash dividends by the Company if such payment would cause the Company to fail
to meet certain financial covenants as stated in the Amended Credit Agreement.
In particular, one of the financial covenants in the Amended Credit Agreement
requires that the Company's net worth each year as of December 31 be at least
equal to its net worth as of December 31, 1994, plus the net proceeds received
by the Company in its initial public offering, plus fifty percent (50%) of the
Company's net income for each fiscal year after December 31, 1994. The Company
currently does not believe that these restrictions in the Amended Credit
Agreement will materially limit the Company's ability to pay currently
anticipated quarterly cash dividends.
The Company's Common Stock began trading on The Nasdaq Stock Market's
National Market on July 13, 1995. As of March 16, 1998, the Company had 175
stockholders of record. This number excludes individual stockholders holding
stock under nominee security position listings. The closing price of the Common
Stock on The Nasdaq Stock Market's National Market on March 16, 1998 was $5
5/16. The prices in the table below represent the high and low sales prices for
the Company's Common Stock as reported on The Nasdaq Stock Market's National
Market.
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Fiscal 1997 Fiscal 1996
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High Low High Low
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First Quarter $ 8 $ 5 5/8 $ 11 $ 7 9/16
Second Quarter $ 6 1/8 $ 5 $ 11 1/2 $ 9
Third Quarter $ 7 $ 5 1/2 $ 9 1/8 $ 7
Fourth Quarter $ 6 5/8 $ 4 7/8 $ 8 $ 6
</TABLE>
8
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA.
The selected statements of operations data, basic and diluted per share data
and balance sheet data for the five years ended December 31, 1997 set forth
below have been derived from the consolidated financial statements of the
Company, which statements have been audited by Arthur Andersen LLP, independent
public accountants. The following data should be read in conjunction with the
consolidated financial statements of the Company and notes appearing elsewhere
in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ----------- ----------- ----------- ------------
(Dollars In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales $ 87,351 $ 90,194 $ 75,905 $ 85,782 $ 73,218
Cost of sales 67,521 65,334 55,113 59,512 53,949
---------- ----------- ----------- ----------- ------------
Gross profit 19,830 24,860 20,792 26,270 19,269
---------- ----------- ----------- ----------- ------------
Operating expenses:
Selling 9,914 9,055 6,671 7,301 6,504
General and administrative 6,599 6,733 4,887 5,253 4,895
Non-cash ESOP compensation(1) 1,905 2,812 2,850 1,824 1,092
---------- ----------- ----------- ----------- ------------
18,418 18,600 14,408 14,378 12,491
---------- ----------- ----------- ----------- ------------
Operating income 1,412 6,260 6,384 11,892 6,778
Interest expense, net 584 473 539 1,252 1,681
---------- ----------- ----------- ----------- ------------
Income from continuing operations
before income taxes 828 5,787 5,845 10,640 5,097
Provision for income taxes 576 2,592 2,624 4,256 2,166
---------- ----------- ----------- ----------- ------------
Income from continuing operations 252 3,195 3,221 6,384 2,931
Income (loss) from discontinued
operations, net of tax 0 62 1,349 771 851
Loss on disposal of discontinued
operations, net of tax (756) (1,430) 0 0 0
---------- ----------- ----------- ----------- ------------
Income (loss) from discontinued
operations (756) (1,368) 1,349 771 851
---------- ----------- ----------- ----------- ------------
Net income (loss) $ (504) $ 1,827 $ 4,570 $ 7,155 $ 3,782
========== =========== =========== =========== ============
BASIC PER SHARE DATA: (2)
Income from Continuing Operations $ 0.04 $ 0.50 $ 0.70 $ 2.02 $ 1.04
Income (Loss) Discontinued Operations (0.11) (0.21) 0.29 0.24 0.30
---------- ----------- ----------- ----------- ------------
Net Income (Loss) $ (0.07) $ 0.29 $ 0.99 $ 2.26 $ 1.34
========== =========== =========== =========== ============
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding 6,787,685 6,412,222 4,622,948 3,167,955 2,825,130
========== =========== =========== =========== ============
</TABLE>
9
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C> <C>
DILUTED PER SHARE DATA: (2)
Income from Continuing Operations $ 0.04 $ 0.47 $ 0.62 $ 1.75 $ 0.93
Income (Loss) from Discontinued
Operations (0.11) (0.20) 0.26 0.21 0.27
---------- ----------- ----------- ----------- ------------
Net Income (Loss) $ (0.07) $ 0.27 $ 0.88 $ 1.96 $ 1.20
========== =========== =========== =========== ============
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding 7,049,131 6,772,191 5,204,254 3,655,645 3,155,110
========== =========== =========== =========== ============
DIVIDENDS DECLARED PER SHARE $ 0.16 $ 0.15 $ 0.39 $ 0.09 $ 0.00
========== =========== =========== =========== ============
OTHER DATA:
Income from continuing operations
before non-cash ESOP compensation
expense, depreciation and
amortization, interest and taxes(3) $ 5,214 $ 10,695 $ 10,254 $ 14,592 $ 8,695
Capital expenditures $ 2,053 $ 2,798 $ 2,181 $ 1,266 $ 552
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments $ 15,157 $ 19,326 $ 20,439 $ 3,630 $ 6,349
Working capital $ 43,172 $ 44,906 $ 43,305 $ 20,158 $ 12,811
Total assets $ 70,980 $ 76,344 $ 63,582 $ 42,104 $ 39,471
Long-term debt, less current portion $ 8,599 $ 10,263 $ 7,228 $ 8,456 $ 9,752
Stockholders' equity $ 47,623 $ 48,032 $ 43,078 $ 17,448 $ 8,523
</TABLE>
- ----------------------
(1) In 1993, in connection with the establishment of the ESOP, the
Company adopted SOP No.93-6, which requires that the Company recognize
non-cash ESOP compensation expense in each fiscal quarter as shares of
stock owned by the ESOP are committed to be released to participants'
accounts based on the average fair value of the shares during the
quarter. Shares of stock owned by the ESOP are committed to be
released to participants' accounts as payments are made on the ESOP
debt. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations --- ESOP Accounting" and Notes 2, 4 and 7 of
Notes to Consolidated Financial Statements.
(2) In 1997, the Company adopted SFAS No. 128, Earnings Per Share. The
Statement requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures. Basic earnings per share ("EPS") excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the effect of outstanding stock options, if
dilutive, in each respective year. See Note 2 of Notes to Consolidated
Financial Statements for a reconciliation of basic weighted-average
shares outstanding to diluted weighted-average shares outstanding. All
periods presented have been restated to conform to this presentation.
(3) This measurement is not intended to represent income from continuing
operations, cash flow or any other measure of performance in
accordance with generally accepted accounting principles, but is
included because the Company believes certain investors find it to be
useful for measuring and identifying trends with respect to the
Company's creditworthiness.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements of the Company and notes thereto and the other financial
information appearing elsewhere in this Annual Report.
OVERVIEW
The Company manufactures products in two industry segments: home
heating products and leisure and other products such as do-it-yourself utility
trailer kits and premium gas barbecue grills. Each of the industry segments in
which the Company operates is cyclical in nature, with sales being affected by
general economic cycles, consumer confidence levels, inflation, employment and
income levels and the availability of credit generally. The Company's fireplace
business is also influenced by factors affecting the housing industry, such as
housing demand, the availability of financing and the level and stability of
interest rates.
Prior to 1997, the Company manufactured products in the metal office
furniture segment through its Filex line acquired in 1989. In February of 1997,
the Company elected to discontinue its metal office furniture operations. The
recent consolidation in the office furniture industry increased competition and
margin pressures in the segment to the point of an unacceptable return to the
Company. The metal office furniture segment's operations are treated as
discontinued in the accompanying consolidated financial statements. See " -
Results of Discontinued Metal Office Furniture Operations".
On February 1, 1996, the Company's newly formed wholly owned Canadian
subsidiary, 1166081 Ontario Inc. ("Martin Canada"), acquired all of the capital
stock of Hunter Energy and Technologies, Inc. ("HEAT") and 1061099 Ontario Inc.
("1061099"), a sister company which owned the land and building leased by HEAT
for its manufacturing operation. This transaction was accounted for under the
purchase method of accounting. The aggregate purchase price of approximately
$1,943,000 included $850,000 in cash, $729,000 in promissory notes payable and
$364,000 paid into escrow. Transaction expenses of $160,000 were incurred. The
promissory notes bear interest at a rate of 9% per annum and matured during the
first quarter of 1997. The purpose of the escrow is to make funds available to
meet the sellers' indemnification obligations to the Company. The Company has
withheld payment on certain of the promissory notes pending resolution of
certain issues with the holders of the notes arising out of the purchase
transaction. The Company has claimed the entire amount in escrow and instituted
litigation to recover these amounts and additional amounts from certain sellers
in the purchase transaction, and certain of the sellers have sued to enforce
collection of their notes. The outcome of these matters is uncertain at this
time. See Note 10 of the accompanying consolidated financial statements.
Sales of home heating products and, in particular, gas and solid fuel
heaters (other than fireplaces), historically have been seasonal in nature,
with sales being directly affected by weather conditions. In an effort to
better control its production schedule and inventory of finished products in
light of this seasonality, the Company utilizes early booking programs, which
allow the Company to project sales early in the year and plan production
accordingly. In general, the Company takes early booking orders for its heating
products in the first and second quarters and fills the majority of these
orders in the second and third quarters, with fill-in orders being shipped in
the fourth quarter and to a lesser degree in the ensuing first quarter.
Unseasonably warm weather results in higher customer inventories that in turn
result in fewer fourth quarter customer fill-in orders and lower response to
the Company's early booking programs for the following year. See " - Quarterly
Results".
Notwithstanding the early booking programs, sales are recognized by
the Company when the product is shipped. A majority of sales of gas and solid
fuel heaters under the Company's early booking programs historically have
occurred in the second and third quarters, with products being shipped
throughout this period. Orders under the Company's early booking programs have
historically represented up to 60% of customers' projected annual requirements
and, because of program terms, the shipping period often extends over several
months. Customer orders for products other than orders placed under the early
booking programs are accepted and filled by the Company as received and shipped
at the customer's request. As used in the following discussion and elsewhere in
this Annual Report, the term "gross sales" reflects total customer invoices
billed by the Company for the applicable period, net of any customer sales
credits issued. The term "net sales" as used herein and elsewhere in this
Annual Report, reflects gross sales less deductions for cash discounts, freight
and special program credits allowed by the Company.
11
<PAGE> 13
In an effort to decrease the effects of seasonal sales of its home
heating products and to achieve manufacturing efficiencies through increased
capacity utilization, the Company acquired its line of NuWay utility trailer
kits in 1988 and its line of Broilmaster gas barbecue grills in 1990. The
Company's NuWay and Broilmaster products historically have been contraseasonal
to the Company's home heating products, with higher sales during warm weather
months.
ESOP ACCOUNTING
The Company established the Martin Industries, Inc. Employee Stock
Ownership Plan and Related Trust (the "ESOP") in 1992, and in January 1993 the
Company borrowed $11.9 million from its primary lender (the "Bank Loan"), which
funds were then loaned by the Company to the ESOP (the "ESOP Loan") on terms
substantially similar to those of the Bank Loan. The ESOP Loan enabled the ESOP
to purchase approximately 51% of the Company's common stock on a fully diluted
basis from existing stockholders. The Bank Loan and the ESOP Loan are payable
in equal principal installments over 10 years. At the time of the origination
of the Bank Loan and the ESOP Loan and the consummation of the purchase by the
ESOP of the Company's shares, the Company recorded the principal amount of the
Bank Loan as long-term debt and recorded unearned compensation in an equal
amount, which is reflected as a reduction of stockholders' equity on the
consolidated balance sheet.
Pending repayment of the ESOP Loan, shares owned by the ESOP are held
in a suspense account. Shares of common stock are committed to be released from
the ESOP's suspense account and credited to ESOP participants' accounts based
on the ratio that the principal debt repayment of the ESOP Loan bears to the
original principal debt balance (i.e., approximately 347,340 shares of common
stock per year). The Company is required to recognize compensation expense each
fiscal quarter in an amount equal to one-fourth of the number of shares of
common stock committed to be released each year multiplied by the average fair
market value of such shares during the period. The fair market value of the
shares of common stock committed to be released and charged to compensation
expense is also credited to stockholders' equity. Accordingly, if the fair
market value of the common stock increases, so will the Company's non-cash
compensation expense related to the ESOP, which in turn has a negative impact
on the Company's net income (loss) and net income (loss) per share, but does
not reduce the Company's net worth. Because the Company cannot predict the
price at which its shares will trade in the future, it cannot predict the
amount of non-cash compensation expense it will incur based upon the release of
the ESOP's shares to the participants' accounts or the resulting effect on net
income (loss) or net income (loss) per share. To the extent dividends are
declared and paid on shares allocated to participants' accounts, the ESOP
allows the Administrative Committee to use such dividends to repay the ESOP
Loan. In such event, the dividends paid with respect to allocated shares are
paid to participants in the form of released shares. The negative impact on
earnings will be partially offset by the impact of such dividends, since the
Company is not required to recognize compensation expense with respect to the
release of shares related to dividends paid on ESOP shares allocated to
participants.
YEAR 2000 COMPLIANCE
The efficient operation of the Company's business is dependent in part
on its computer software programs and operating systems (collectively,
"Programs and Systems"). These Programs and Systems are used in several key
areas of the Company's business, including inventory management, pricing,
sales, and financial reporting, as well as in various administrative functions.
The Company is in process of evaluating its Programs and Systems to identify
potential Year 2000 compliance problems. These actions are necessary to ensure
that the Programs and Systems will recognize and process the year 2000 and
beyond. It is anticipated that modifications or replacement of certain of the
Company's Programs and Systems will be necessary to make such Programs and
Systems Year 2000 compliant. The Company does not expect that the cost to
modify its Programs and Systems will be material to its financial condition or
results of operations. The Company will also be communicating with suppliers,
financial institutions and others to coordinate the Year 2000 conversion. The
Company does not currently have any information concerning the Year 2000
compliance status of its suppliers and customers. In the event that any of the
Company's significant suppliers or customers does not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
12
<PAGE> 14
RESULTS OF CONTINUING OPERATIONS
The following tables set forth, for the periods indicated, information
derived from the Company's consolidated financial statements expressed as a
percentage of net sales and financial information for the Company's two
industry segments.
<TABLE>
<CAPTION>
Percentage of Net Sales
Year Ended December 31,
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 77.3 72.4 72.6
----- ----- -----
Gross profit 22.7 27.6 27.4
----- ----- -----
Operating expenses:
Selling 11.3 10.0 8.8
General and administrative 7.6 7.5 6.4
Non-cash ESOP compensation 2.2 3.1 3.8
----- ----- -----
21.1 20.6 19.0
----- ----- -----
Operating income 1.6 7.0 8.4
Interest expense 0.7 0.5 0.7
----- ----- -----
Income from continuing operations
before income taxes 0.9 6.5 7.7
Provision for income taxes 0.6 2.9 3.5
----- ----- -----
Income from continuing operations 0.3% 3.6% 4.2%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Segment Information
Year Ended December 31,
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Net sales:
Home heating products $ 69,371 $ 76,413 $ 61,618
Leisure and other products 17,980 13,781 14,287
--------- --------- ----------
$ 87,351 $ 90,194 $ 75,905
========= ========= ==========
Gross profit:
Home heating products $ 16,135 $ 22,284 $ 18,464
Leisure and other products 3,695 2,576 2,328
--------- --------- ----------
$ 19,830 $ 24,860 $ 20,792
========= ========= ==========
Segment contribution (1):
Home heating products $ 8,662 $ 14,804 $ 12,986
Leisure and other products 1,254 1,001 1,135
--------- --------- ----------
$ 9,916 $ 15,805 $ 14,121
========= ========= ==========
</TABLE>
(1) Segment contribution consists of gross profit less selling expenses.
13
<PAGE> 15
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales in 1997 decreased to $87.4 million from $90.2 million in
1996, a decrease of $2.8 million, or 3.1%. Net sales of home heating products
in 1997 as compared to 1996 decreased $7.0 million, or 9.2%. This decrease was
partially offset by a $4.2 million, or 30.4%, increase in net sales of leisure
and other products.
The decrease in net sales of home heating products was due primarily
to the decrease in the order rate for the Company's gas heater products
combined with production and design problems with certain HEAT products. The
decrease in the order rate for the Company's gas heater products was mainly the
result of the weather's influence on order rates and increased competition in
the gas heater market from domestic producers as well as from some distributors
selling imported gas heating products. The HEAT product problems, in some
cases, caused the production to be suspended and, therefore, shipments were
also suspended. Corrections have been implemented and all but one of the
affected products are back in production. The Company, however, could incur
additional costs to make further corrections on products shipped prior to these
corrections and continues to address and evaluate this exposure. At present,
the amount of possible exposure is estimated to be in a range of $-0- to $1.5
million.
The increase in net sales of leisure and other products was the result
of a $3.5 million, or 43.2%, increase in sales of gas barbecue grills and a
$633,000, or 12.1%, increase in sales of utility trailer kits. The increase in
sales of this segment is the result of the continued acceptance of new products
introduced in the Broilmaster grill line and improved distribution of the NuWay
trailer.
Gross profit in 1997 decreased to $19.8 million from $24.9 million in
1996, a decrease of $5.1 million, or 20.5%. Gross profit on home heating
product sales decreased $6.2 million, or 27.8%. Gross profit on leisure and
other product sales increased $1.1 million, or 43.4%. The gross profit decrease
in the sale of home heating products was the result of the 9.2% decrease in net
sales of home heating products, as discussed above, and a decrease in the gross
margin, defined as gross profit as a percentage of net sales, from 29.2% in
1996 to 23.3% in 1997, as discussed below. The increase in gross profit on
leisure and other products was the result of an increase in the gross margin
from 18.7% in 1996 to 20.6% in 1997, and by the 30.4% increase in net sales
discussed above.
Gross margin decreased to 22.7% in 1997 from 27.6% in 1996. The
decrease was primarily the result of competitive pressure on pricing primarily
on infrared space heaters and gas logs, an increase in the rate of fixed
manufacturing cost and a shift in sales mix from higher margin gas heating
products to lower margin Martin fireplace products and leisure and other
products as a percentage of total sales. Fixed manufacturing costs increased to
13.5% of home heating sales in 1997 from 11.7% in 1996. Additional
depreciation, insurance and shipping and receiving expenditures primarily
caused the increase. Martin fireplace product net sales were 30.7% of net sales
in 1997 as compared to 24.6% in 1996. In 1997, leisure and other net sales were
20.6% of total net sales, as compared to 15.3% in 1996.
Selling expenses in 1997 increased to $9.9 million from $9.1 million
in 1996, an increase of $860,000 or 9.5%. Selling expenses as a percentage of
net sales increased to 11.3% in 1997 from 10.0% in 1996. Excluding HEAT,
advertising and promotion expenses increased $939,000, primarily related to the
Broilmaster grill line and the Company's initial entry into the direct retail
and international channels of trade.
Total segment contribution, defined as gross profit less selling
expenses, decreased to $9.9 million in 1997 from $15.8 million in 1996, a
decrease of $5.9 million, or 37.3%, primarily as a result of the 20.5% decrease
in gross profit and a 9.5% increase in selling expenses, as discussed above.
General and administrative expenses were $6.6 million in 1997,
compared to $6.7 million in 1996, a decrease of $134,000, or 2.0%. Bad debt
expense increased to $200,000 in 1997 from a credit of $117,000 in 1996. The
increase was primarily the result of a write-off of a specific HEAT account and
the maintenance of the prior year reserve level. Deferred compensation
decreased $203,000 primarily due to the receipt of a death benefit of one
participant. The provision for the SERP and post-employment/retirement benefits
decreased $184,000 as a result of prior year retirements.
Non-cash ESOP compensation expense was $1.9 million in 1997, as
compared to $2.8 million in 1996, a decrease of $907,000, or 32.3%. During
1997, 314,243 shares of unallocated ESOP shares were released as compensation
at an
14
<PAGE> 16
average fair value of $6.06 per share, as compared to 332,078 shares released
as compensation at an average fair value of $8.47 per share in 1996. During
1997 and 1996, shares released as dividends on shares allocated to participants
were 36,404 and 19,282, respectively.
Interest expense in 1997 increased to $1.5 million from $1.4 million
in 1996. The increase was primarily the result of a higher average line of
credit balance during the year. The line of credit requirement increased as a
result of the delinquency of a specific customer account in the discontinued
segment.
Interest income in 1997 decreased to $902,000 from $919,000 in 1996.
The provision for income taxes decreased $2.0 million, or 77.8%, in
1997. The decrease was the result of a $4.9 million decrease in income from
continuing operations before income taxes together with an increase in the
effective tax rate from 44.8% in 1996 to 69.6% in 1997, primarily due to the
impact of the non-deductible portion of the non-cash ESOP compensation expense.
Income from continuing operations in 1997 decreased $2.9 million, or
92.1%, primarily as a result of the factors discussed above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales in 1996 increased to $90.2 million from $75.9 million in
1995, an increase of $14.3 million, or 18.8%. Net sales of home heating
products in 1996 as compared to 1995 increased $14.8 million, or 24.0%. This
increase was partially offset by a $506,000, or 3.5%, decrease in net sales of
leisure and other products.
The increase in net sales of home heating products was due primarily
to the acquisition of HEAT in February 1996 and an increase in the sale of
Martin fireplace products. During 1996, HEAT contributed sales of $7.8 million.
Sales of Martin fireplace products increased from $21.2 million in 1995 to
$26.9 million in 1996, an increase of 27.0%. The decrease in net sales of
leisure and other products was the result of a $1.6 million, or 23.6%, decrease
in sales of utility trailer kits partially offset by a $1.3 million, or 18.4%,
increase in sales of gas barbecue grills. The decrease in sales of utility
trailer kits was primarily the result of a $1.2 million decrease in sales to a
retail utility trailer customer.
Gross profit in 1996 increased to $24.9 million from $20.8 million in
1995, an increase of $4.1 million, or 19.6%. Gross profit on home heating
product sales increased $3.8 million, or 20.7%. Gross profit on leisure and
other product sales increased $248,000, or 10.7%. The gross profit increase in
the sale of home heating products was the result of the 24.0% increase in net
sales of home heating products, as discussed above, partially offset by a
decrease in the gross margin, defined as gross profit as a percentage of net
sales, from 30.0% in 1995 to 29.2% in 1996, as discussed below. The increase in
gross profit earned on the sale of leisure and other products was the result of
an increase in the gross margin from 16.3% in 1995 to 18.7% in 1996, partially
offset by the 3.5% decrease in net sales discussed above.
Gross margin increased to 27.6% in 1996 from 27.4% in 1995. The
increase was primarily the result of a higher mix of home heating product sales
together with an increase in the gross margin on the sale of leisure and other
products. Although the gross margin on home heating product sales decreased in
1996, net sales of home heating products were 84.7% of total net sales as
compared to 81.2% in 1995. The decrease in the gross margin on home heating
products in 1996 was the result of a higher mix of lower margin HEAT and Martin
fireplace sales. The increase in gross margin on sales of leisure and other
products, as discussed above, was the result of a higher mix of higher margin
gas barbecue grill sales. In 1996, sales of gas barbecue grills were 58.1% of
total sales of leisure and other products, as compared to 47.4% in 1995.
Selling expenses in 1996 increased to $9.1 million from $6.7 million
in 1995, an increase of $2.4 million or 35.7%. HEAT's selling expenses of $1
million contributed to the increase. Advertising expense increased $403,000, or
24.5%, in 1996 primarily as a result of a $365,000 increase in cooperative
advertising expense. The increase in cooperative advertising expense is
primarily the result of a 10.6% increase in non-HEAT net sales and a higher mix
of home heating product and gas barbecue grill sales, which carried a higher
rate of claims in 1996. Salaries, commissions and related benefits increased
$232,000, or 6.1%, in 1996 primarily due to the increase in sales, partially
offset by a higher mix of sales by internal sales personnel. Travel expense
increased $131,000, or 34.9%, in 1996 primarily as a result
15
<PAGE> 17
of the increase in sales and a higher mix of sales by internal sales personnel.
Internal, or Company-employed, sales personnel are paid a lower rate of
commission than paid to outside agents; however, the Company reimburses the
travel expense of internal sales personnel. Promotion expense increased
$180,000, or 37.0%, in 1996 as a result of the increase in sales, increased
volume rebates to gas heater customers and special promotional programs for the
Company's new gas barbecue grill products.
Total segment contribution, defined as gross profit less selling
expenses, increased to $15.8 million in 1996 from $14.1 million in 1995, an
increase of $1.7 million, or 11.9%, primarily as a result of the 18.8% increase
in net sales, partially offset by a 35.7% increase in selling expenses, as
discussed in detail above.
General and administrative expenses were $6.7 million in 1996,
compared to $4.9 million in 1995, an increase of $1.8 million, or 37.8%. HEAT's
general and administrative expenses of $862,000 contributed to the increase.
The remaining increase of $1 million was primarily the result of a decrease in
the credit provision for doubtful accounts of $434,000, a $205,000 increase in
the provision for deferred compensation and other post-employment benefits, and
a $257,000 increase in professional fees. The decrease in the credit provision
for doubtful accounts from $583,000 in 1995 to $149,000 in 1996 was primarily
the result of the 1995 purchase of credit insurance on primary customer
accounts, thereby reducing the exposure which must be accounted for within the
allowance for doubtful accounts. Although the allowance for doubtful accounts
was reduced in 1995 and 1996, the Company considers its allowance to be
adequate as of December 31, 1996. The provision for deferred compensation and
other post-employment benefits increased $205,000 in 1996 primarily as a result
of the early retirement of two Company executive officers during the year.
Professional fees increased $257,000 in 1996 as a result of increases in legal
fees, compensation consulting fees and executive recruiting fees.
Non-cash ESOP compensation expense was $2.8 million in 1996, as
compared to $2.9 million in 1995, a decrease of $38,000, or 1.3%. During 1996,
332,078 shares of unallocated ESOP shares were released as compensation at an
average fair value of $8.47 per share, as compared to 328,922 shares released
as compensation at an average fair value of $8.66 per share in 1995. During
1996 and 1995, shares released as dividends on shares allocated to participants
were 19,282 and 37,671, respectively.
Interest expense in 1996 increased to $1.4 million from $1.2 million
in 1995. The increase was primarily the result of the interest expense
associated with a $5,000,000 term loan utilized to refinance the debt of HEAT
in March 1996. The term loan is unsecured at a fixed rate of 6.9% for seven
years.
Interest income in 1996 increased to $919,000 from $615,000 in 1995.
The increase was the result of increased interest earnings on the proceeds from
the Company's 1995 initial public offering. In 1996, the unused proceeds were
invested for the entire year. In 1995, the proceeds were invested for the
period subsequent to the closing of the offering in July 1995. See Note 6 of
Notes to Consolidated Financial Statements.
The provision for income taxes decreased $32,000, or 1.2%, in 1996.
The decrease was the result of a $58,000 decrease in income from continuing
operations before income taxes together with a small decrease in the effective
tax rate.
Income from continuing operations in 1996 decreased $26,000, or 0.8%,
primarily as a result of the factors discussed above.
Consolidation of Certain Operations
On March 5, 1998, the Company announced, among other things, that it
would undertake an immediate study concerning the advisability of consolidating
some of its manufacturing and administrative functions. The Company recently
has made the decision to move manufacturing operations from its Washington
Park, Illinois facility to its Athens, Alabama and Huntsville, Alabama
facilities. This consolidation is currently scheduled to be completed during
the second quarter of 1998. The Company expects to incur costs associated with
this transfer which will have an effect on the Company's results of operations
for 1998, and is in the process of identifying and quantifying these costs.
16
<PAGE> 18
RESULTS OF DISCONTINUED METAL OFFICE FURNITURE OPERATIONS
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
As discussed above, the Company discontinued its metal office
furniture operation in February of 1997. At December 31, 1996, management
recorded a reserve of $1.4 million, net of tax, as the original estimate of
operating losses through final disposal, write-downs of inventory and property,
plant and equipment to net realizable value and the costs to close the plant.
During 1997, management's original estimate was exceeded by $756,000, net of
tax. The estimate was exceeded primarily as a result of greater than
anticipated credits for damaged and defective merchandise, lower than
anticipated margins on sales (due to discounted sales prices and higher than
expected freight costs), group insurance costs, and write-downs of inventory.
The Company recorded a reserve of $187,000, net of tax, for estimated charges
to be incurred during 1998.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Income from discontinued operations, net of tax, decreased from $1.3
million in 1995 to $62,000 in 1996. The decrease was primarily the result of a
$4.9 million, or 22.9%, decrease in net sales of metal office furniture in
1996, a decrease in the gross margin on net sales of metal office furniture
from 18.5% in 1995 to 11.2% in 1996 and an increase in the rate of selling
expense on net sales of metal office furniture from 8.4% in 1995 to 10.6% in
1996.
Net sales of metal office furniture decreased $4.9 million in 1996
primarily as a result of competition providing the Company's principal customer
for metal office furniture with lower and higher grade file cabinets not
manufactured by the Company. Customer purchases of the Company's medium grade
file cabinets decreased as a result.
The gross margin on net sales of metal office furniture decreased
39.5% in 1996 primarily as a result of price concessions to the Company's
principal customer and an increase in the rate of fixed manufacturing costs as
a percentage of net sales from 12.2% in 1995 to 15.3% in 1996.
The rate of selling expenses on net sales of metal office furniture
increased 26.2% in 1996 primarily as a result of a higher rate of cooperative
advertising and administrative selling expenses. The rate of cooperative
advertising expense increased from 4.7% in 1995 to 5.9% in 1996. The Company
committed to contribute a larger fixed amount to the principal customer's
annual promotion program in 1996 as compared to 1995. Administrative selling
expenses as a percentage of net sales increased from 1.6% in 1995 to 2.6% in
1996 primarily as the result of increased Company advertising, promotion and
fixed salary expenses.
As a result of the Company's decision to discontinue and dispose of
the metal office furniture operation, an estimated net loss on disposal of $1.4
million was charged to discontinued operations in 1996. The loss includes
management's original estimate of the operating losses through final disposal,
the write-downs of inventory and property, plant and equipment to net
realizable value, and the costs to close the plant. See Note 11 to Notes to
Consolidated Financial Statements.
17
<PAGE> 19
QUARTERLY RESULTS
The following table sets forth certain quarterly income statement data
for each of the Company's last two fiscal years and the percentage of net sales
represented by the line items presented (except in the case of per share
amounts). The quarterly income statement data set forth below was derived from
unaudited consolidated financial statements of the Company and includes all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation thereof.
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------------
MARCH 29 JUNE 28 SEPTEMBER 27 DECEMBER 31
----------------- ----------------- ----------------- -----------------
(In Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 15,905 100.0% $ 23,503 100.0% $ 23,850 100.0% $24,093 100.0%
Gross profit 2,898 18.2 6,218 26.5 6,040 25.3 4,674 19.4
Non-cash ESOP compensation 529 3.3 433 1.8 483 2.0 460 1.9
Operating income (loss) (1,480) -9.3 1,395 5.9 1,429 6.0 68 0.3
Income (loss) from continuing
operations before income taxes (1,508) -9.5 1,234 5.3 1,147 4.8 (45) -0.2
Income (loss) from continuing
operations (868) -5.5 677 2.9 655 2.7 (212) -0.9
Income (loss) from discontinued
operations, net of tax 0 0.0 0 0.0 (253) -1.1 (503) -2.1
-------- -------- --------- -------
Net income (loss) $ (868) -5.5% $ 677 2.9% $ 402 1.7% $ (715) -3.0%
======== ======== ========= =======
Basic Per Share Data: (1)
Income (loss) from continuing
operations $ (0.13) $ 0.10 $ 0.10 $ (0.03)
Income (loss) from discontinued
operations 0.00 0.00 (0.04) (0.07)
-------- -------- --------- -------
Net income (loss) (2) $ (0.13) $ 0.10 $ 0.06 $ (0.10)
======== ======== ========= -------
Diluted Per Share Data: (1)
Income (loss) from continuing
operations $ (0.13) $ 0.10 $ 0.09 $ (0.03)
Income (loss) from discontinued
operations 0.00 0.00 (0.03) (0.07)
-------- -------- --------- -------
Net income (loss) (2) $ (0.13) $ 0.10 $ 0.06 $ (0.10)
======== ======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------------
MARCH 30 JUNE 29 SEPTEMBER 28 DECEMBER 31
----------------- ----------------- ----------------- -----------------
(In Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $15,395 100.0% $ 24,099 100.0% $ 22,485 100.0% $28,215 100.0%
Gross profit 3,383 22.0 6,836 28.4 5,697 25.3 8,944 31.7
Non-cash ESOP compensation 758 4.9 809 3.4 646 2.9 599 2.1
Operating income (loss) (1,147) -7.5 2,181 9.1 1,106 4.9 4,120 14.6
Income (loss) from continuing
operations before income taxes (1,163) -7.6 2,022 8.4 895 4.0 4,033 14.3
Income (loss) from continuing
operations (806) -5.2 1,104 4.6 497 2.2 2,400 8.5
Income (loss) from discontinued
operations, net of tax 295 1.9 (131) -0.5 (117) -0.5 (1,415) -5.0
------- -------- --------- -------
Net income (loss) $ (511) -3.3% $ 973 4.0% $ 380 1.7% $ 985 3.5%
======= ======== ========= =======
Basic Per Share Data: (1)
Income (loss) from continuing
operations $ (0.13) $ 0.17 $ 0.08 $ 0.36
Income (loss) from discontinued
operations 0.05 (0.02) (0.02) (0.21)
------- -------- --------- -------
Net income (loss) (2) $ (0.08) $ 0.15 $ 0.06 $ 0.15
======= ======== ========= =======
Diluted Per Share Data: (1)
Income (loss) from continuing
operations $ (0.13) $ 0.16 $ 0.07 $ 0.34
Income (loss) from discontinued
operations 0.05 (0.02) (0.01) (0.20)
------- -------- --------- -------
Net income (loss) (2) $ (0.08) $ 0.14 $ 0.06 $ 0.14
======= ======== ========= =======
</TABLE>
18
<PAGE> 20
(1) In 1997, the Company adopted SFAS No. 128, Earnings Per Share. The
Statement requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures. Basic
earnings per share ("EPS") excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the effect of
outstanding stock options, if dilutive, in each respective year. See Note 2 to
the consolidated financial statements for a reconciliation of basic
weighted-average shares outstanding to diluted weighted-average shares
outstanding. All periods presented have been restated to conform to this
presentation.
(2) The sum of the quarterly per share amounts are different from the annual
per share amounts because of differences in the weighted average number of
common and common equivalent shares used in the quarterly and annual
computations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and growth from internally
generated funds, seasonal borrowings under its bank line of credit and other
short-term borrowings. The Company's primary capital requirements are for
working capital, debt service, capital expenditures and dividends.
The following table presents a summary of the Company's cash flows for each of
the three years in the period ended December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---------- ---------- -------
(In thousands)
<S> <C> <C> <C>
Net cash provided by operations $ 368 $ 6,241 $ 2,059
Capital expenditures (2,053) (2,798) (2,181)
Proceeds from sales of assets 1,023 1 37
Purchase of subsidiary, net of cash acquired 0 (1,374) 0
Net repayments or short-term borrowings (280) (2,181) 0
Net payments on long-term debt (1,656) (400) (1,317)
Net proceeds from issuance of common stock 0 0 19,397
Purchase of treasury stock (774) 0 0
Proceeds from exercise of stock options 44 186 25
Cash dividends paid (822) (768) (1,220)
Other, net 0 0 9
---------- ---------- --------
Net increase (decrease) in cash and
short-term investments $ (4,150) $ (1,093) $ 16,809
========== ========== ========
</TABLE>
19
<PAGE> 21
The Company's operations over the last three years have generated cash
of approximately $8.7 million, which has been used to eliminate short-term
debt, service long-term debt, finance capital expenditures, fund acquisitions
and pay dividends. During this period, the Company has also applied working
capital to increase inventories by $9.9 million.
As a result of its seasonal business cycle, the Company finances
interim working capital requirements under an unsecured line of credit with its
principal lender. The line of credit has a current maximum of $30,000,000 and
expires on July 31, 1999. Interest on the line of credit is payable monthly at
a variable rate of 30-day LIBOR plus 1.25%. During 1997, the Company had an
average month-end balance of $6.4 million with a maximum month-end balance of
$19.8 million.
In January 1993, the Company obtained the Bank Loan, the proceeds of
which were loaned under the ESOP Loan to enable the ESOP to purchase 3,489,115
shares of common stock from certain stockholders of the Company. The Bank Loan
is due in semi-annual principal payments of $596,700 over a ten-year period.
Interest on the Bank Loan is payable monthly at a variable rate of 79.5% of
prime plus 1.35%. Simultaneously with the origination of the Bank Loan, the
Company entered into a separate interest rate swap agreement that was designed
to fix the interest rate on the Bank Loan for seven years from its origination
at 8.21%.
On July 18, 1995, the Company closed the sale of 2,300,000 shares of
common stock at a price of $9.50 per share in connection with the initial
public offering of its stock. The proceeds of the Offering, net of an
underwriting discount of $1,530,000 and expenses of $923,000, were $19,397,000.
Through the date of this Annual Report, the Company has used approximately $4.5
million of the proceeds to fund capital expenditures and the acquisition of
HEAT. See Note 10 to Notes to Consolidated Financial Statements. The Company
plans to use the remaining proceeds of the Offering to fund future acquisitions
and capital expenditures and, to the extent not so used, to reduce outstanding
indebtedness, for working capital or for other general corporate purposes. The
Company may also use a portion of the proceeds of the Offering and funds
generated from its operations to acquire shares of its common stock in
accordance with the Company's share repurchase program. Pending such uses, the
Company has invested the remaining proceeds of the Offering in commercial paper
and other low-risk, highly liquid securities.
In March 1996, the Company obtained a $5 million unsecured term loan
from its principal lender to refinance the bank debt which the Company caused
to be paid upon the closing of its acquisition of HEAT. The term loan is due in
semi-annual principal payments of $250,000 over a seven-year period with a
balloon payment of $1.5 million due at maturity. Interest on the term loan is
payable monthly at a fixed rate of 6.9%.
The Company believes that cash flow from operations, together with the
Company's unused borrowing capacity and the remaining proceeds from the
Offering, will be sufficient to fund the Company's operating needs for the
foreseeable future. In addition, to provide any additional funds necessary for
the continued pursuit of the Company's growth strategies, the Company may
incur, from time to time, additional short- and long-term bank indebtedness and
may issue, in public or private transactions, its equity and debt securities,
the availability and terms of which will depend upon market and other
conditions. There can be no assurance that such additional financing will be
available on terms acceptable to the Company. It is anticipated that during
1998, the Company will expend approximately $1.4 million for capital
expenditures.
CREDIT RISK
The Company extends credit to a wide range of customers and offers
payment terms ranging from 30 days to early-booking terms which can be as long
as ten months. The Company does not believe that it has a significant
concentration of credit risk in any one geographic area or market segment.
There can be no assurance that such concentration of credit risk may not
develop in the future. Currently, the Company purchases credit insurance which
provides coverage for losses on accounts receivable with certain primary
customers.
INFLATION
The Company believes that the relatively moderate rate of inflation
experienced over the last three years has not had a material impact on its
sales or profitability. The Company has generally been able to absorb increases
in costs without significantly increasing the selling prices of its products
due to offsetting cost reductions and improved
20
<PAGE> 22
manufacturing efficiencies. However, there can be no assurance that the
Company's business will not be adversely affected by inflation in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, including the
report of independent accountants, the consolidated balance sheets as of
December 31, 1997 and 1996, the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1997, 1996
and 1995 and notes to the consolidated financial statements are set forth on
pages F-1 through F-19 of this Annual Report on Form 10-K. In addition, on page
S-1 of this Annual Report on Form 10-K, the supplemental financial statement
schedule, as required by Item 8, is provided.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
21
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the "Election of Directors," "Executive Officers of the Company"
and "Section 16(a) Beneficial Ownership Reporting Compliance" sections of the
proxy statement for the 1998 Annual Meeting of Stockholders of the Company,
which sections are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the "Remuneration of Executive Officers" section of the proxy
statement for the 1998 Annual Meeting of Stockholders of the Company, which
section is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) See the "Principal Stockholders" section of the proxy
statement for the 1998 Annual Meeting of Stockholders of the Company, which
section is incorporated herein by reference.
(b) See the "Election of Directors" and "Principal Stockholders"
sections of the proxy statement for the 1998 Annual Meeting of Stockholders of
the Company, which sections are incorporated herein by reference.
(c) There are no arrangements known to the Company the operation
of which may at a subsequent date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No information is required to be included herein pursuant to Item 404
of Regulation S-K, which requires disclosure of certain information with
respect to certain relationships or related transactions of the directors and
management of the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Certain documents filed as part of Form 10-K
1. Financial Statements.
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
Report of Independent Public Accountants............................................................... F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996........................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995............. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996
and 1995............................................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 ............ F-6
Notes to Consolidated Financial Statements............................................................. F-7
</TABLE>
21
<PAGE> 24
2. Financial Statement Schedule.
The financial statement schedule required by Regulation S-X
is filed as part of Exhibit S of this Annual Report on Form
10-K, as listed below:
Schedule Supporting the Consolidated Financial Statements:
Page
----
Schedule II - Valuation and Qualifying Accounts S-2
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission have been omitted because they are not
required under the related instructions or are inapplicable,
or because the information has been provided in the
Consolidated Financial Statements or the Notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation S-K.
The Exhibits filed as part of this Annual Report on Form 10-K
are listed in Item 14(c) of this Annual Report on Form 10-K,
which listing is hereby incorporated herein by reference.
(b) Reports on Form 8-K.
There were no Current Reports on Form 8-K filed during the
last quarter of the period covered by this Annual Report on
Form 10-K.
(c) Exhibits.
The Exhibits required by Item 601 of Regulation S-K are set
forth in the following list and are filed either by
incorporation by reference from previous filings with the
Securities and Exchange Commission (the "Commission") or by
attachment to this Annual Report on Form 10-K as so indicated
in such list.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
* 3(a) Form of Restated Certificate of Incorporation of Martin Industries, Inc. which was
filed as Exhibit 3(a) to the Company's Registration Statement on Form S-1 filed with
the Commission on March 17, 1995 (Registration No. 33-90432).
* 3(b) Amended and Restated Bylaws of Martin Industries, Inc. which were filed as Exhibit
3(b) to the Registrant's Quarterly Report on Form 10-Q for the 26-week period ended
June 28, 1997 (Commission File No. 0-26228).
* 4 Article 4 of the Restated Certificate of Incorporation of Martin Industries, Inc.
(included in Exhibit 3(a)).
* 10(a) Martin Industries, Inc. Employee Stock Ownership Plan, as amended, which was
filed as Exhibit 10(a) to the Company's Registration Statement on Form S-1 filed
with the Commission on March 17, 1995 (Registration No. 33-90432) and, with
respect to Amendment No. 7 thereto, as filed as Exhibit 10(a) to the Company's
</TABLE>
23
<PAGE> 25
<TABLE>
<S> <C>
Quarterly Report on Form 10-Q for the 13-week period ended September 30, 1995
(Commission File No. 0-26228).
* 10(b) Martin Industries, Inc. Employee Stock Ownership Trust Agreement between Martin
Industries, Inc., Bill G. Hughey, James W. Truitt and James D. Wilson dated
November 12, 1992, as amended, which was filed as Exhibit 10(b) to the Company's
Registration Statement on Form S-1 filed with the Commission on March 17, 1995
(Registration No. 33-90432).
* 10(c) Loan Agreement by and between Martin Industries, Inc. and AmSouth Bank N.A.
dated January 7, 1993 in the principal amount of $11,934,000, as amended, which
was filed as Exhibit 10(c) to the Company Registration Statement on Form S-1 filed
with the Commission on March 17, 1995 (Registration No. 33-90432).
* 10(d) Term Note by Martin Industries, Inc. in favor of AmSouth Bank, N.A. dated January
7, 1993 in the principal amount of $11,934,000 which was filed as Exhibit 10(d)
to the Company's Registration Statement on Form S-1 filed with the Commission
on March 17, 1995 (Registration No. 33-90432).
* 10(e) Loan and Security Agreement by and between Bill G. Hughey, James W. Truitt and
James D. Wilson, as trustees of the Martin Industries, Inc. Employee Stock
Ownership Plan and Related Trust (the "ESOP"), and Martin Industries, Inc. dated
January 7, 1993 in the principal amount of $11,934,000 which was filed as Exhibit
10(f) to the Company's Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
* 10(f) Promissory Note by Bill G. Hughey, James W. Truitt and James D. Wilson, as
trustees of the ESOP, in favor of Martin Industries, Inc. dated January 7, 1993, in
the principal amount of $11,934,000 which was filed as Exhibit 10(g) to the
Company's Registration Statement on Form S-1 filed with the Commission on March
17, 1995 (Registration No. 33-90432).
* 10(g) Interest Rate Swap Agreement by and between Martin Industries, Inc. and AmSouth
Bank, N.A. dated November 3, 1992 which was filed as Exhibit 10(h) to the
Company's Registration Statement on Form S-1 filed with the Commission on March
17, 1995 (Registration No. 33-90432).
* 10(h) Martin Industries, Inc. 1988 Nonqualified Stock Option Plan, as amended, which
was filed as Exhibit 10(l) to the Company's Registration Statement on Form S-1 filed
with the Commission on March 17, 1995 (Registration No. 33-90432).
* 10(i) Executive Supplemental Income Plan Guidelines and Form of Supplemental Income
Agreement which was filed as Exhibit 10(n) to the Company's Registration
Statement on Form S-1 filed with the Commission on March 17, 1995 (Registration
No. 33-90432).
* 10(j) Supplemental Executive Retirement Plan which was filed as Exhibit 10(o) to the
Company's Registration Statement on Form S-1 filed with the Commission on March
17, 1995 (Registration No. 33-90432).
* 10(k) Lease Agreement by and between the Industrial Development Board for the City
of Florence and Martin Industries, Inc. dated August 1, 1978 which was filed as
Exhibit 10(p) to the Company's Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
</TABLE>
24
<PAGE> 26
<TABLE>
<S> <C>
* 10(l) Lease Agreement by and between the Industrial Development Board for the City
of Athens and Martin Stamping & Stove Company, predecessor corporation to
Martin Industries, Inc., dated December 1, 1964 which was filed as Exhibit 10(q)
to the Company's Registration Statement on Form S-1 filed with the Commission
on March 17, 1995 (Registration No. 33-90432).
* 10(m) Renewal Option Agreement between the Industrial Development Board of the City
of Athens and Martin Stamping & Stove Company, predecessor corporation to
Martin Industries, Inc., dated December 1, 1964 which was filed as Exhibit 10(r)
to the Company's Registration Statement on Form S-1 filed with the Commission
on March 17, 1995 (Registration No. 33-90432).
* 10(n) Purchase Option Agreement between the Industrial Development Board of the City
of Athens and Martin Stamping & Stove Company, predecessor corporation to
Martin Industries, Inc., dated December 1, 1964 which was filed as Exhibit 10(s)
to the Company's Registration Statement on Form S-1 filed with the Commission
on March 17, 1995 (Registration No. 33-90432).
* 10(o) First Amendment to Loan Agreement and Other Loan Documents by and between
Martin Industries, Inc. and AmSouth Bank of Alabama dated as of March 15, 1995
which was filed as Exhibit 10(u) to the Company's Registration Statement on Form
S-1 filed with the Commission on March 17, 1995 (Registration No. 33-90432).
* 10(p) Share Purchase Agreement dated February 1, 1996, by and among the Company,
1166081 Ontario Inc., certain shareholders of Hunter Energy and Technologies Inc.,
1061099 Ontario Inc. and 679401 Ontario Inc. and all of the shareholders of Airform
Fabrics Inc. which was filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K as filed with the Commission on February 16, 1996 (Commission File
No. 0-26228).
* 10(q) Share Purchase Agreement dated as of February 1, 1996, by and among 1166081
Ontario Inc., Iain J. Richmond, Donald A. Hunter, Andrew St. Germaine and
Donshardan Investments Ltd. which was filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K as filed with the Commission on February 16, 1996
(Commission File No. 0-26228).
* 10(r) Second Amendment to Loan Agreements and Other Loan Documents dated as of
March 28, 1996, by and between Martin Industries, Inc. and AmSouth Bank of
Alabama which was filed as Exhibit 10(y) to the Company's Annual Report on Form
10-K as filed with the Commission on March 30, 1996 (Commission File No. 0-
26228).
* 10(s) Term Note by Martin Industries, Inc. in favor of AmSouth Bank of Alabama dated
March 28, 1996, in the principal amount of $5,000,000 which was filed as Exhibit
10(z) to the Company's Annual Report on Form 10-K as filed with the Commission
on March 30, 1996 (Commission File No. 0-26228).
* 10(t) Martin Industries, Inc. 1996 Non-Employee Directors' Stock Option and Deferred
Compensation Plan which was filed as Exhibit 10(x) to the Company's Annual
Report on Form 10-K as filed with the Commission on March 31, 1997 (Commission
File No. 0-26228).
* 10(u) Amendment No. 6 to Martin Industries, Inc. 1988 Nonqualified Stock Option Plan
which was filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K
as filed with the Commission on March 31, 1997 (Commission File No. 0-26228).
</TABLE>
25
<PAGE> 27
<TABLE>
<S> <C>
* 10(v) Martin Industries, Inc. Amended and Restated 1994 Nonqualified Stock Option Plan
which was filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K
as filed with the Commission on March 31, 1997 (Commission File No. 0-26228).
* 10(w) Amendment No. 8 to Martin Industries, Inc. Employee Stock Ownership Plan which
was filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for
the 39-week period ended September 27, 1997 (Commission File No. 0-26228).
* 10(x) Third Amendment to Loan Agreement and Other Loan Documents dated as of
August 28, 1997 by and between Martin Industries, Inc. and AmSouth Bank filed
as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the 39-week
period ended September 27, 1997 (Commission File No. 0-26228).
* 10(y) Modified, Amended and Restated Line of Credit Note dated as of August 28, 1997
by and between Martin Industries, Inc. and AmSouth Bank filed as Exhibit 10(c)
to the Company's Quarterly Report on Form 10-Q for the 39-week period ended
September 27, 1997 (Commission File No. 02-26228).
10(z) Retention and Termination Agreement dated January 22, 1998 between Martin
Industries, Inc. and Roderick V. Schlosser.
10(aa) Retention and Termination Agreement dated January 22, 1998 between Martin
Industries, Inc. and Louis J. Martin, II
10(bb) Retention and Termination Agreement dated January 22, 1998 between Martin
Industries, Inc. and Robert W. Wintersteen.
10(cc) Retention and Termination Agreement dated January 22, 1998 between Martin
Industries, Inc. and J. Reid Roney.
21 Subsidiaries of the Company.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule (Electronic Submission only).
27(a) Restated Financial Data Schedule for the Fiscal Quarter Ended September
27, 1997 (Electronic Submission only).
27(b) Restated Financial Data Schedule for the Fiscal Quarter Ended June 28,
1997 (Electronic Submission only).
27(c) Restated Financial Data Schedule for the Fiscal Quarter Ended March 29,
1997 (Electronic Submission only).
27(d) Restated Financial Data Schedule for the Year Ended December 31, 1996
(Electronic Submission only).
27(e) Restated Financial Data Schedule for the Fiscal Quarter Ended September
28, 1996 (Electronic Submission only).
27(f) Restated Financial Data Schedule for the Fiscal Quarter Ended June 29,
1996 (Electronic Submission only).
27(g) Restated Financial Data Schedule for the Fiscal Quarter Ended March 30,
1996 (Electronic Submission only).
27(h) Restated Financial Data Schedule for the Year Ended December 31, 1995
(Electronic Submission only).
</TABLE>
- -------------------
* Incorporated by reference.
(d) Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts
26
<PAGE> 28
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
With the exception of historical information, the matters and
statements discussed, made or incorporated by reference in this Annual Report
on Form 10-K constitute forward-looking statements and are discussed, made or
incorporated by reference, as the case may be, pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Wherever
possible, the Company has identified these "forward-looking" statements (as
defined in Section 21E of the Securities Exchange Act of 1934) by words
such as "anticipates," "believes," "estimates," "expects" and similar phrases.
In addition, the Company and its representatives may from time to time make
other oral or written statements that are also forward-looking statements. Such
forward-looking statements involve certain assumptions, risks and uncertainties
that could cause actual results to differ materially from those included in or
contemplated by the statements. These assumptions, risks and uncertainties
include, but are not limited to, those associated with general economic cycles;
the cyclical nature of the industries in which the Company operates and the
factors related thereto, including consumer confidence levels, inflation,
employment and income levels, the availability of credit, and factors affecting
the housing industry; the potential in the Company's business to experience
significant fluctuations in quarterly earnings; the Company's business
strategy, including its strategy of pursuing acquisitions and new product
development; potential losses from product liability and personal injury
lawsuits; the effects of seasonality and weather conditions on the Company's
home heating product sales and other sales; fluctuations in quarterly earnings
due to ESOP accounting; the effect of existing and new governmental and
environmental regulations applicable to the Company; the dependence of the
Company on key personnel; the highly competitive nature of each of the
industries in which the Company operates; the volatility of the stock price at
which outstanding shares of the Company may trade from time to time; and the
other risks and uncertainties discussed or indicated in all documents filed by
the Company with the Commission. The Company expressly disclaims any obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
27
<PAGE> 29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Martin Industries, Inc.:
We have audited the accompanying consolidated balance sheets of MARTIN
INDUSTRIES, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31,
1997 and 1996 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Martin Industries, Inc. and
subsidiary as of December 31, 1997 and 1996 and the results of their operations
and their cash flows for the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Birmingham, Alabama
February 16, 1998
F-1
<PAGE> 30
MARTIN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 15,157,000 $ 19,326,000
Accounts and notes receivable, less allowance for
doubtful accounts of $432,000 and $419,000,
respectively 10,106,000 17,788,000
Inventories 24,884,000 18,346,000
Refundable income taxes 269,000 0
Deferred tax benefits 3,488,000 3,401,000
Prepaid expenses and other assets 1,811,000 1,786,000
-------------------- --------------------
55,715,000 60,647,000
-------------------- --------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 1,289,000 1,320,000
Construction in progress 2,000 521,000
Buildings 8,276,000 8,147,000
Machinery and equipment 13,337,000 12,976,000
-------------------- --------------------
22,904,000 22,964,000
Less accumulated depreciation and amortization 12,587,000 12,189,000
-------------------- --------------------
10,317,000 10,775,000
-------------------- --------------------
OTHER NONCURRENT ASSETS:
Deferred tax benefits 581,000 653,000
Other 4,367,000 4,269,000
-------------------- --------------------
4,948,000 4,922,000
-------------------- --------------------
$ 70,980,000 $ 76,344,000
==================== ====================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-2
<PAGE> 31
MARTIN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 481,000 $ 742,000
Current portion of long-term debt 1,750,000 1,792,000
Accounts payable 3,496,000 4,467,000
Accrued income taxes payable 0 602,000
Accrued liabilities:
Payroll and employee benefits 2,699,000 3,068,000
Product liability 651,000 560,000
Warranty 1,535,000 1,299,000
Workers' compensation 572,000 602,000
Other 1,359,000 2,609,000
-------------------- --------------------
12,543,000 15,741,000
-------------------- --------------------
NONCURRENT LIABILITIES:
Long-term debt 8,599,000 10,263,000
Deferred compensation 2,197,000 2,183,000
Other 18,000 125,000
-------------------- --------------------
10,814,000 12,571,000
-------------------- --------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued and outstanding 0 0
Common stock, $.01 par value; 20,000,000
shares authorized; 9,748,746 shares issued
at December 31, 1997 and 9,748,000 at
December 31, 1996 97,000 97,000
Paid-in capital 26,863,000 25,866,000
Retained earnings 29,501,000 31,035,000
Foreign currency translation adjustment (372,000) 25,000
-------------------- --------------------
56,089,000 57,023,000
Less:
Treasury stock at cost (1,104,105 shares at
December 31, 1997 and 1,021,925 shares at
December 31, 1996) 2,590,000 1,911,000
Unearned compensation 5,876,000 7,080,000
-------------------- --------------------
47,623,000 48,032,000
-------------------- --------------------
$ 70,980,000 $ 76,344,000
==================== ====================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 32
MARTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---------------- --------------- ---------------
<S> <C> <C> <C>
NET SALES $ 87,351,000 $ 90,194,000 $ 75,905,000
Cost of Sales 67,521,000 65,334,000 55,113,000
---------------- --------------- ---------------
GROSS PROFIT 19,830,000 24,860,000 20,792,000
---------------- --------------- ---------------
Operating Expenses:
Selling 9,914,000 9,055,000 6,671,000
General and Administrative 6,599,000 6,733,000 4,887,000
Non-cash ESOP Compensation 1,905,000 2,812,000 2,850,000
---------------- --------------- ---------------
18,418,000 18,600,000 14,408,000
---------------- --------------- ---------------
OPERATING INCOME 1,412,000 6,260,000 6,384,000
Interest Expense 1,486,000 1,392,000 1,154,000
Interest Income (902,000) (919,000) (615,000)
---------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 828,000 5,787,000 5,845,000
Provision for Income Taxes 576,000 2,592,000 2,624,000
---------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS 252,000 3,195,000 3,221,000
Income from Discontinued Operations, Net of Tax 0 62,000 1,349,000
Loss on Disposal of Discontinued Operations, Net
of Tax (756,000) (1,430,000) 0
---------------- --------------- ---------------
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS (756,000) (1,368,000) 1,349,000
---------------- --------------- ---------------
NET INCOME (LOSS) $ (504,000) $ 1,827,000 $ 4,570,000
================ =============== ===============
BASIC PER SHARE DATA:
Income from Continuing Operations $ 0.04 $ 0.50 $ 0.70
Income (Loss) from Discontinued Operations (0.11) (0.21) 0.29
---------------- --------------- ---------------
Net Income (Loss) $ (0.07) $ 0.29 $ 0.99
================ =============== ===============
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 6,787,685 6,412,222 4,622,948
================ =============== ===============
DILUTED PER SHARE DATA:
Income from Continuing Operations $ 0.04 $ 0.47 $ 0.62
Income (Loss) from Discontinued Operations (0.11) (0.20) 0.26
---------------- --------------- ---------------
Net Income (Loss) $ (0.07) $ 0.27 $ 0.88
================ =============== ===============
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 7,049,131 6,772,191 5,204,254
================ =============== ===============
DIVIDENDS DECLARED PER SHARE $ 0.156 $ 0.148 $ 0.393
================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 33
MARTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1996, and 1997
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------ Paid-in Retained ---------------------------
Shares Amount Capital Earnings Shares Amount
------------ ---------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 7,448,000 $ 74,000 $ 2,200,000 $ 27,058,000 1,275,715 $ 2,328,000
Net income 0 0 0 4,570,000 0 0
Net proceeds from issuance
of common stock 2,300,000 23,000 19,374,000 0 0 0
Dividends ($.393 per share) 0 0 0 (1,498,000) 0 0
Exercise of stock options 0 0 16,000 0 (6,000) (9,000)
Payments received
on notes receivable 0 0 0 0 0 0
Fair value of stock
released to ESOP, net of
applicable income taxes 0 0 1,867,000 0 0 0
------------ --------- ------------ ------------ ------------ -----------
BALANCE, DECEMBER 31, 1995 9,748,000 97,000 23,457,000 30,130,000 1,269,715 2,319,000
Net income 0 0 0 1,827,000 0 0
Dividends ($.148 per share) 0 0 0 (922,000) 0 0
Exercise of stock options 0 0 650,000 0 (247,790) (408,000)
Fair value of stock
released to ESOP, net of
applicable income taxes 0 0 1,759,000 0 0 0
Foreign currency translation
adjustment 0 0 0 0 0 0
------------ --------- ------------ ------------ ----------- -----------
BALANCE, DECEMBER 31, 1996 9,748,000 97,000 25,866,000 31,035,000 1,021,925 1,911,000
Net loss 0 0 0 (504,000) 0 0
Dividends ($.156 per share) 0 0 0 (1,030,000) 0 0
Issuance of stock under
dividend reinvestment plan 746 0 4,000 0 0 0
Purchase of treasury stock 0 0 0 0 140,000 774,000
Exercise of stock options 0 0 89,000 0 (57,820) (95,000)
Fair value of stock
released to ESOP, net of
applicable income taxes 0 0 904,000 0 0 0
Foreign currency translation
adjustment 0 0 0 0 0 0
------------ ---------- ------------ ------------ ----------- -----------
BALANCE, DECEMBER 31, 1997 9,748,746 $ 97,000 $ 26,863,000 $ 29,501,000 1,104,105 $ 2,590,000
============ ========== ============ ============ =========== ===========
<CAPTION>
Foreign
Notes Unearned Currency
Receivable Compensation Translation Total
------------ ----------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 9,000 $ 9,547,000 $ 0 $ 17,448,000
Net income 0 0 0 4,570,000
Net proceeds from issuance
of common stock 0 0 0 19,397,000
Dividends ($.393 per share) 0 0 0 (1,498,000)
Exercise of stock options 0 0 0 25,000
Payments received
on notes receivable (9,000) 0 0 9,000
Fair value of stock
released to ESOP, net of
applicable income taxes 0 (1,260,000) 0 3,127,000
------------ -------------- --------- -------------
BALANCE, DECEMBER 31, 1995 0 8,287,000 0 43,078,000
Net income 0 0 0 1,827,000
Dividends ($.148 per share) 0 0 0 (922,000)
Exercise of stock options 0 0 0 1,058,000
Fair value of stock
released to ESOP, net of
applicable income taxes 0 (1,207,000) 0 2,966,000
Foreign currency translation
adjustment 0 0 25,000 25,000
------------ ------------- --------- -------------
BALANCE, DECEMBER 31, 1996 0 7,080,000 25,000 48,032,000
Net loss 0 0 0 (504,000)
Dividends ($.156 per share) 0 0 0 ( 1,030,000)
Issuance of stock under
dividend reinvestment plan 0 0 0 4,000
Purchase of treasury stock 0 0 0 (774,000)
Exercise of stock options 0 0 0 184,000
Fair value of stock
released to ESOP, net of
applicable income taxes 0 (1,204,000) 0 2,108,000
Foreign currency translation
adjustment 0 0 (397,000) (397,000)
------------ ------------- --------- -------------
BALANCE, DECEMBER 31, 1997 $ 0 $ 5,876,000 $(372,000) $ 47,623,000
============ ============= ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 34
MARTIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (504,000) $ 1,827,000 $ 4,570,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Non-cash loss on disposal of discontinued operations 187,000 1,430,000 0
Depreciation and amortization 1,897,000 1,623,000 1,020,000
Net (gain) loss on sales of assets 34,000 39,000 (17,000)
Provision (credit) for doubtful accounts and notes receivable 200,000 (117,000) (583,000)
Provision (credit) to value inventories at LIFO cost 9,000 (349,000) 490,000
Provision (credit) for deferred income taxes 113,000 (146,000) 390,000
Non-cash ESOP compensation 1,905,000 2,812,000 2,850,000
Provision for performance compensation 0 0 338,000
Provision for deferred compensation 251,000 371,000 148,000
(Increase) decrease in operating assets:
Accounts and notes receivable 7,442,000 (1,988,000) 966,000
Inventories (6,585,000) 539,000 (3,820,000)
Refundable income taxes (269,000) 512,000 (465,000)
Prepaid expenses and other assets (44,000) (573,000) (411,000)
Other noncurrent assets (463,000) (557,000) 140,000
Increase (decrease) in operating liabilities:
Accounts payable (956,000) (1,443,000) (1,580,000)
Accrued income taxes payable (492,000) 1,404,000 0
Accrued liabilities (2,120,000) 960,000 (1,587,000)
Other noncurrent liabilities (237,000) (103,000) (390,000)
------------- ------------- --------------
Net cash provided by operating activities 368,000 6,241,000 2,059,000
------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,053,000) (2,798,000) (2,181,000)
Proceeds from sales of assets 1,023,000 1,000 37,000
Purchase of subsidiary, net of cash acquired 0 (1,374,000) 0
------------- ------------- --------------
Net cash used in investing activities (1,030,000) (4,171,000) (2,144,000)
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on notes payable (280,000) (2,181,000) 0
Principal payments on long-term debt (1,656,000) (5,400,000) (1,317,000)
Proceeds from the issuance of long-term debt 0 5,000,000 0
Net proceeds from issuance of common stock 0 0 19,397,000
Purchase of treasury stock (774,000) 0 0
Exercise of stock options 44,000 186,000 25,000
Payments received on notes receivable from sales of stock 0 0 9,000
Cash dividends paid (822,000) (768,000) (1,220,000)
------------- ------------- --------------
Net cash provided by (used in) financing activities (3,488,000) (3,163,000) 16,894,000
------------- ------------- --------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (4,150,000) (1,093,000) 16,809,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH (19,000) (20,000) 0
CASH AND SHORT-TERM INVESTMENTS AT THE BEGINNING OF THE YEAR 19,326,000 20,439,000 3,630,000
------------- ------------- --------------
CASH AND SHORT-TERM INVESTMENTS AT THE END OF THE YEAR $ 15,157,000 $ 19,326,000 $ 20,439,000
============= ============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net $ 1,358,000 $ 1,298,000 $ 1,137,000
Income taxes, net $ 877,000 $ 1,196,000 $ 3,494,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 35
MARTIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Martin Industries, Inc. (the "Company") is a manufacturer of products
in two industry segments (see Note 12), which include home heating products and
leisure and other products. On February 24, 1997, the Company elected to
discontinue its operations in the metal office furniture segment. Home heating
products are sold primarily to domestic distributors and dealers. The Company's
leisure products, primarily barbecue gas grills and utility trailers, are sold
to distributors, dealers and mass merchandisers. The principal markets for the
Company's products are the United States and Canada.
The Company's business is seasonal and cyclical with the potential for
significant fluctuations in earnings. These fluctuations may be affected by
weather conditions, general economic conditions, inflation, employment, the
level of consumer confidence, and factors impacting the housing industry.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and
transactions of the Company and its wholly owned Canadian subsidiary, 1166081
Ontario Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation (see Note 10).
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
CASH AND SHORT-TERM INVESTMENTS
All short-term investments of the Company, which include commercial
paper, money market funds and other low risk investments, are considered cash
equivalents in the consolidated statements of cash flows as they are highly
liquid and have original maturities of three (3) months or less.
INVENTORIES
Substantially all of the Company's inventories are valued at last-in,
first-out ("LIFO") cost, which is not in excess of market. An analysis of
inventories at December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Inventories valued at first-in, first-out ("FIFO") cost:
Raw materials and purchased parts $ 12,467,000 $ 10,570,000
Work-in-process 5,194,000 4,281,000
Finished goods 12,803,000 9,066,000
------------- -------------
30,464,000 23,917,000
Less excess of FIFO over LIFO cost 5,580,000 5,571,000
------------- -------------
$ 24,884,000 $ 18,346,000
============= =============
</TABLE>
F-7
<PAGE> 36
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
computed on the straight-line, declining balance and sum-of-the-years-digits
methods over the estimated service lives of the depreciable assets (10-33 years
for buildings and 3-10 years for machinery and equipment).
Maintenance and repairs are charged to expense as incurred. Cost of
renewals and betterments are capitalized by charges to property accounts and
depreciated at applicable annual rates. The cost and accumulated depreciation
of assets sold, retired, or otherwise disposed of are removed from the
accounts, and the related gain or loss is credited or charged to income.
REVENUE RECOGNITION
Revenue is recognized upon the shipment of the Company's products to
its customers.
DESIGN AND DEVELOPMENT
Design and development expenses are charged against income in the
period in which the expenses are incurred.
INSURANCE ARRANGEMENTS
The Company is partially self-insured for worker's compensation,
product liability, and employee medical/dental claims. The Company purchases
insurance coverage for all worker's compensation claims in excess of $250,000
per occurrence, for all product liability claims in excess of $100,000 per
occurrence, and for all medical claims in excess of $200,000 per occurrence.
Worker's compensation claims are accrued currently for management's
estimated cost of claims incurred, including related expenses, based upon
independent actuarial reports and historical claims experience. Product
liability and employee medical/dental claims are also accrued currently based
on management's estimated cost of claims incurred as determined by reference to
historical experience and current claim trends. Management considers the
accrued liabilities for unsettled claims to be adequate; however, there is no
assurance that the estimates accrued will not vary from the ultimate amounts
incurred upon final disposition of all outstanding claims. As a result,
periodic adjustments to the reserves will be made as events occur which
indicate changes are necessary.
PRODUCT WARRANTIES
The Company warrants its products against manufacturing defects
generally for a period of three years commencing at the time of sale. The
estimated cost of such warranties is accrued at the time of sale based upon
historical experience and current claim trends. Periodic adjustments to the
accrual will be made as events occur which indicate changes are necessary.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company recognizes non-cash ESOP compensation expense as shares of
stock owned by the ESOP are committed to be released to participant accounts
based on the average fair value of the shares during the year. Shares of stock
owned by the ESOP are committed to be released to participant accounts based on
scheduled principal payments to be made on the ESOP debt. The difference in the
average fair value of the committed shares and the original cost of those
shares, net of income taxes, if applicable, is charged or credited to paid-in
capital (see Notes 4 and 7).
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company currently maintains a plan whereby the Company pays
supplemental Medicare insurance premiums on behalf of certain retired officers,
directors and their spouses. The plan will also provide these benefits to
certain current officers and directors who meet the stated service requirements
upon their retirement. The Company accounts for these benefits in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 106, Employers'
Accounting
F-8
<PAGE> 37
for Postretirement Benefits Other Than Pensions, which requires the accrual of
postretirement benefits as they are earned by employees.
The Company also maintains a plan whereby the Company provides medical
insurance coverage through its self-insured medical/dental plan to certain
former officers and directors who have terminated their employment and have not
reached retirement age. The Company accounts for these benefits in accordance
with SFAS No. 112, Employers' Accounting for Postemployment Benefits, which
requires the accrual of postemployment benefits as they are earned by
employees.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted SFAS No. 121 which
requires all businesses to recognize an impairment loss on a long-lived asset
as a charge to current income when certain events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. The
Company continually evaluates whether events and circumstances have occurred
that indicate the remaining balance of such long-lived assets and intangibles
may be impaired and not be recoverable. In performing this evaluation, the
Company uses an estimate of the related cash flows expected to result from the
use of the asset and its eventual disposition. When this evaluation indicates
the asset has been impaired, the Company will measure such impairment based on
the asset's fair value. There was no effect on the financial statements as a
result of adoption of this standard.
As of December 31, 1997 and December 31, 1996, accumulated
amortization of intangibles amounted to $477,000 and $366,000, respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION
SFAS No. 123, Accounting for Stock-Based Compensation, requires all
businesses to change the disclosures about their employee stock-based
compensation plans, recommends changes in the accounting for these plans, and
requires those businesses who do not change their accounting to disclose what
their earnings and earnings per share would have been if they had changed. SFAS
No. 123 recommends, but does not require, that a company value all stock
transactions with employees and non-employees at the fair value of the equity
instrument. While the Company did adopt SFAS No. 123 effective January 1, 1996,
the Company did not change its accounting for stock-based compensation. As a
result, the Company has disclosed the required pro forma information (see Note
7).
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, Earnings per Share. This statements is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement for all prior-period earnings per share ("EPS") data
presented.
SFAS No. 128 simplifies the standards for computing EPS previously
found in APB Opinion No. 15, Earnings per Share, and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with
the presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for the Company.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock are
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. Diluted EPS has
been computed based on the weighted average number of shares outstanding,
including the effect of outstanding stock options, if dilutive, in each
respective year.
F-9
<PAGE> 38
A reconciliation of shares as the denominator of the basic EPS
computation to the diluted EPS computation is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average shares-basic,
excluding ESOP and stock
option effects 5,245,114 5,172,386 3,729,361
Weighted average effect of
ESOP shares committed to
be released 1,542,571 1,239,836 893,587
Dilutive effect of stock options 261,446 359,969 581,306
--------- --------- ---------
Weighted average number of
common and common equivalent
shares outstanding-diluted 7,049,131 6,772,191 5,204,254
========= ========= =========
</TABLE>
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of "comprehensive
income," which is the total of net income and all other non-owner changes in
stockholders' equity and its components. The Company will adopt the new rules
in 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131, which supersedes SFAS
Nos. 14, 18, 24, and 30, establishes new standards for segment reporting using
the "management approach" in which reportable segments are based on the same
criteria on which management disaggregates a business for making operating
decisions and assessing performance. The Company will adopt the new rules in
1998. The new rules are not expected to differ significantly from the Company's
present segment reporting.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. SFAS No. 132, which
supersedes SFAS Nos. 87, 88, and 106, standardizes the disclosure requirements
for pensions and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis, and eliminates
certain disclosures that are no longer useful as they were when SFAS Nos. 87,
88, and 106, were issued. The Company will adopt the new rules in 1998. The new
rules are not expected to have a significant impact on the Company's financial
reporting.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the local currency of its Canadian
subsidiary is the functional currency. In accordance with SFAS No. 52, Foreign
Currency Translation, the assets and liabilities denominated in foreign
currency are translated into U.S. dollars at the current rate of exchange
existing at year-end and revenues and expenses are translated at average
monthly exchange rates. Related translation adjustments are reported as a
separate component of stockholders' equity, whereas gains or losses resulting
from foreign currency transactions are included in results of operations.
PRIOR YEAR RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
F-10
<PAGE> 39
3. INCOME TAXES
An analysis of the provision (credit) for income taxes from continuing
operations for the years ended December 31, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Federal:
Current $ 1,103,000 $ 2,460,000 $ 1,997,000
Deferred (385,000) (95,000) 349,000
------------ ------------- ------------
718,000 2,365,000 2,346,000
State/Provincial:
Current 76,000 278,000 237,000
Deferred (218,000) (51,000) 41,000
------------ ------------- ------------
(142,000) 227,000 278,000
------------ ------------- ------------
$ 576,000 $ 2,592,000 $ 2,624,000
============ ============= ============
</TABLE>
The amount of income taxes attributable to the Canadian subsidiary has
not been presented separately as the amount is not material.
The provisions for income taxes from continuing operations differ from
the amounts computed by applying the federal statutory rate due to the
following:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ------------
<S> <C> <C> <C>
Tax provision at the federal
statutory rate $ 282,000 $ 1,968,000 $ 1,987,000
State income taxes, net of federal
income tax benefit (94,000) 150,000 183,000
Non-cash ESOP compensation 238,000 546,000 563,000
Other 150,000 (72,000) (109,000)
------------- ------------ ------------
$ 576,000 $ 2,592,000 $ 2,624,000
============= ============ ============
</TABLE>
Temporary differences which create net deferred tax benefits at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Canadian net operating loss carryforward $ 1,713,000 $ 991,000
Accrued loss on disposal of discontinued operations 114,000 861,000
Deferred compensation 826,000 821,000
Allowance for doubtful accounts 153,000 146,000
Accrued performance compensation 279,000 330,000
Accrued product liability 245,000 211,000
Accrued worker's compensation 215,000 214,000
Inventory 498,000 368,000
Accrued warranty 295,000 246,000
Depreciation (787,000) (745,000)
Accrued vacation 225,000 237,000
Accrued medical claims 271,000 310,000
Other 22,000 64,000
------------ ------------
$ 4,069,000 $ 4,054,000
============ ============
</TABLE>
The Company has not recorded a valuation allowance for deferred tax
benefits as realization is considered more likely than not due to significant
income taxes paid by the Company in prior years and the consideration of
certain tax planning strategies.
F-11
<PAGE> 40
4. LONG-TERM DEBT
The Company's long-term debt at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Bank term loan (ESOP), variable rate, 8.11%
and 7.91% at December 31, 1997 and 1996,
respectively, secured by fixed assets of
the Company $ 5,967,000 $ 7,160,000
Bank term loan, fixed rate of 6.90%, unsecured 4,250,000 4,750,000
Capitalized lease obligations, interest rates ranging
from 5.90% to 7.46% at December 31, 1997
and 1996, secured by automotive and computer
equipment 116,000 71,000
Other 16,000 74,000
------------ ------------
10,349,000 12,055,000
Less current maturities 1,750,000 1,792,000
------------ ------------
$ 8,599,000 $ 10,263,000
============ ============
</TABLE>
In connection with the establishment of the ESOP, on January 7, 1993,
the Company obtained a bank term loan amounting to $11,934,000 due over a
ten-year period at a rate of 79.5% of prime plus 1.35%. Simultaneously, the
Company entered into a separate interest rate swap agreement with the bank
which carried a notional principal amount of $11,934,000 (which notional amount
amortizes corresponding with the loan balance), on which the Company receives
payments based on a variable rate (6.76% and 6.56% at December 31, 1997 and
1996 respectively) and makes payments based on a fixed rate of 6.86%. This
agreement is designed to fix the interest rate on the debt for seven years at
8.21%. The bank term loan proceeds were loaned by the Company to the ESOP (see
Notes 2 and 7), which utilized the funds together with a $54,000 cash
contribution from the Company to purchase 3,489,115 shares of common stock from
existing stockholders. The terms of the Company loan to the ESOP are
substantially similar to the terms under the bank term loan. The Company is
obligated to repay the bank term loan in semi-annual principal payments of
$596,700 each and has pledged the fixed assets of the Company as collateral on
the loan. The bank term loan also requires the Company to meet certain defined
covenants and ratios (i.e., debt service coverage, working capital, and net
worth) common to such agreements, all of which the Company was in compliance
with at December 31, 1997.
During 1996, in connection with the acquisition of the Canadian
subsidiary, the Company obtained a $5,000,000 bank term loan which was utilized
to refinance the subsidiary's debt. The bank term loan requires semi-annual
principal payments in the amount of $250,000 and matures on March 15, 2003.
The total debt maturing in each of the next five years at December 31,
1997 is as follows:
<TABLE>
<S> <C>
1998 $ 1,750,000
1999 1,735,000
2000 1,708,000
2001 1,707,000
2002 1,699,000
Thereafter 1,750,000
----------------
$ 10,349,000
================
</TABLE>
5. BANK LINE OF CREDIT
At December 31, 1997, the Company maintained an unsecured bank line of
credit of up to a maximum of $30,000,000 which is to be utilized to finance
inventories and receivables on an interim basis. Interest on the line of credit
is payable monthly at a variable rate based on the 30-day London Interbank
Offered Rate ("LIBOR") plus 1.25%. The existing line agreement expires on July
31, 1999. There were no amounts outstanding on the line at December 31, 1997
and 1996. The maximum and average amounts of borrowings outstanding under the
line of credit were $19,791,000
F-12
<PAGE> 41
and $6,404,000, and $13,047,000 and $4,966,000 during 1997 and 1996,
respectively. The weighted average interest rates on these borrowings during
1997 and 1996 were 6.9% and 6.7%, respectively.
6. STOCKHOLDERS' EQUITY
On July 13, 1995, the Company commenced its Offering of 2,000,000
shares of common stock at an initial price to the public of $9.50 per share.
The closing of the transaction was completed on July 18, 1995, at which time
the underwriters of the Offering exercised their over-allotment option to
purchase an additional 300,000 shares of common stock to be sold to the public
at $9.50 per share. The proceeds of the Offering, net of an underwriting
discount of $1,530,000 and expenses of $923,000, were $19,397,000.
7. EMPLOYEE BENEFIT AND COMPENSATION PLANS
EMPLOYEE AND DIRECTOR STOCK OPTION PLANS
In 1988, the Company adopted the 1988 Stock Option Plan for certain
key management personnel. Options granted under the 1988 plan were issued at a
total purchase price determined by the Board of Directors, to be satisfied 50%
in cash upon exercise of the options and 50% in previously earned but unpaid
compensation accrued. The previously earned but unpaid compensation accrued
represents compensation utilized to reduce the cash exercise price of the
option at the date of grant. The difference in the total purchase price of the
options and the estimated fair value of the shares at the date of grant was not
material to the Company's consolidated financial statements. Options granted
under the 1988 plan are exercisable over a ten-year period beginning one year
after the date of grant. At December 31, 1997, there were no options available
for grant under this plan.
In 1994, the Company adopted the 1994 Stock Option Plan for certain
officers, directors, and key management employees of the Company. Options
granted under the 1994 plan were issued at estimated fair value and are
exercisable over a ten-year period beginning one year after the date of grant.
Total options issuable under this plan amount to 525,000, of which 124,000,
159,800 and 20,000 were issued in 1997, 1996 and 1995, respectively.
During 1994, the Company adopted a stock option agreement with a
former director and consultant whereby options for 7,000 shares were granted at
their estimated fair value. These options are exercisable over a ten-year
period beginning one year after the date of grant.
During 1996, the Company adopted the 1996 Non-Employee Directors'
Stock Option and Deferred Compensation Plan whereby directors may elect to
receive stock options in lieu of directors' fees. Further, directors may elect
to defer all or any portion of the directors' fees in accordance with the terms
of the 1996 plan. Options granted under the 1996 plan were issued at estimated
fair value and are exercisable over a ten-year period beginning one year after
the date of grant. Total options issuable under this plan amount to 100,000, of
which 43,809 and 11,574 were issued in 1997 and 1996, respectively.
The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with SFAS No. 123, the Company's income from
continuing operations and income from continuing operations per share would
have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Income from continuing operations:
As Reported $ 252,000 $ 3,195,000 $ 3,221,000
Pro Forma $ 142,000 $ 2,960,000 $ 3,219,000
Income from continuing operations per share:
As Reported - diluted $ 0.04 $ 0.47 $ 0.62
Pro Forma - diluted $ 0.02 $ 0.44 $ 0.62
</TABLE>
F-13
<PAGE> 42
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
Information with respect to stock options is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ -------------------- -------------------
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
------ -------- ------ -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 678 $ 3.68 755 $ 2.02 741 $ 1.82
Granted 168 5.92 171 7.84 20 9.13
Exercised (58) 1.52 (248) 1.50 (6) 1.50
Forfeited -- -- -- -- -- --
Expired -- -- -- -- -- --
------ ------ ------
Outstanding at end of year 788 $ 4.31 678 $ 3.68 755 $ 2.02
====== ====== ======
Exercisable at end of year 620 $ 3.88 507 $ 2.26 735 $ 1.82
====== ====== ======
Weighted average fair value
of options granted $ 2.59 $ 3.62 $ 4.29
====== ====== ======
</TABLE>
The fair value of each option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1997 and 1996, respectively:
risk-free interest rates of 6.10 and 6.03 percent; expected dividend yields of
2.7 and 1.9 percent; expected lives of six years; expected volatility of 50
percent and 48 percent.
Of the 788,000 options outstanding at December 31, 1997, 368,000 have
a range of exercise prices between $1.27 and $1.73 with a weighted average
exercise price of $1.54 and a weighted average remaining contractual life of
five years. All of these options are exercisable. Of the options outstanding at
December 31, 1997, 336,000 have a range of exercise prices between $5.14 and
$8.00 with a weighted average exercise price of $6.07 and a weighted average
remaining contractual life of nine years. Of these options, 167,824 are
exercisable. The remaining 84,000 options outstanding at December 31, 1997 have
a range of exercise prices from $9.13 to $9.50 with a weighted average exercise
price of $9.41 and a weighted average remaining contractual life of ten years.
All of these options are exercisable.
During 1997, 1996 and 1995, the Company recognized tax benefits
related to the exercise of stock options in the amounts of $97,000, $694,000,
and $17,000, respectively. The tax benefits were credited to paid-in capital in
the respective years.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains an ESOP which is available to substantially all
employees who meet certain age and service requirements. The Company's Board of
Directors serves as the ESOP's Administrative Committee and thereby directs the
actions of the trustees of the ESOP, who are executive officers of the Company.
On January 7, 1993, the ESOP received a loan from the Company in the
amount of $11,934,000 under substantially similar terms as the Company's bank
term loan discussed in Note 4. The ESOP utilized the funds together with a
$54,000 initial cash contribution from the Company to purchase 3,489,115 shares
of Company common stock from existing stockholders. The ESOP has pledged the
common stock purchased as security on the loan from the Company. The
outstanding balance due on the loan, which is reflected as unearned
compensation in the accompanying consolidated balance sheets, as of December
31, 1997 and 1996 was $5,876,000 and $7,080,000, respectively. Company
contributions are made to the ESOP in such amounts as determined by the
Company's Board of Directors; however, the Company's contribution must be
sufficient to cover principal and interest on the loan to the ESOP.
During the years ended December 31, 1997, 1996 and 1995, the Company
recognized interest expense related to the ESOP debt of $585,000, $688,000 and
$782,000, respectively. Non-cash ESOP compensation expense recognized by the
Company during the years ended December 31, 1997, 1996 and 1995, which was
based on the average fair value of the shares committed to be released as
compensation, amounted to $1,905,000, $2,812,000 and $2,850,000,
F-14
<PAGE> 43
respectively. Additionally, the fair value of shares released in payment of
dividends on allocated shares amounted to $208,000, $154,000 and $277,000 in
1997, 1996 and 1995, respectively.
The difference in the average fair value and the original cost of
shares committed to be released as compensation or dividends on allocated
shares, net of income taxes, if applicable, was credited to paid-in capital
during the years ended December 31, 1997, 1996 and 1995 and amounted to
$904,000, $1,759,000 and $1,867,000, respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP")
The SERP was adopted by the Company to provide retirement benefits for
certain key management personnel who are not eligible to participate in the
ESOP. Awards under the plan are granted annually to participants in the form of
phantom shares of Company common stock equal to the number of shares the
participant would have received under the ESOP.
During 1997, 1996 and 1995, phantom shares of the Company's common
stock totaling 11,924, 12,571 and 17,842, respectively, were allocated to
participant accounts. Compensation expense equal to the fair value of phantom
shares granted is accrued annually together with any change in the fair value
of shares previously allocated and resulted in charges (credits) to the
consolidated statements of operations in 1997, 1996 and 1995 in the amount of
($85,000), ($2,000) and $237,000, respectively.
PROFIT-SHARING PLAN
The Company maintains a profit-sharing plan covering substantially all
employees. Contributions to the plan are at the discretion of the Board of
Directors. As a result of the adoption of the ESOP in 1993, no contributions
have been made to the plan since 1992.
As part of the profit-sharing plan, the Company offers a savings and
retirement provision under Section 401(k) of the Internal Revenue Code to
substantially all of its employees. Under these provisions, employees may
contribute up to 8% of their total compensation to the plan. The Company makes
matching contributions up to a maximum of 1% of the employee's compensation, as
defined, which amounted to $80,000, $87,000 and $88,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
DEFERRED COMPENSATION PLAN
The Company maintains a supplemental income plan for certain current
or retired employees. The Plan provides for 120 monthly payments starting at
age 65 equal to 40% of the employee's regular compensation, as defined. The
Company is accruing the net present value of the estimated benefits from the
dates of the agreements to the estimated retirement dates. As a part of this
program, the Company purchased life insurance on the participants to utilize in
funding these obligations. Deferred compensation expense recognized by the
Company in the years ended December 31, 1997, 1996 and 1995 amounted to
$251,000, $371,000 and $148,000, respectively.
PERFORMANCE COMPENSATION
During the year ended December 31, 1995, certain incentive
compensation was accrued as approved by the Compensation Committee of the Board
of Directors based upon the achievement of certain established profit goals.
The Company's provision for performance compensation in 1997, 1996 and 1995
amounted to $0, $0 and $338,000, respectively.
RETENTION AND TERMINATION BENEFITS
In 1998, the Company entered into certain retention and termination
agreements with certain key employees which provide for retention and
termination benefits to be paid to these employees should continuance of
employment be fulfilled by the employee. Both the retention and termination
benefits are payable only in the event employment with the Company is
terminated in connection with a change in control. Compensation which might
become payable under these agreements has not been accrued in the consolidated
financial statements as a change in control has not occurred.
F-15
<PAGE> 44
DIVIDEND REINVESTMENT PLAN ("DRIP")
The DRIP was adopted by the Company in 1997 to provide holders of
common stock with an opportunity to invest cash dividends on shares of common
stock and optional cash payments for additional shares of common stock without
payment of any brokerage, commission or service charge. During 1997, 746 shares
of common stock were issued as a result of this plan.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL
INSTRUMENTS
SFAS No. 107, Disclosure About Fair Value of Financial Instruments,
requires all businesses to disclose the fair value of financial instruments,
both assets and liabilities recognized and not recognized on the balance sheet,
for which it is practicable to estimate fair value. Based upon their remaining
term to maturity and the current interest rate environment, the estimated fair
value of the Company's financial instruments at December 31, 1997 approximates
their carrying value at that date.
As of December 31, 1997 and as discussed in Note 4, the Company is a
party to an interest rate swap, an off-balance-sheet, derivative financial
instrument. The interest rate swap carries a current notional amount of
$5,967,000 and is accounted for as a 7-year hedge of the bank term loan
originated in 1993. The counter-party to the interest rate swap is the
Company's primary bank. The Company believes the credit and liquidity risk of
the counter-party failing to meet its obligation is remote as the Company
settles its interest position with the bank on a quarterly basis. The amount of
gain in the interest rate swap currently deferred is its estimated termination
benefit of $61,000 as of December 31, 1997.
9. COMMITMENTS AND CONTINGENCIES
PRODUCT CONTINGENCY
The Company has experienced production and design problems with
certain products manufactured by Hunter Technology, Inc. (see Note 10). These
product problems, in some cases, caused the production to be suspended and,
therefore, shipments were also suspended. Corrections have been implemented,
and all but one of the affected products are back in production. The Company,
however, could incur additional costs to make further corrections on products
shipped prior to these corrections, and continues to address and evaluate this
exposure. At present, the amount of possible exposure is estimated to be in a
range of $-0- to $1.5 million.
LEGAL
The Company is a party to various legal proceedings that are
incidental to its business. Certain of these cases filed against the Company
and other companies engaged in businesses similar to the Company often allege,
among other things, product liability, personal injury and breach of contract
and warranty. These kinds of suits sometimes seek the imposition of large
amounts of compensatory and punitive damages and trials by jury. In the opinion
of management, after consultation with legal counsel responsible for these
matters, the ultimate liability, if any, with respect to the proceedings in
which the Company is currently involved is not presently expected to have a
material adverse effect on the Company. However, the potential exists for
unanticipated material adverse judgments against the Company.
LEASES
The Company had financing lease obligations for a portion of its
manufacturing facilities and its central office building. These obligations
were classified as financing leases as they contained bargain purchase options
which the
F-16
<PAGE> 45
Company intends to exercise. Although the Company satisfied the financing lease
obligations in a prior year, the bargain purchase options had not been
exercised as of December 31, 1997. A summary of the asset balances of the
leased facilities follows:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Class of property:
Land $ 192,000 $ 192,000
Buildings and Machinery 2,223,000 2,223,000
------------- ------------
2,415,000 2,415,000
Less accumulated amortization 1,561,000 1,513,000
------------- ------------
$ 854,000 $ 902,000
============= ============
</TABLE>
In addition, the Company has various items of machinery and equipment
under operating leases that expire during the next one to five years or are on
month-to-month rental terms. Rent expense under all operating leases amounted
to $524,000, $463,000 and $449,000 in the years ended December 31, 1997, 1996
and 1995, respectively.
The following is a schedule of future minimum rental payments by year
under operating leases having initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1997:
<TABLE>
<S> <C>
1998 $ 289,000
1999 224,000
2000 140,000
2001 55,000
2002 38,000
Thereafter 56,000
------------
$ 802,000
============
</TABLE>
10. BUSINESS COMBINATION
On February 1, 1996, the Company's newly formed wholly owned Canadian
subsidiary, 1166081 Ontario Inc. ("Martin Canada"), acquired all of the capital
stock of Hunter Energy and Technologies, Inc. and 1061099 Ontario Inc., a
sister company which owned the land and building leased by Hunter Energy and
Technologies, Inc. for its manufacturing operation. This transaction was
accounted for under the purchase method of accounting. The aggregate purchase
price of approximately $1,943,000 included $850,000 in cash, $729,000 in
promissory notes payable and $364,000 paid into escrow. Transaction expenses of
$160,000 were incurred. The total purchase price exceeded the fair value of net
assets acquired by approximately $2,089,000, which amount is recorded as
goodwill (included in other non-current assets) to be amortized over 40 years.
The promissory notes bear interest at a rate of 9% per annum and
matured during the first quarter of 1997. The purpose of the escrow is to make
funds available to meet the sellers' indemnification obligations to the
Company. The Company has withheld payment on certain of the promissory notes
pending resolution of certain issues with the holders of the notes arising out
of the purchase transaction. The Company has claimed the entire amount in
escrow and instituted litigation to recover these amounts and additional
amounts from certain sellers in the purchase transaction, and certain of the
sellers have sued to enforce collection of their notes. The outcome of these
matters is uncertain at this time.
The consolidated results of operations for the year ended December 31,
1996 reflect the operations of the acquisition beginning February 1, 1996.
Effective January 1, 1997, Hunter Energy and Technologies, Inc. and 1061099
Ontario, Inc. were amalgamated to form Hunter Technology, Inc.
F-17
<PAGE> 46
The following unaudited pro forma summary presents the consolidated
results of continuing operations of the Company as if the business combination
had occurred on January 1, 1995:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Net sales from continuing operations $ 90,842,000 $ 84,811,000
Income from continuing operations $ 2,677,000 $ 1,517,000
Income from continuing operations per share - diluted $ .40 $ .29
</TABLE>
11. DISCONTINUED OPERATIONS
On February 24, 1997, the Company announced that it had elected to
discontinue its operations in the metal office furniture segment. The segment's
operations have been treated as a discontinued operation for accounting
purposes for all years presented. Income from discontinued operations has been
reported net of taxes of ($457,000), $37,000, and $813,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. The Company established a
reserve at December 31, 1996 of $1,430,000, net of taxes of $861,000, for
estimated operating losses ($1,436,000-included in other accrued liabilities)
through the date of discontinuance (April, 1997), write-downs of inventory
($100,000) and property, plant and equipment ($510,000) to estimated net
realizable value, and estimated costs to discontinue these operations
($245,000). During 1997, the Company exceeded the original estimated reserve by
$756,000, net of taxes of $457,000, which is reflected as a loss on disposal of
discontinued operations in the Consolidated Statements of Operations. The
estimated reserve was exceeded primarily as a result of greater than
anticipated credits for damaged and defective merchandise, lower than
anticipated margins on sales (due to discounted sales prices and higher than
expected freight costs), group insurance costs and write-downs of inventory.
The Company recorded an estimated reserve of $187,000, net of taxes of
$112,000, for charges to be incurred during 1998.
12. INDUSTRY SEGMENT INFORMATION
The Company's operations by industry segment are presented below. These
segments have been determined based on the type of business and distribution
channel utilized.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CONTINUING OPERATIONS:
Net sales:
Home heating products $ 69,371,000 $ 76,413,000 $ 61,618,000
Leisure and other products 17,980,000 13,781,000 14,287,000
------------- ------------- -------------
$ 87,351,000 $ 90,194,000 $ 75,905,000
============= ============= =============
Gross profit:
Home heating products $ 16,135,000 $ 22,284,000 $ 18,464,000
Leisure and other products 3,695,000 2,576,000 2,328,000
------------- ------------- -------------
$ 19,830,000 $ 24,860,000 $ 20,792,000
============= ============= =============
Segment contribution: (1)
Home heating products $ 8,662,000 $ 14,804,000 $ 12,986,000
Leisure and other products 1,254,000 1,001,000 1,135,000
------------- ------------- -------------
$ 9,916,000 $ 15,805,000 $ 14,121,000
============= ============= =============
Identifiable net assets:
Home heating products $ 34,657,000 $ 31,097,000 $ 19,681,000
Leisure and other products 7,180,000 4,724,000 4,684,000
------------- ------------- -------------
$ 41,837,000 $ 35,821,000 $ 24,365,000
============= ============= =============
</TABLE>
F-18
<PAGE> 47
<TABLE>
<S> <C> <C> <C>
DISCONTINUED OPERATIONS:
Net sales $ 5,498,000 $ 16,516,000 $ 21,420,000
Gross profit $ (1,822,000) $ 1,851,000 $ 3,965,000
Segment contribution (loss) (1) $ (2,371,000) $ 99,000 $ 2,162,000
Identifiable net assets $ 1,969,000(2) $ 9,346,000 $ 11,872,000
</TABLE>
(1) Segment contribution (loss) consists of gross profit less selling
expenses.
(2) Represents Property, Plant and Equipment-$978,000, Accounts
Receivable- $739,000, and Inventory-$252,000 (each net of
respective reserves).
F-19
<PAGE> 48
EXHIBIT S
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Martin Industries, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of MARTIN INDUSTRIES, INC.
included in this Form 10-K and have issued our report thereon dated February
16, 1998. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
February 16, 1998
S-1
<PAGE> 49
SCHEDULE II
MARTIN INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
Charged/
Balance at (Credited) (Deductions)/
Beginning to Costs Recoveries Balance at
of Year and Expenses Net End of Year
------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts $ 1,275,000 $ (583,000) $ (98,000) $ 594,000
FOR THE YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts $ 594,000 $ (117,000) $ (58,000) $ 419,000
FOR THE YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $ 419,000 $ 200,000 $ (187,000) $ 432,000
</TABLE>
S-2
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MARTIN INDUSTRIES, INC.
By: /s/ WILLIAM H. MARTIN, III
-----------------------------------------------
William H. Martin, III
Chairman, President and Chief Executive Officer
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM H. MARTIN, III Chairman, President, Chief March 27, 1998
- ----------------------------------------------- Executive Officer and Director
William H. Martin, III (Principal Executive Officer)
/s/ RODERICK V. SCHLOSSER * Vice President of Finance, March 27, 1998
- ----------------------------------------------- Treasurer and Secretary
Roderick V. Schlosser (Principal Financial Officer and
Principal Accounting Officer)
/s/ WILLIAM D. BIGGS * Director March 27, 1998
- -----------------------------------------------
William D. Biggs
/s/ JIM D. CAUDLE, SR.* Director March 27, 1998
- -----------------------------------------------
Jim D. Caudle, Sr.
/s/ HERBERT J. DICKSON * Director March 27, 1998
- -----------------------------------------------
Herbert J. Dickson
/s/ BILL G. HUGHEY * Director March 27, 1998
- -----------------------------------------------
Bill G. Hughey
/s/ CHARLES R. MARTIN * Director March 27, 1998
- -----------------------------------------------
Charles R. Martin
/s/ LOUIS J. MARTIN, II* Director March 27, 1998
- -----------------------------------------------
Louis J. Martin, II
/s/ JAMES J. TANOUS * Director March 27, 1998
- -----------------------------------------------
James J. Tanous
* By /s/ RODERICK V. SCHLOSSER March 27, 1998
- -----------------------------------------------
Roderick V. Schlosser
Attorney-In-Fact
</TABLE>
<PAGE> 51
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description of Exhibits Number
- ------- ----------------------- ----------
<S> <C> <C>
* 3(a) Form of Restated Certificate of Incorporation of Martin Industries, Inc. which was
filed as Exhibit 3(a) to the Company's Registration Statement on Form S-1 filed
with the Commission on March 17, 1995 (Registration No. 33-90432).
* 3(b) Amended and Restated Bylaws of Martin Industries, Inc. which were filed as
Exhibit 3(b) to the Registrant's Quarterly Report on Form 10-Q for the 26-week
period ended June 28, 1997 (Commission File No. 0-26228).
* 4 Article 4 of the Restated Certificate of Incorporation of Martin Industries, Inc.
(included in Exhibit 3(a)).
* 10(a) Martin Industries, Inc. Employee Stock Ownership Plan, as amended, which was
filed as Exhibit 10(a) to the Company's Registration Statement on Form S-1 filed
with the Commission on March 17, 1995 (Registration No. 33-90432) and, with
respect to Amendment No. 7 thereto, as filed as Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the 13-week period ended September 30, 1995
(Commission File No. 0-26228).
* 10(b) Martin Industries, Inc. Employee Stock Ownership Trust Agreement between
Martin Industries, Inc., Bill G. Hughey, James W. Truitt and James D. Wilson
dated November 12, 1992, as amended, which was filed as Exhibit 10(b) to the
Company's Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
* 10(c) Loan Agreement by and between Martin Industries, Inc. and AmSouth Bank N.A.
dated January 7, 1993 in the principal amount of $11,934,000, as amended, which
was filed as Exhibit 10(c) to the Company Registration Statement on Form S-1
filed with the Commission on March 17, 1995 (Registration No. 33-90432).
* 10(d) Term Note by Martin Industries, Inc. in favor of AmSouth Bank, N.A. dated
January 7, 1993 in the principal amount of $11,934,000 which was filed as Exhibit
10(d) to the Company's Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
* 10(e) Loan and Security Agreement by and between Bill G. Hughey, James W. Truitt and
James D. Wilson, as trustees of the Martin Industries, Inc. Employee Stock
Ownership Plan and Related Trust (the "ESOP"), and Martin Industries, Inc. dated
January 7, 1993 in the principal amount of $11,934,000 which was filed as Exhibit
10(f) to the Company's Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
* 10(f) Promissory Note by Bill G. Hughey, James W. Truitt and James D. Wilson, as
trustees of the ESOP, in favor of Martin Industries, Inc. dated January 7, 1993, in
the principal amount of $11,934,000 which was filed as Exhibit 10(g) to the
Company's Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
* 10(g) Interest Rate Swap Agreement by and between Martin Industries, Inc. and
AmSouth Bank, N.A. dated November 3, 1992 which was filed as Exhibit 10(h) to
the Company's Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
</TABLE>
<PAGE> 52
<TABLE>
<S> <C>
* 10(h) Martin Industries, Inc. 1988 Nonqualified Stock Option Plan, as amended, which
was filed as Exhibit 10(l) to the Company's Registration Statement on Form S-1
filed with the Commission on March 17, 1995 (Registration No. 33-90432).
* 10(i) Executive Supplemental Income Plan Guidelines and Form of Supplemental
Income Agreement which was filed as Exhibit 10(n) to the Company's Registration
Statement on Form S-1 filed with the Commission on March 17, 1995 (Registration
No. 33-90432).
* 10(j) Supplemental Executive Retirement Plan which was filed as Exhibit 10(o) to the
Company's Registration Statement on Form S-1 filed with the Commission on
March 17, 1995 (Registration No. 33-90432).
* 10(k) Lease Agreement by and between the Industrial Development Board for the City
of Florence and Martin Industries, Inc. dated August 1, 1978 which was filed as
Exhibit 10(p) to the Company's Registration Statement on Form S-1 filed with the
Commission on March 17, 1995 (Registration No. 33-90432).
* 10(l) Lease Agreement by and between the Industrial Development Board for the City
of Athens and Martin Stamping & Stove Company, predecessor corporation to
Martin Industries, Inc., dated December 1, 1964 which was filed as Exhibit 10(q)
to the Company's Registration Statement on Form S-1 filed with the Commission
on March 17, 1995 (Registration No. 33-90432).
* 10(m) Renewal Option Agreement between the Industrial Development Board of the City
of Athens and Martin Stamping & Stove Company, predecessor corporation to
Martin Industries, Inc., dated December 1, 1964 which was filed as Exhibit 10(r)
to the Company's Registration Statement on Form S-1 filed with the Commission
on March 17, 1995 (Registration No. 33-90432).
* 10(n) Purchase Option Agreement between the Industrial Development Board of the City
of Athens and Martin Stamping & Stove Company, predecessor corporation to
Martin Industries, Inc., dated December 1, 1964 which was filed as Exhibit 10(s)
to the Company's Registration Statement on Form S-1 filed with the Commission
on March 17, 1995 (Registration No. 33-90432).
* 10(o) First Amendment to Loan Agreement and Other Loan Documents by and between
Martin Industries, Inc. and AmSouth Bank of Alabama dated as of March 15, 1995
which was filed as Exhibit 10(u) to the Company's Registration Statement on Form
S-1 filed with the Commission on March 17, 1995 (Registration No. 33-90432).
* 10(p) Share Purchase Agreement dated February 1, 1996, by and among the Company,
1166081 Ontario Inc., certain shareholders of Hunter Energy and Technologies
Inc., 1061099 Ontario Inc. and 679401 Ontario Inc. and all of the shareholders of
Airform Fabrics Inc. which was filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K as filed with the Commission on February 16, 1996
(Commission File No. 0-26228).
* 10(q) Share Purchase Agreement dated as of February 1, 1996, by and among 1166081
Ontario Inc., Iain J. Richmond, Donald A. Hunter, Andrew St. Germaine and
Donshardan Investments Ltd. which was filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K as filed with the Commission on February 16, 1996
(Commission File No. 0-26228).
* 10(r) Second Amendment to Loan Agreements and Other Loan Documents dated as of
March 28, 1996, by and between Martin Industries, Inc. and AmSouth Bank of
Alabama which was filed as Exhibit 10(y) to the Company's Annual Report on
Form 10-K as filed with the Commission on March 30, 1996 (Commission File No.
0-26228).
</TABLE>
<PAGE> 53
<TABLE>
<S> <C>
* 10(s) Term Note by Martin Industries, Inc. in favor of AmSouth Bank of Alabama dated
March 28, 1996, in the principal amount of $5,000,000 which was filed as Exhibit
10(z) to the Company's Annual Report on Form 10-K as filed with the Commission
on March 30, 1996 (Commission File No. 0-26228).
* 10(t) Martin Industries, Inc. 1996 Non-Employee Directors' Stock Option and Deferred
Compensation Plan which was filed as Exhibit 10(x) to the Company's Annual
Report on Form 10-K as filed with the Commission on March 31, 1997
(Commission File No. 0-26228).
* 10(u) Amendment No. 6 to Martin Industries, Inc. 1988 Nonqualified Stock Option Plan
which was filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K
as filed with the Commission on March 31, 1997 (Commission File No. 0-26228).
* 10(v) Martin Industries, Inc. Amended and Restated 1994 Nonqualified Stock Option
Plan which was filed as Exhibit 10(z) to the Company's Annual Report on Form
10-K as filed with the Commission on March 31, 1997 (Commission File No. 0-
26228).
* 10(w) Amendment No. 8 to Martin Industries, Inc. Employee Stock Ownership Plan
which was filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q
for the 39-week period ended September 27, 1997 (Commission File No. 0-26228).
* 10(x) Third Amendment to Loan Agreement and Other Loan Documents dated as of
August 28, 1997 by and between Martin Industries, Inc. and AmSouth Bank filed
as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the 39-week
period ended September 27, 1997 (Commission File No. 0-26228).
* 10(y) Modified, Amended and Restated Line of Credit Note dated as of August 28, 1997
by and between Martin Industries, Inc. and AmSouth Bank filed as Exhibit 10(c)
to the Company's Quarterly Report on Form 10-Q for the 39-week period ended
September 27, 1997 (Commission File No. 02-26228).
10(z) Retention and Termination Agreement dated January 22, 1998 between Martin
Industries, Inc. and Roderick V. Schlosser.
10(aa) Retention and Termination Agreement dated January 22, 1998 between Martin
Industries, Inc. and Louis J. Martin, II
10(bb) Retention and Termination Agreement dated January 22, 1998 between Martin
Industries, Inc. and Robert W. Wintersteen.
10(cc) Retention and Termination Agreement dated January 22, 1998 between Martin
Industries, Inc. and J. Reid Roney.
21 Subsidiaries of the Company.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule (Electronic Submission only).
27(a) Restated Financial Data Schedule for the Fiscal Quarter Ended September
27, 1997 (Electronic Submission only).
27(b) Restated Financial Data Schedule for the Fiscal Quarter Ended June 28,
1997 (Electronic Submission only).
27(c) Restated Financial Data Schedule for the Fiscal Quarter Ended March 29,
1997 (Electronic Submission only).
27(d) Restated Financial Data Schedule for the Year Ended December 31, 1996
(Electronic Submission only).
27(e) Restated Financial Data Schedule for the Fiscal Quarter Ended September
28, 1996 (Electronic Submission only).
27(f) Restated Financial Data Schedule for the Fiscal Quarter Ended June 29,
1996 (Electronic Submission only).
27(g) Restated Financial Data Schedule for the Fiscal Quarter Ended March 30,
1996 (Electronic Submission only).
27(h) Restated Financial Data Schedule for the Year Ended December 31, 1995
(Electronic Submission only).
</TABLE>
- ------------
* Incorporated by reference.
<PAGE> 1
EXHIBIT 10(Z)
January 22, 1998
Roderick V. Schlosser
Martin Industries, Inc.
301 East Tennessee Street
Florence, AL 35631
Re: Retention and Termination Agreement
Dear Mr. Schlosser:
Martin Industries, Inc., a Delaware corporation (the "Company"),
considers the establishment and maintenance of a sound and vital senior
management team to be essential to protecting and enhancing the best interests
of the Company and its stockholders. In this connection, the Company recognizes
that the possibility of a change in control may exist in the future, and that
such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders. Accordingly, the Board of
Directors of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's senior management, including yourself,
to their assigned duties without distraction in the face of the potentially
disturbing circumstances arising from the possibility of a change in control of
the Company. The Board has also determined that appropriate steps should be
taken to encourage senior management's participation, in the event of a
proposed change of control, in the successful completion of the change of
control transaction while maintaining their focus on business performance and
strategy execution.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject
to the terms and conditions set forth below, this letter agreement sets forth
the retention and severance benefits which the Company agrees will be provided
to you in the event of a successful completion of a "change in control of the
Company" (as defined in Section 2 of this letter agreement) and, additionally,
in the event your employment with the Company is terminated subsequent to a
change in control of the Company under the circumstances described below.
1. COMPANY'S RIGHT TO TERMINATE. During the term of this
Agreement, you agree that you will not voluntarily leave the employ of the
Company except as may be permitted hereunder, and will continue to perform your
regular duties as Vice President of Finance and Treasurer of the Company.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, subject to providing the benefits hereinafter specified in accordance
with the terms hereof.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder
unless there shall have been a change in control of the Company, as set forth
below. For purposes of this Agreement, a "change in control of the Company"
shall mean, if subsequent to the date of this Agreement:
(i) Any Person (as defined below) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act of
1934, as amended (the "Exchange Act")) of (A) 20% or more, but no
greater than 50%, of the outstanding voting capital stock of the
Company, unless prior thereto, the Continuing Directors (as defined
below) approve the transaction that results in the Person becoming the
beneficial owner of 20% or more, but no greater than 50%, of the
outstanding voting capital stock
<PAGE> 2
of the Company, or (B) more than 50% of the outstanding voting capital
stock of the Company, regardless whether the transaction or event by
which the foregoing 50% level is exceeded is approved by the
Continuing Directors; or
(ii) At any time Continuing Directors no longer
constitute a majority of the directors of the Company; or
(iii) The consummation of (A) a merger or consolidation of
the Company, statutory share exchange, or other similar transaction
with another corporation, partnership, or other entity or enterprise
in which either the Company is not the surviving or continuing
corporation (other than such a transaction that is solely for the
purpose of changing the domicile of the Company) or shares of common
stock of the Company are to be converted into or exchanged for cash,
securities other than common stock of the Company, or other property,
(B) a sale or disposition of all or substantially all of the assets of
the Company, or (C) the dissolution of the Company.
For purposes of this Agreement, "Continuing Directors" means directors
who were directors of the Company at the beginning of the 24-month period
ending on the date the determination is made (the "Period") or whose election,
or nomination for election by the Company's stockholders, was approved by at
least a majority of the directors who are in office at the time of the election
or nomination and who either (i) were directors at the beginning of the Period,
or (ii) were elected, or nominated for election, by at least a majority of the
directors who were in office at the time of the election or nomination and were
directors at the beginning of the Period.
For purposes of this Agreement, "Person" shall have the meaning given
in Section 3(a)(9) of the Exchange Act as modified and used in Sections
13(d)(3) and 14(d)(2) thereof; except that a Person shall not include (i) the
Company or any subsidiary, (ii) any employee benefit plan maintained by the
Company or any of its subsidiaries or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any subsidiary, or
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities.
3. RETENTION BONUS. If you remain employed by the Company
through the completion of a change in control of the Company, the Company shall
pay to you on the fifth (5th) day following the completion of the change in
control transaction a lump sum amount equal to the product of your annual base
salary at the highest rate in effect during the twelve (12) months immediately
preceding the date of the completion of the change in control of the Company
multiplied by fifty percent (50%).
4. TERMINATION FOLLOWING CHANGE IN CONTROL. If any of the events
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section
5 hereof upon the subsequent termination of your employment if such termination
occurs within the period beginning on the date that the change of control is
completed and ending on the 185th day thereafter (the "Trigger Period") unless
such termination is (a) because of your death or Retirement, (b) by the Company
for Cause or Disability or (c) by you other than for Good Reason (such
termination within such period, as limited by clauses (a) through (c), being
sometimes referred to hereinafter as a "Payment Trigger").
(i) Disability; Retirement.
(A) Termination by the Company of your
employment based on "Disability" shall mean termination because of your absence
from your duties with the Company on a full time basis for 130 consecutive
business days, as a result of your incapacity due to physical or mental
illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given following such absence you shall have returned to
the full time performance of your duties.
(B) Termination by the Company or you of your
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable
to its salaried employees.
<PAGE> 3
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination upon (A) the willful and continued failure
by you to substantially perform your duties with the Company (other than any
such failure resulting from your incapacity due to physical or mental illness),
after a demand for substantial performance is delivered to you by the Chief
Executive Officer of the Company or the Compensation Committee of the Board,
which specifically identifies the manner in which such executive or committee
believes that you have not substantially performed your duties, or (B) the
willful engaging by you in misconduct which is materially injurious to the
Company, monetarily or otherwise. For purposes of this paragraph, no act, or
failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to you a copy of a
Notice of Termination (as defined below) from the Chief Executive Officer of
the Company or the Compensation Committee of the Board, after reasonable notice
to you and an opportunity for you, together with your counsel, to be heard
before the Compensation Committee of the Board (or, if there be no such
committee or such committee delivers the Notice of Termination, the Board of
Directors), finding that in the good faith opinion of such committee (or the
Board) you were guilty of conduct set forth above in clauses (A) or (B) of the
first sentence of this paragraph and specifying the particulars thereof in
detail.
(iii) Good Reason. Termination by you of your employment
for "Good Reason" shall mean termination based on:
(A) subsequent to a change in control of the
Company, and without your express written consent, the assignment to you of any
duties that are materially inconsistent with your positions, duties,
responsibilities and status with the Company immediately prior to a change in
control, or any removal of you from or any failure to re-elect you to any of
such positions, except in connection with the termination of your employment
for Cause, Disability or Retirement or as a result of your death or by you
other than for Good Reason; or
(B) subsequent to a change in control of the
Company, a reduction by the Company in your base salary as in effect on the
date hereof or as the same may be increased from time to time; or
(C) subsequent to a change in control of the
Company, a failure by the Company to continue any bonus plans in which you are
presently entitled to participate (the "Bonus Plans") as the same may be
modified from time to time but substantially in the forms currently in effect,
or a failure by the Company to continue you as a participant in the Bonus Plans
on at least the same basis as you presently participate in accordance with the
Bonus Plans; or
(D) subsequent to a change in control of the
Company, the failure by the Company to continue in effect any benefit or
compensation plan, life insurance plan, health-and-accident plan or disability
plan in which you are participating at the time of a change in control of the
Company (or plans providing you with substantially similar benefits), the
taking of any action by the Company which would materially adversely affect
your participation in or materially reduce your benefits under any of such
plans or deprive you of any material fringe benefit enjoyed by you at the time
of the change in control, or the failure by the Company to provide you with the
number of paid vacation days to which you are then entitled in accordance with
the Company's normal vacation policy in effect on the date hereof; or
(E) subsequent to a change in control of the
Company, the failure by the Company to obtain the assumption of the agreement
to perform this Agreement by any successor as contemplated in Section 7 hereof;
or
(F) subsequent to a change in control of the
Company, any purported termination of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of paragraph
(iv) below (and, if applicable, paragraph (ii) above).
(iv) Notice of Termination. Any purported termination by
the Company pursuant to paragraph (i) or (ii) above or by you pursuant to
subparagraph (B) of paragraph (i) or paragraph (iii) above shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination"
<PAGE> 4
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) Date of Termination. "Date of Termination" shall
mean (A) if your employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that you shall not have returned
to the performance of your duties on a full-time basis during such thirty (30)
day period), (B) if your employment is terminated pursuant to paragraph (ii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination is given the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding and final
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction entered upon such arbitration award (the time for appeal
therefrom having expired and no appeal having been perfected); provided
further, however, that if such disputed termination constitutes a Payment
Trigger, the Trigger Period shall not run pending resolution of the dispute but
shall recommence upon the date that the dispute is finally determined (as set
forth in the preceding proviso).
5. CERTAIN BENEFITS UPON TERMINATION. If, after a change in
control of the Company shall have occurred, as defined in Section 2 above, your
employment by the Company shall be terminated within the Trigger Period (a) by
the Company other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then you shall be entitled to the benefits provided below:
(i) the Company shall pay you your full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given plus credit for any vacation earned but not taken and the
amount, if any, of any bonus for a past fiscal year which has been earned but
not yet been paid to you under the Bonus Plans;
(ii) in lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Company shall pay severance
pay to you on the fifth (5th) day following the Date of Termination a lump sum
amount equal to the amount of your annual base salary at the highest rate in
effect during the twelve (12) months immediately preceding the Date of
Termination;
(iii) the Company shall maintain in full force and effect,
for your continued benefit until the earlier of (A) one (1) year after the Date
of Termination or (B) your commencement of full time employment with a new
employer, all life insurance, medical, health and accident, and disability
plans, programs or arrangements in which you were entitled to participate
immediately prior to the Date of Termination, provided that your continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that your participation in any such plan or program
is barred, the Company shall use reasonable efforts to arrange to provide you
with benefits substantially similar to those which you are entitled to receive
under such plans and programs.
You shall not be required to mitigate the amount of any payment
provided for in this Section 5 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Section 5 be reduced by
any compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
6. REDUCTION OF PARACHUTE PAYMENTS. Notwithstanding any
provision hereof to the contrary, in the event the total amount of "parachute
payments," as hereinafter defined, to be made by the Company to you would not
be deductible as a result of Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code"), the amount of payments or benefits otherwise to be
made or provided hereunder (or, if mutually agreed between you and the Company
and consistent with the terms of any other plan, arrangement or agreement, then
under such other plan, arrangement or agreement) shall be reduced until no
portion of the parachute payments is not deductible as a result of Section 280G
of the Code. "Parachute payment" shall mean any payment or benefit which is
provided, or to be provided to you, in connection with a change in control of
the Company or the termination of your employment (whether payable pursuant to
the terms of this Agreement or any other plan, arrangement or agreement) to the
extent that such payment or benefit constitutes a "parachute payment" within
the meaning of Section 280G(b)(2) of the Code in the opinion of tax counsel
selected by the Company and which does not, in the opinion of such tax counsel,
constitute reasonable compensation for personal services to be rendered on or
after the date of the change described in paragraph (2)(A)(i) of Section
280G(b)
<PAGE> 5
of the Code. The value of any non-cash benefit or any deferred payment or
benefit included in the parachute payments shall be determined by the Company's
independent auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
7. TERM OF AGREEMENT. This Agreement shall become effective on
the date hereof and, subject to the first sentence of the second paragraph of
this Section 7, shall continue in effect until the earliest of the following:
(i) a Date of Termination in accordance with Section 4
or your death shall have occurred prior to a change in control of the
Company;
(ii) if a Payment Trigger shall have occurred during the
term of this Agreement, the performance by the Company of all its
obligations, and the satisfaction by the Company of all its
obligations and liabilities, under this Agreement;
(iii) the one year anniversary of the date of this
Agreement if, as of that one year anniversary, a change in control of
the Company shall not have occurred and be continuing; or
(iv) in the event, as of the one year anniversary of the
date of this Agreement, a change in control of the Company shall have
occurred and be continuing, either the expiration of such period
thereafter within which a Payment Trigger does not or can not occur or
the ensuing occurrence of a Payment Trigger and the performance by the
Company of all of its obligations and liabilities under this
Agreement.
Any change in control of the Company during the term of this Agreement
that for any reason ceases to constitute a change in control or is not followed
by a Payment Trigger shall not effect a termination or lapse of this Agreement.
Any transfer of your employment from the Company to a subsidiary, from a
subsidiary to the Company, or from one subsidiary to another subsidiary shall
not constitute a termination of your employment for purposes of this Agreement.
8. SUCCESSORS; BINDING AGREEMENT.
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle you
to compensation from the Company in the same amount and on the same terms as
you would be entitled hereunder if you terminated your employment for Good
Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 7 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there be no such designee, to your estate.
9. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or mailed by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the President of the Company with a copy to the Secretary of the
Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
<PAGE> 6
10. MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by you and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly
set forth in this Agreement; provided, however, that this Agreement shall not
supersede or in any way limit the rights, duties or obligations you may have
under any other written agreement with the Company. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Alabama without regard to principles
regarding conflicts of laws.
11. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Florence, Alabama in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The parties acknowledge that this Agreement
evidences a transaction involving interstate commerce and that the agreement to
arbitrate is governed by and enforceable under 9 USC ss.ss. 1, et seq.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
MARTIN INDUSTRIES, INC.
/s/ James D. Wilson
-------------------------------------------
James D. Wilson
President and
Chief Executive Officer
AGREED TO THIS 28th DAY OF
January, 1998.
/s/ Roderick V. Schlosser
- -------------------------------------------
Roderick V. Schlosser
<PAGE> 1
EXHIBIT 10(AA)
January 22, 1998
Louis J. Martin, II
Martin Industries, Inc.
301 East Tennessee Street
Florence, AL 35631
Re: Retention and Termination Agreement
Dear Mr. Martin:
Martin Industries, Inc., a Delaware corporation (the "Company"),
considers the establishment and maintenance of a sound and vital senior
management team to be essential to protecting and enhancing the best interests
of the Company and its stockholders. In this connection, the Company recognizes
that the possibility of a change in control may exist in the future, and that
such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders. Accordingly, the Board of
Directors of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's senior management, including yourself,
to their assigned duties without distraction in the face of the potentially
disturbing circumstances arising from the possibility of a change in control of
the Company. The Board has also determined that appropriate steps should be
taken to encourage senior management's participation, in the event of a
proposed change of control, in the successful completion of the change of
control transaction while maintaining their focus on business performance and
strategy execution.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject
to the terms and conditions set forth below, this letter agreement sets forth
the retention and severance benefits which the Company agrees will be provided
to you in the event of a successful completion of a "change in control of the
Company" (as defined in Section 2 of this letter agreement) and, additionally,
in the event your employment with the Company is terminated subsequent to a
change in control of the Company under the circumstances described below.
1. COMPANY'S RIGHT TO TERMINATE. During the term of this
Agreement, you agree that you will not voluntarily leave the employ of the
Company except as may be permitted hereunder, and will continue to perform your
regular duties as Vice President of Manufacturing of the Company.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, subject to providing the benefits hereinafter specified in accordance
with the terms hereof.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder
unless there shall have been a change in control of the Company, as set forth
below. For purposes of this Agreement, a "change in control of the Company"
shall mean, if subsequent to the date of this Agreement:
(i) Any Person (as defined below) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act of
1934, as amended (the "Exchange Act")) of (A) 20% or more, but no
greater than 50%, of the outstanding voting capital stock of the
Company, unless prior thereto, the Continuing Directors (as defined
below) approve the transaction that results in the Person becoming the
beneficial owner of 20% or more, but no greater than 50%, of the
outstanding voting capital stock
<PAGE> 2
of the Company, or (B) more than 50% of the outstanding voting capital
stock of the Company, regardless whether the transaction or event by
which the foregoing 50% level is exceeded is approved by the
Continuing Directors; or
(ii) At any time Continuing Directors no longer
constitute a majority of the directors of the Company; or
(iii) The consummation of (A) a merger or consolidation of
the Company, statutory share exchange, or other similar transaction
with another corporation, partnership, or other entity or enterprise
in which either the Company is not the surviving or continuing
corporation (other than such a transaction that is solely for the
purpose of changing the domicile of the Company) or shares of common
stock of the Company are to be converted into or exchanged for cash,
securities other than common stock of the Company, or other property,
(B) a sale or disposition of all or substantially all of the assets of
the Company, or (C) the dissolution of the Company.
For purposes of this Agreement, "Continuing Directors" means directors
who were directors of the Company at the beginning of the 24-month period
ending on the date the determination is made (the "Period") or whose election,
or nomination for election by the Company's stockholders, was approved by at
least a majority of the directors who are in office at the time of the election
or nomination and who either (i) were directors at the beginning of the Period,
or (ii) were elected, or nominated for election, by at least a majority of the
directors who were in office at the time of the election or nomination and were
directors at the beginning of the Period.
For purposes of this Agreement, "Person" shall have the meaning given
in Section 3(a)(9) of the Exchange Act as modified and used in Sections
13(d)(3) and 14(d)(2) thereof; except that a Person shall not include (i) the
Company or any subsidiary, (ii) any employee benefit plan maintained by the
Company or any of its subsidiaries or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any subsidiary, or
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities.
3. RETENTION BONUS. If you remain employed by the Company
through the completion of a change in control of the Company, the Company shall
pay to you on the fifth (5th) day following the completion of the change in
control transaction a lump sum amount equal to the product of your annual base
salary at the highest rate in effect during the twelve (12) months immediately
preceding the date of the completion of the change in control of the Company
multiplied by fifty percent (50%).
4. TERMINATION FOLLOWING CHANGE IN CONTROL. If any of the events
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section
5 hereof upon the subsequent termination of your employment if such termination
occurs within the period beginning on the date that the change of control is
completed and ending on the 185th day thereafter (the "Trigger Period") unless
such termination is (a) because of your death or Retirement, (b) by the Company
for Cause or Disability or (c) by you other than for Good Reason (such
termination within such period, as limited by clauses (a) through (c), being
sometimes referred to hereinafter as a "Payment Trigger").
(i) Disability; Retirement.
(A) Termination by the Company of your
employment based on "Disability" shall mean termination because of your absence
from your duties with the Company on a full time basis for 130 consecutive
business days, as a result of your incapacity due to physical or mental
illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given following such absence you shall have returned to
the full time performance of your duties.
(B) Termination by the Company or you of your
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable
to its salaried employees.
<PAGE> 3
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination upon (A) the willful and continued failure
by you to substantially perform your duties with the Company (other than any
such failure resulting from your incapacity due to physical or mental illness),
after a demand for substantial performance is delivered to you by the Chief
Executive Officer of the Company or the Compensation Committee of the Board,
which specifically identifies the manner in which such executive or committee
believes that you have not substantially performed your duties, or (B) the
willful engaging by you in misconduct which is materially injurious to the
Company, monetarily or otherwise. For purposes of this paragraph, no act, or
failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to you a copy of a
Notice of Termination (as defined below) from the Chief Executive Officer of
the Company or the Compensation Committee of the Board, after reasonable notice
to you and an opportunity for you, together with your counsel, to be heard
before the Compensation Committee of the Board (or, if there be no such
committee or such committee delivers the Notice of Termination, the Board of
Directors), finding that in the good faith opinion of such committee (or the
Board) you were guilty of conduct set forth above in clauses (A) or (B) of the
first sentence of this paragraph and specifying the particulars thereof in
detail.
(iii) Good Reason. Termination by you of your employment
for "Good Reason" shall mean termination based on:
(A) subsequent to a change in control of the
Company, and without your express written consent, the assignment to you of any
duties that are materially inconsistent with your positions, duties,
responsibilities and status with the Company immediately prior to a change in
control, or any removal of you from or any failure to re-elect you to any of
such positions, except in connection with the termination of your employment
for Cause, Disability or Retirement or as a result of your death or by you
other than for Good Reason; or
(B) subsequent to a change in control of the
Company, a reduction by the Company in your base salary as in effect on the
date hereof or as the same may be increased from time to time; or
(C) subsequent to a change in control of the
Company, a failure by the Company to continue any bonus plans in which you are
presently entitled to participate (the "Bonus Plans") as the same may be
modified from time to time but substantially in the forms currently in effect,
or a failure by the Company to continue you as a participant in the Bonus Plans
on at least the same basis as you presently participate in accordance with the
Bonus Plans; or
(D) subsequent to a change in control of the
Company, the failure by the Company to continue in effect any benefit or
compensation plan, life insurance plan, health-and-accident plan or disability
plan in which you are participating at the time of a change in control of the
Company (or plans providing you with substantially similar benefits), the
taking of any action by the Company which would materially adversely affect
your participation in or materially reduce your benefits under any of such
plans or deprive you of any material fringe benefit enjoyed by you at the time
of the change in control, or the failure by the Company to provide you with the
number of paid vacation days to which you are then entitled in accordance with
the Company's normal vacation policy in effect on the date hereof; or
(E) subsequent to a change in control of the
Company, the failure by the Company to obtain the assumption of the agreement
to perform this Agreement by any successor as contemplated in Section 7 hereof;
or
(F) subsequent to a change in control of the
Company, any purported termination of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of paragraph
(iv) below (and, if applicable, paragraph (ii) above).
(iv) Notice of Termination. Any purported termination by
the Company pursuant to paragraph (i) or (ii) above or by you pursuant to
subparagraph (B) of paragraph (i) or paragraph (iii) above shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination"
<PAGE> 4
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) Date of Termination. "Date of Termination" shall
mean (A) if your employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that you shall not have returned
to the performance of your duties on a full-time basis during such thirty (30)
day period), (B) if your employment is terminated pursuant to paragraph (ii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination is given the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding and final
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction entered upon such arbitration award (the time for appeal
therefrom having expired and no appeal having been perfected); provided
further, however, that if such disputed termination constitutes a Payment
Trigger, the Trigger Period shall not run pending resolution of the dispute but
shall recommence upon the date that the dispute is finally determined (as set
forth in the preceding proviso).
5. CERTAIN BENEFITS UPON TERMINATION. If, after a change in
control of the Company shall have occurred, as defined in Section 2 above, your
employment by the Company shall be terminated within the Trigger Period (a) by
the Company other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then you shall be entitled to the benefits provided below:
(i) the Company shall pay you your full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given plus credit for any vacation earned but not taken and the
amount, if any, of any bonus for a past fiscal year which has been earned but
not yet been paid to you under the Bonus Plans;
(ii) in lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Company shall pay severance
pay to you on the fifth (5th) day following the Date of Termination a lump sum
amount equal to the amount of your annual base salary at the highest rate in
effect during the twelve (12) months immediately preceding the Date of
Termination;
(iii) the Company shall maintain in full force and effect,
for your continued benefit until the earlier of (A) one (1) year after the Date
of Termination or (B) your commencement of full time employment with a new
employer, all life insurance, medical, health and accident, and disability
plans, programs or arrangements in which you were entitled to participate
immediately prior to the Date of Termination, provided that your continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that your participation in any such plan or program
is barred, the Company shall use reasonable efforts to arrange to provide you
with benefits substantially similar to those which you are entitled to receive
under such plans and programs.
You shall not be required to mitigate the amount of any payment
provided for in this Section 5 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Section 5 be reduced by
any compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
6. REDUCTION OF PARACHUTE PAYMENTS. Notwithstanding any
provision hereof to the contrary, in the event the total amount of "parachute
payments," as hereinafter defined, to be made by the Company to you would not
be deductible as a result of Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code"), the amount of payments or benefits otherwise to be
made or provided hereunder (or, if mutually agreed between you and the Company
and consistent with the terms of any other plan, arrangement or agreement, then
under such other plan, arrangement or agreement) shall be reduced until no
portion of the parachute payments is not deductible as a result of Section 280G
of the Code. "Parachute payment" shall mean any payment or benefit which is
provided, or to be provided to you, in connection with a change in control of
the Company or the termination of your employment (whether payable pursuant to
the terms of this Agreement or any other plan, arrangement or agreement) to the
extent that such payment or benefit constitutes a "parachute payment" within
the meaning of Section 280G(b)(2) of the Code in the opinion of tax counsel
selected by the Company and which does not, in the opinion of such tax counsel,
constitute reasonable compensation for personal services to be rendered on or
after the date of the change described in paragraph (2)(A)(i) of Section
280G(b)
<PAGE> 5
of the Code. The value of any non-cash benefit or any deferred payment or
benefit included in the parachute payments shall be determined by the Company's
independent auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
7. TERM OF AGREEMENT. This Agreement shall become effective on
the date hereof and, subject to the first sentence of the second paragraph of
this Section 7, shall continue in effect until the earliest of the following:
(i) a Date of Termination in accordance with Section 4
or your death shall have occurred prior to a change in control of the
Company;
(ii) if a Payment Trigger shall have occurred during the
term of this Agreement, the performance by the Company of all its
obligations, and the satisfaction by the Company of all its
obligations and liabilities, under this Agreement;
(iii) the one year anniversary of the date of this
Agreement if, as of that one year anniversary, a change in control of
the Company shall not have occurred and be continuing; or
(iv) in the event, as of the one year anniversary of the
date of this Agreement, a change in control of the Company shall have
occurred and be continuing, either the expiration of such period
thereafter within which a Payment Trigger does not or can not occur or
the ensuing occurrence of a Payment Trigger and the performance by the
Company of all of its obligations and liabilities under this
Agreement.
Any change in control of the Company during the term of this Agreement
that for any reason ceases to constitute a change in control or is not followed
by a Payment Trigger shall not effect a termination or lapse of this Agreement.
Any transfer of your employment from the Company to a subsidiary, from a
subsidiary to the Company, or from one subsidiary to another subsidiary shall
not constitute a termination of your employment for purposes of this Agreement.
8. SUCCESSORS; BINDING AGREEMENT.
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle you
to compensation from the Company in the same amount and on the same terms as
you would be entitled hereunder if you terminated your employment for Good
Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 7 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there be no such designee, to your estate.
9. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or mailed by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the President of the Company with a copy to the Secretary of the
Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
<PAGE> 6
10. MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by you and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly
set forth in this Agreement; provided, however, that this Agreement shall not
supersede or in any way limit the rights, duties or obligations you may have
under any other written agreement with the Company. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Alabama without regard to principles
regarding conflicts of laws.
11. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Florence, Alabama in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The parties acknowledge that this Agreement
evidences a transaction involving interstate commerce and that the agreement to
arbitrate is governed by and enforceable under 9 USC ss.ss. 1, et seq.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
MARTIN INDUSTRIES, INC.
/s/ James D. Wilson
-------------------------------------------
James D. Wilson
President and
Chief Executive Officer
AGREED TO THIS 28th DAY OF
January, 1998.
/s/ Louis J.Martin, II
- -------------------------------------------------
Louis J. Martin, II
<PAGE> 1
EXHIBIT 10(BB)
January 22, 1998
Robert W. Wintersteen
Martin Industries, Inc.
301 East Tennessee Street
Florence, AL 35631
Re: Retention and Termination Agreement
Dear Mr. Wintersteen:
Martin Industries, Inc., a Delaware corporation (the "Company"),
considers the establishment and maintenance of a sound and vital senior
management team to be essential to protecting and enhancing the best interests
of the Company and its stockholders. In this connection, the Company recognizes
that the possibility of a change in control may exist in the future, and that
such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders. Accordingly, the Board of
Directors of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's senior management, including yourself,
to their assigned duties without distraction in the face of the potentially
disturbing circumstances arising from the possibility of a change in control of
the Company. The Board has also determined that appropriate steps should be
taken to encourage senior management's participation, in the event of a
proposed change of control, in the successful completion of the change of
control transaction while maintaining their focus on business performance and
strategy execution.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject
to the terms and conditions set forth below, this letter agreement sets forth
the retention and severance benefits which the Company agrees will be provided
to you in the event of a successful completion of a "change in control of the
Company" (as defined in Section 2 of this letter agreement) and, additionally,
in the event your employment with the Company is terminated subsequent to a
change in control of the Company under the circumstances described below.
1. COMPANY'S RIGHT TO TERMINATE. During the term of this
Agreement, you agree that you will not voluntarily leave the employ of the
Company except as may be permitted hereunder, and will continue to perform your
regular duties as Vice President of Research and Development of the Company.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, subject to providing the benefits hereinafter specified in accordance
with the terms hereof.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder
unless there shall have been a change in control of the Company, as set forth
below. For purposes of this Agreement, a "change in control of the Company"
shall mean, if subsequent to the date of this Agreement:
(i) Any Person (as defined below) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act of
1934, as amended (the "Exchange Act")) of (A) 20% or more, but no
greater than 50%, of the outstanding voting capital stock of the
Company, unless prior thereto, the Continuing Directors (as defined
below) approve the transaction that results in the Person becoming the
beneficial owner of 20% or more, but no greater than 50%, of the
outstanding voting capital stock
<PAGE> 2
of the Company, or (B) more than 50% of the outstanding voting capital
stock of the Company, regardless whether the transaction or event by
which the foregoing 50% level is exceeded is approved by the
Continuing Directors; or
(ii) At any time Continuing Directors no longer
constitute a majority of the directors of the Company; or
(iii) The consummation of (A) a merger or consolidation of
the Company, statutory share exchange, or other similar transaction
with another corporation, partnership, or other entity or enterprise
in which either the Company is not the surviving or continuing
corporation (other than such a transaction that is solely for the
purpose of changing the domicile of the Company) or shares of common
stock of the Company are to be converted into or exchanged for cash,
securities other than common stock of the Company, or other property,
(B) a sale or disposition of all or substantially all of the assets of
the Company, or (C) the dissolution of the Company.
For purposes of this Agreement, "Continuing Directors" means directors
who were directors of the Company at the beginning of the 24-month period
ending on the date the determination is made (the "Period") or whose election,
or nomination for election by the Company's stockholders, was approved by at
least a majority of the directors who are in office at the time of the election
or nomination and who either (i) were directors at the beginning of the Period,
or (ii) were elected, or nominated for election, by at least a majority of the
directors who were in office at the time of the election or nomination and were
directors at the beginning of the Period.
For purposes of this Agreement, "Person" shall have the meaning given
in Section 3(a)(9) of the Exchange Act as modified and used in Sections
13(d)(3) and 14(d)(2) thereof; except that a Person shall not include (i) the
Company or any subsidiary, (ii) any employee benefit plan maintained by the
Company or any of its subsidiaries or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any subsidiary, or
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities.
3. RETENTION BONUS. If you remain employed by the Company
through the completion of a change in control of the Company, the Company shall
pay to you on the fifth (5th) day following the completion of the change in
control transaction a lump sum amount equal to the product of your annual base
salary at the highest rate in effect during the twelve (12) months immediately
preceding the date of the completion of the change in control of the Company
multiplied by forty percent (40%).
4. TERMINATION FOLLOWING CHANGE IN CONTROL. If any of the events
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section
5 hereof upon the subsequent termination of your employment if such termination
occurs within the period beginning on the date that the change of control is
completed and ending on the 185th day thereafter (the "Trigger Period") unless
such termination is (a) because of your death or Retirement, (b) by the Company
for Cause or Disability or (c) by you other than for Good Reason (such
termination within such period, as limited by clauses (a) through (c), being
sometimes referred to hereinafter as a "Payment Trigger").
(i) Disability; Retirement.
(A) Termination by the Company of your
employment based on "Disability" shall mean termination because of your absence
from your duties with the Company on a full time basis for 130 consecutive
business days, as a result of your incapacity due to physical or mental
illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given following such absence you shall have returned to
the full time performance of your duties.
(B) Termination by the Company or you of your
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable
to its salaried employees.
<PAGE> 3
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination upon (A) the willful and continued failure
by you to substantially perform your duties with the Company (other than any
such failure resulting from your incapacity due to physical or mental illness),
after a demand for substantial performance is delivered to you by the Chief
Executive Officer of the Company or the Compensation Committee of the Board,
which specifically identifies the manner in which such executive or committee
believes that you have not substantially performed your duties, or (B) the
willful engaging by you in misconduct which is materially injurious to the
Company, monetarily or otherwise. For purposes of this paragraph, no act, or
failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to you a copy of a
Notice of Termination (as defined below) from the Chief Executive Officer of
the Company or the Compensation Committee of the Board, after reasonable notice
to you and an opportunity for you, together with your counsel, to be heard
before the Compensation Committee of the Board (or, if there be no such
committee or such committee delivers the Notice of Termination, the Board of
Directors), finding that in the good faith opinion of such committee (or the
Board) you were guilty of conduct set forth above in clauses (A) or (B) of the
first sentence of this paragraph and specifying the particulars thereof in
detail.
(iii) Good Reason. Termination by you of your employment
for "Good Reason" shall mean termination based on:
(A) subsequent to a change in control of the
Company, and without your express written consent, the assignment to you of any
duties that are materially inconsistent with your positions, duties,
responsibilities and status with the Company immediately prior to a change in
control, or any removal of you from or any failure to re-elect you to any of
such positions, except in connection with the termination of your employment
for Cause, Disability or Retirement or as a result of your death or by you
other than for Good Reason; or
(B) subsequent to a change in control of the
Company, a reduction by the Company in your base salary as in effect on the
date hereof or as the same may be increased from time to time; or
(C) subsequent to a change in control of the
Company, a failure by the Company to continue any bonus plans in which you are
presently entitled to participate (the "Bonus Plans") as the same may be
modified from time to time but substantially in the forms currently in effect,
or a failure by the Company to continue you as a participant in the Bonus Plans
on at least the same basis as you presently participate in accordance with the
Bonus Plans; or
(D) subsequent to a change in control of the
Company, the failure by the Company to continue in effect any benefit or
compensation plan, life insurance plan, health-and-accident plan or disability
plan in which you are participating at the time of a change in control of the
Company (or plans providing you with substantially similar benefits), the
taking of any action by the Company which would materially adversely affect
your participation in or materially reduce your benefits under any of such
plans or deprive you of any material fringe benefit enjoyed by you at the time
of the change in control, or the failure by the Company to provide you with the
number of paid vacation days to which you are then entitled in accordance with
the Company's normal vacation policy in effect on the date hereof; or
(E) subsequent to a change in control of the
Company, the failure by the Company to obtain the assumption of the agreement
to perform this Agreement by any successor as contemplated in Section 7 hereof;
or
(F) subsequent to a change in control of the
Company, any purported termination of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of paragraph
(iv) below (and, if applicable, paragraph (ii) above).
(iv) Notice of Termination. Any purported termination by
the Company pursuant to paragraph (i) or (ii) above or by you pursuant to
subparagraph (B) of paragraph (i) or paragraph (iii) above shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination"
<PAGE> 4
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) Date of Termination. "Date of Termination" shall
mean (A) if your employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that you shall not have returned
to the performance of your duties on a full-time basis during such thirty (30)
day period), (B) if your employment is terminated pursuant to paragraph (ii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination is given the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding and final
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction entered upon such arbitration award (the time for appeal
therefrom having expired and no appeal having been perfected); provided
further, however, that if such disputed termination constitutes a Payment
Trigger, the Trigger Period shall not run pending resolution of the dispute but
shall recommence upon the date that the dispute is finally determined (as set
forth in the preceding proviso).
5. CERTAIN BENEFITS UPON TERMINATION. If, after a change in
control of the Company shall have occurred, as defined in Section 2 above, your
employment by the Company shall be terminated within the Trigger Period (a) by
the Company other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then you shall be entitled to the benefits provided below:
(i) the Company shall pay you your full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given plus credit for any vacation earned but not taken and the
amount, if any, of any bonus for a past fiscal year which has been earned but
not yet been paid to you under the Bonus Plans;
(ii) in lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Company shall pay severance
pay to you on the fifth (5th) day following the Date of Termination a lump sum
amount equal to the amount of your annual base salary at the highest rate in
effect during the twelve (12) months immediately preceding the Date of
Termination;
(iii) the Company shall maintain in full force and effect,
for your continued benefit until the earlier of (A) one (1) year after the Date
of Termination or (B) your commencement of full time employment with a new
employer, all life insurance, medical, health and accident, and disability
plans, programs or arrangements in which you were entitled to participate
immediately prior to the Date of Termination, provided that your continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that your participation in any such plan or program
is barred, the Company shall use reasonable efforts to arrange to provide you
with benefits substantially similar to those which you are entitled to receive
under such plans and programs.
You shall not be required to mitigate the amount of any payment
provided for in this Section 5 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Section 5 be reduced by
any compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
6. REDUCTION OF PARACHUTE PAYMENTS. Notwithstanding any
provision hereof to the contrary, in the event the total amount of "parachute
payments," as hereinafter defined, to be made by the Company to you would not
be deductible as a result of Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code"), the amount of payments or benefits otherwise to be
made or provided hereunder (or, if mutually agreed between you and the Company
and consistent with the terms of any other plan, arrangement or agreement, then
under such other plan, arrangement or agreement) shall be reduced until no
portion of the parachute payments is not deductible as a result of Section 280G
of the Code. "Parachute payment" shall mean any payment or benefit which is
provided, or to be provided to you, in connection with a change in control of
the Company or the termination of your employment (whether payable pursuant to
the terms of this Agreement or any other plan, arrangement or agreement) to the
extent that such payment or benefit constitutes a "parachute payment" within
the meaning of Section 280G(b)(2) of the Code in the opinion of tax counsel
selected by the Company and which does not, in the opinion of such tax counsel,
constitute reasonable compensation for personal services to be rendered on or
after the date of the change described in paragraph (2)(A)(i) of Section
280G(b)
<PAGE> 5
of the Code. The value of any non-cash benefit or any deferred payment
or benefit included in the parachute payments shall be determined by the
Company's independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.
7. TERM OF AGREEMENT. This Agreement shall become effective on
the date hereof and, subject to the first sentence of the second paragraph of
this Section 7, shall continue in effect until the earliest of the following:
(i) a Date of Termination in accordance with Section 4
or your death shall have occurred prior to a change in control of the
Company;
(ii) if a Payment Trigger shall have occurred during the
term of this Agreement, the performance by the Company of all its
obligations, and the satisfaction by the Company of all its
obligations and liabilities, under this Agreement;
(iii) the one year anniversary of the date of this
Agreement if, as of that one year anniversary, a change in control of
the Company shall not have occurred and be continuing; or
(iv) in the event, as of the one year anniversary of the
date of this Agreement, a change in control of the Company shall have
occurred and be continuing, either the expiration of such period
thereafter within which a Payment Trigger does not or can not occur or
the ensuing occurrence of a Payment Trigger and the performance by the
Company of all of its obligations and liabilities under this
Agreement.
Any change in control of the Company during the term of this Agreement
that for any reason ceases to constitute a change in control or is not followed
by a Payment Trigger shall not effect a termination or lapse of this Agreement.
Any transfer of your employment from the Company to a subsidiary, from a
subsidiary to the Company, or from one subsidiary to another subsidiary shall
not constitute a termination of your employment for purposes of this Agreement.
8. SUCCESSORS; BINDING AGREEMENT.
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle you
to compensation from the Company in the same amount and on the same terms as
you would be entitled hereunder if you terminated your employment for Good
Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 7 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there be no such designee, to your estate.
9. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or mailed by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the President of the Company with a copy to the Secretary of the
Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
<PAGE> 6
10. MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by you and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly
set forth in this Agreement; provided, however, that this Agreement shall not
supersede or in any way limit the rights, duties or obligations you may have
under any other written agreement with the Company. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Alabama without regard to principles
regarding conflicts of laws.
11. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Florence, Alabama in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The parties acknowledge that this Agreement
evidences a transaction involving interstate commerce and that the agreement to
arbitrate is governed by and enforceable under 9 USC ss.ss. 1, et seq.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
MARTIN INDUSTRIES, INC.
/s/ James D. Wilson
-------------------------------------------
James D. Wilson
President and
Chief Executive Officer
AGREED TO THIS 28th DAY OF
January, 1998.
/s/ Robert W. Wintersteen
- --------------------------------------------
Robert W. Wintersteen
<PAGE> 1
EXHIBIT 10(CC)
January 22, 1998
J. Reid Roney
Martin Industries, Inc.
301 East Tennessee Street
Florence, AL 35631
Re: Retention and Termination Agreement
Dear Mr. Roney:
Martin Industries, Inc., a Delaware corporation (the "Company"),
considers the establishment and maintenance of a sound and vital senior
management team to be essential to protecting and enhancing the best interests
of the Company and its stockholders. In this connection, the Company recognizes
that the possibility of a change in control may exist in the future, and that
such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders. Accordingly, the Board of
Directors of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's senior management, including yourself,
to their assigned duties without distraction in the face of the potentially
disturbing circumstances arising from the possibility of a change in control of
the Company. The Board has also determined that appropriate steps should be
taken to encourage senior management's participation, in the event of a
proposed change of control, in the successful completion of the change of
control transaction while maintaining their focus on business performance and
strategy execution.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject
to the terms and conditions set forth below, this letter agreement sets forth
the retention and severance benefits which the Company agrees will be provided
to you in the event of a successful completion of a "change in control of the
Company" (as defined in Section 2 of this letter agreement) and, additionally,
in the event your employment with the Company is terminated subsequent to a
change in control of the Company under the circumstances described below.
1. COMPANY'S RIGHT TO TERMINATE. During the term of this
Agreement, you agree that you will not voluntarily leave the employ of the
Company except as may be permitted hereunder, and will continue to perform your
regular duties as Vice President of Sales and Marketing of the Company.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, subject to providing the benefits hereinafter specified in accordance
with the terms hereof.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder
unless there shall have been a change in control of the Company, as set forth
below. For purposes of this Agreement, a "change in control of the Company"
shall mean, if subsequent to the date of this Agreement:
(i) Any Person (as defined below) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act of
1934, as amended (the "Exchange Act")) of (A) 20% or more, but no
greater than 50%, of the outstanding voting capital stock of the
Company, unless prior thereto, the Continuing Directors (as defined
below) approve the transaction that results in the Person becoming the
beneficial owner of 20% or more, but no greater than 50%, of the
outstanding voting capital stock
<PAGE> 2
of the Company, or (B) more than 50% of the outstanding voting capital
stock of the Company, regardless whether the transaction or event by
which the foregoing 50% level is exceeded is approved by the
Continuing Directors; or
(ii) At any time Continuing Directors no longer
constitute a majority of the directors of the Company; or
(iii) The consummation of (A) a merger or consolidation of
the Company, statutory share exchange, or other similar transaction
with another corporation, partnership, or other entity or enterprise
in which either the Company is not the surviving or continuing
corporation (other than such a transaction that is solely for the
purpose of changing the domicile of the Company) or shares of common
stock of the Company are to be converted into or exchanged for cash,
securities other than common stock of the Company, or other property,
(B) a sale or disposition of all or substantially all of the assets of
the Company, or (C) the dissolution of the Company.
For purposes of this Agreement, "Continuing Directors" means directors
who were directors of the Company at the beginning of the 24-month period
ending on the date the determination is made (the "Period") or whose election,
or nomination for election by the Company's stockholders, was approved by at
least a majority of the directors who are in office at the time of the election
or nomination and who either (i) were directors at the beginning of the Period,
or (ii) were elected, or nominated for election, by at least a majority of the
directors who were in office at the time of the election or nomination and were
directors at the beginning of the Period.
For purposes of this Agreement, "Person" shall have the meaning given
in Section 3(a)(9) of the Exchange Act as modified and used in Sections
13(d)(3) and 14(d)(2) thereof; except that a Person shall not include (i) the
Company or any subsidiary, (ii) any employee benefit plan maintained by the
Company or any of its subsidiaries or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any subsidiary, or
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities.
3. RETENTION BONUS. If you remain employed by the Company
through the completion of a change in control of the Company, the Company shall
pay to you on the fifth (5th) day following the completion of the change in
control transaction a lump sum amount equal to the product of your annual base
salary at the highest rate in effect during the twelve (12) months immediately
preceding the date of the completion of the change in control of the Company
multiplied by fifty percent (50%).
4. TERMINATION FOLLOWING CHANGE IN CONTROL. If any of the events
described in Section 2 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section
5 hereof upon the subsequent termination of your employment if such termination
occurs within the period beginning on the date that the change of control is
completed and ending on the 185th day thereafter (the "Trigger Period") unless
such termination is (a) because of your death or Retirement, (b) by the Company
for Cause or Disability or (c) by you other than for Good Reason (such
termination within such period, as limited by clauses (a) through (c), being
sometimes referred to hereinafter as a "Payment Trigger").
(i) Disability; Retirement.
(A) Termination by the Company of your
employment based on "Disability" shall mean termination because of your absence
from your duties with the Company on a full time basis for 130 consecutive
business days, as a result of your incapacity due to physical or mental
illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given following such absence you shall have returned to
the full time performance of your duties.
(B) Termination by the Company or you of your
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable
to its salaried employees.
<PAGE> 3
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination upon (A) the willful and continued failure
by you to substantially perform your duties with the Company (other than any
such failure resulting from your incapacity due to physical or mental illness),
after a demand for substantial performance is delivered to you by the Chief
Executive Officer of the Company or the Compensation Committee of the Board,
which specifically identifies the manner in which such executive or committee
believes that you have not substantially performed your duties, or (B) the
willful engaging by you in misconduct which is materially injurious to the
Company, monetarily or otherwise. For purposes of this paragraph, no act, or
failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to you a copy of a
Notice of Termination (as defined below) from the Chief Executive Officer of
the Company or the Compensation Committee of the Board, after reasonable notice
to you and an opportunity for you, together with your counsel, to be heard
before the Compensation Committee of the Board (or, if there be no such
committee or such committee delivers the Notice of Termination, the Board of
Directors), finding that in the good faith opinion of such committee (or the
Board) you were guilty of conduct set forth above in clauses (A) or (B) of the
first sentence of this paragraph and specifying the particulars thereof in
detail.
(iii) Good Reason. Termination by you of your employment
for "Good Reason" shall mean termination based on:
(A) subsequent to a change in control of the
Company, and without your express written consent, the assignment to you of any
duties that are materially inconsistent with your positions, duties,
responsibilities and status with the Company immediately prior to a change in
control, or any removal of you from or any failure to re-elect you to any of
such positions, except in connection with the termination of your employment
for Cause, Disability or Retirement or as a result of your death or by you
other than for Good Reason; or
(B) subsequent to a change in control of the
Company, a reduction by the Company in your base salary as in effect on the
date hereof or as the same may be increased from time to time; or
(C) subsequent to a change in control of the
Company, a failure by the Company to continue any bonus plans in which you are
presently entitled to participate (the "Bonus Plans") as the same may be
modified from time to time but substantially in the forms currently in effect,
or a failure by the Company to continue you as a participant in the Bonus Plans
on at least the same basis as you presently participate in accordance with the
Bonus Plans; or
(D) subsequent to a change in control of the
Company, the failure by the Company to continue in effect any benefit or
compensation plan, life insurance plan, health-and-accident plan or disability
plan in which you are participating at the time of a change in control of the
Company (or plans providing you with substantially similar benefits), the
taking of any action by the Company which would materially adversely affect
your participation in or materially reduce your benefits under any of such
plans or deprive you of any material fringe benefit enjoyed by you at the time
of the change in control, or the failure by the Company to provide you with the
number of paid vacation days to which you are then entitled in accordance with
the Company's normal vacation policy in effect on the date hereof; or
(E) subsequent to a change in control of the
Company, the failure by the Company to obtain the assumption of the agreement
to perform this Agreement by any successor as contemplated in Section 7 hereof;
or
(F) subsequent to a change in control of the
Company, any purported termination of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of paragraph
(iv) below (and, if applicable, paragraph (ii) above).
(iv) Notice of Termination. Any purported termination by
the Company pursuant to paragraph (i) or (ii) above or by you pursuant to
subparagraph (B) of paragraph (i) or paragraph (iii) above shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination"
<PAGE> 4
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) Date of Termination. "Date of Termination" shall
mean (A) if your employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that you shall not have returned
to the performance of your duties on a full-time basis during such thirty (30)
day period), (B) if your employment is terminated pursuant to paragraph (ii)
above, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within thirty (30) days after any Notice
of Termination is given the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding and final
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction entered upon such arbitration award (the time for appeal
therefrom having expired and no appeal having been perfected); provided
further, however, that if such disputed termination constitutes a Payment
Trigger, the Trigger Period shall not run pending resolution of the dispute but
shall recommence upon the date that the dispute is finally determined (as set
forth in the preceding proviso).
5. CERTAIN BENEFITS UPON TERMINATION. If, after a change in
control of the Company shall have occurred, as defined in Section 2 above, your
employment by the Company shall be terminated within the Trigger Period (a) by
the Company other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then you shall be entitled to the benefits provided below:
(i) the Company shall pay you your full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given plus credit for any vacation earned but not taken and the
amount, if any, of any bonus for a past fiscal year which has been earned but
not yet been paid to you under the Bonus Plans;
(ii) in lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Company shall pay severance
pay to you on the fifth (5th) day following the Date of Termination a lump sum
amount equal to the amount of your annual base salary at the highest rate in
effect during the twelve (12) months immediately preceding the Date of
Termination;
(iii) the Company shall maintain in full force and effect,
for your continued benefit until the earlier of (A) one (1) year after the Date
of Termination or (B) your commencement of full time employment with a new
employer, all life insurance, medical, health and accident, and disability
plans, programs or arrangements in which you were entitled to participate
immediately prior to the Date of Termination, provided that your continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that your participation in any such plan or program
is barred, the Company shall use reasonable efforts to arrange to provide you
with benefits substantially similar to those which you are entitled to receive
under such plans and programs.
You shall not be required to mitigate the amount of any payment
provided for in this Section 5 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Section 5 be reduced by
any compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
6. REDUCTION OF PARACHUTE PAYMENTS. Notwithstanding any
provision hereof to the contrary, in the event the total amount of "parachute
payments," as hereinafter defined, to be made by the Company to you would not
be deductible as a result of Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code"), the amount of payments or benefits otherwise to be
made or provided hereunder (or, if mutually agreed between you and the Company
and consistent with the terms of any other plan, arrangement or agreement, then
under such other plan, arrangement or agreement) shall be reduced until no
portion of the parachute payments is not deductible as a result of Section 280G
of the Code. "Parachute payment" shall mean any payment or benefit which is
provided, or to be provided to you, in connection with a change in control of
the Company or the termination of your employment (whether payable pursuant to
the terms of this Agreement or any other plan, arrangement or agreement) to the
extent that such payment or benefit constitutes a "parachute payment" within
the meaning of Section 280G(b)(2) of the Code in the opinion of tax counsel
selected by the Company and which does not, in the opinion of such tax counsel,
constitute reasonable compensation for personal services to be rendered on or
after the date of the change described in paragraph (2)(A)(i) of Section
280G(b)
<PAGE> 5
of the Code. The value of any non-cash benefit or any deferred payment or
benefit included in the parachute payments shall be determined by the Company's
independent auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
7. TERM OF AGREEMENT. This Agreement shall become effective on
the date hereof and, subject to the first sentence of the second paragraph of
this Section 7, shall continue in effect until the earliest of the following:
(i) a Date of Termination in accordance with Section 4
or your death shall have occurred prior to a change in control of the
Company;
(ii) if a Payment Trigger shall have occurred during the
term of this Agreement, the performance by the Company of all its
obligations, and the satisfaction by the Company of all its
obligations and liabilities, under this Agreement;
(iii) the one year anniversary of the date of this
Agreement if, as of that one year anniversary, a change in control of
the Company shall not have occurred and be continuing; or
(iv) in the event, as of the one year anniversary of the
date of this Agreement, a change in control of the Company shall have
occurred and be continuing, either the expiration of such period
thereafter within which a Payment Trigger does not or can not occur or
the ensuing occurrence of a Payment Trigger and the performance by the
Company of all of its obligations and liabilities under this
Agreement.
Any change in control of the Company during the term of this
Agreement that for any reason ceases to constitute a change in control or is
not followed by a Payment Trigger shall not effect a termination or lapse of
this Agreement. Any transfer of your employment from the Company to a
subsidiary, from a subsidiary to the Company, or from one subsidiary to another
subsidiary shall not constitute a termination of your employment for purposes
of this Agreement.
8. SUCCESSORS; BINDING AGREEMENT.
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle you
to compensation from the Company in the same amount and on the same terms as
you would be entitled hereunder if you terminated your employment for Good
Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 7 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there be no such designee, to your estate.
9. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or mailed by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the President of the Company with a copy to the Secretary of the
Company, or to such other address as either party may
<PAGE> 6
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
10. MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by you and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly
set forth in this Agreement; provided, however, that this Agreement shall not
supersede or in any way limit the rights, duties or obligations you may have
under any other written agreement with the Company. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Alabama without regard to principles
regarding conflicts of laws.
11. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Florence, Alabama in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The parties acknowledge that this Agreement
evidences a transaction involving interstate commerce and that the agreement to
arbitrate is governed by and enforceable under 9 USC ss.ss. 1, et seq.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
MARTIN INDUSTRIES, INC.
/s/ James D. Wilson
-------------------------------------------
James D. Wilson
President and
Chief Executive Officer
AGREED TO THIS 28th DAY OF
January, 1998.
/s/ J. Reid Roney
- -----------------------------------------
J. Reid Roney
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF MARTIN INDUSTRIES, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Name of Corporation Ownership Incorporation
- -------------------------------- ---------------------------------------------- ----------------
<S> <C> <C>
1166081 Ontario Inc. ("1166081") 100% by Martin Industries, Inc. ("Registrant") Ontario, Canada
Hunter Technology Inc. ("HEAT") 100% by 1166081 Ontario, Canada
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report, included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 33-81031, 33-99804, 33-99802,
333-31485 and 333-31499.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
March 25, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of Martin Industries, Inc., a Delaware
corporation, hereby nominates, constitutes and appoints William H. Martin, III
and Roderick V. Schlosser, and each of them, the true and lawful attorneys of
the undersigned to sign the name of the undersigned as director to the Annual
Report on Form 10-K for the year ended December 31, 1997 of said corporation to
be filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and to any and all amendments to said report.
The undersigned hereby grants to said attorneys full power of
substitution, resubstitution and revocation, all as fully as the undersigned
could do if personally present, hereby ratifying all that said attorneys or
their substitutes may lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of Martin Industries,
Inc. has executed this Power of Attorney this 20th day of March 1998.
/s/ WILLIAM D. BIGGS
-------------------------------------------
William D. Biggs
<PAGE> 2
POWER OF ATTORNEY
The undersigned director of Martin Industries, Inc., a Delaware
corporation, hereby nominates, constitutes and appoints William H. Martin, III
and Roderick V. Schlosser, and each of them, the true and lawful attorneys of
the undersigned to sign the name of the undersigned as director to the Annual
Report on Form 10-K for the year ended December 31, 1997 of said corporation to
be filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and to any and all amendments to said report.
The undersigned hereby grants to said attorneys full power of
substitution, resubstitution and revocation, all as fully as the undersigned
could do if personally present, hereby ratifying all that said attorneys or
their substitutes may lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of Martin Industries,
Inc. has executed this Power of Attorney this 22nd day of March 1998.
/s/ JIM D. CAUDLE, SR.
-------------------------------------------
Jim D. Caudle, Sr.
<PAGE> 3
POWER OF ATTORNEY
The undersigned director of Martin Industries, Inc., a Delaware
corporation, hereby nominates, constitutes and appoints William H. Martin, III
and Roderick V. Schlosser, and each of them, the true and lawful attorneys of
the undersigned to sign the name of the undersigned as director to the Annual
Report on Form 10-K for the year ended December 31, 1997 of said corporation to
be filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and to any and all amendments to said report.
The undersigned hereby grants to said attorneys full power of
substitution, resubstitution and revocation, all as fully as the undersigned
could do if personally present, hereby ratifying all that said attorneys or
their substitutes may lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of Martin Industries,
Inc. has executed this Power of Attorney this 20th day of March, 1998.
/s/ HERBERT J. DICKSON
-------------------------------------------
Herbert J. Dickson
<PAGE> 4
POWER OF ATTORNEY
The undersigned director of Martin Industries, Inc., a Delaware
corporation, hereby nominates, constitutes and appoints William H. Martin, III
and Roderick V. Schlosser, and each of them, the true and lawful attorneys of
the undersigned to sign the name of the undersigned as director to the Annual
Report on Form 10-K for the year ended December 31, 1997 of said corporation to
be filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and to any and all amendments to said report.
The undersigned hereby grants to said attorneys full power of
substitution, resubstitution and revocation, all as fully as the undersigned
could do if personally present, hereby ratifying all that said attorneys or
their substitutes may lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of Martin Industries,
Inc. has executed this Power of Attorney this 20th day of March, 1998.
/s/ BILL G. HUGHEY
------------------------------------------
Bill G. Hughey
<PAGE> 5
POWER OF ATTORNEY
The undersigned director of Martin Industries, Inc., a Delaware
corporation, hereby nominates, constitutes and appoints William H. Martin, III
and Roderick V. Schlosser, and each of them, the true and lawful attorneys of
the undersigned to sign the name of the undersigned as director to the Annual
Report on Form 10-K for the year ended December 31, 1997 of said corporation to
be filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and to any and all amendments to said report.
The undersigned hereby grants to said attorneys full power of
substitution, resubstitution and revocation, all as fully as the undersigned
could do if personally present, hereby ratifying all that said attorneys or
their substitutes may lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of Martin Industries,
Inc. has executed this Power of Attorney this 20th day of March, 1998.
/s/ CHARLES R. MARTIN
---------------------------------------
Charles R. Martin
<PAGE> 6
POWER OF ATTORNEY
The undersigned director of Martin Industries, Inc., a Delaware
corporation, hereby nominates, constitutes and appoints William H. Martin, III
and Roderick V. Schlosser, and each of them, the true and lawful attorneys of
the undersigned to sign the name of the undersigned as director to the Annual
Report on Form 10-K for the year ended December 31, 1997 of said corporation to
be filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and to any and all amendments to said report.
The undersigned hereby grants to said attorneys full power of
substitution, resubstitution and revocation, all as fully as the undersigned
could do if personally present, hereby ratifying all that said attorneys or
their substitutes may lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of Martin Industries,
Inc. has executed this Power of Attorney this 20th day of March, 1998.
/s/ LOUIS J. MARTIN, II
-------------------------------------------
Louis J. Martin, II
<PAGE> 7
POWER OF ATTORNEY
The undersigned director of Martin Industries, Inc., a Delaware
corporation, hereby nominates, constitutes and appoints William H. Martin, III
and Roderick V. Schlosser, and each of them, the true and lawful attorneys of
the undersigned to sign the name of the undersigned as director to the Annual
Report on Form 10-K for the year ended December 31, 1997 of said corporation to
be filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and to any and all amendments to said report.
The undersigned hereby grants to said attorneys full power of
substitution, resubstitution and revocation, all as fully as the undersigned
could do if personally present, hereby ratifying all that said attorneys or
their substitutes may lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of Martin Industries,
Inc. has executed this Power of Attorney this 20th day of March, 1998.
/S/ JAMES J. TANOUS
-------------------------------------------
James J. Tanous
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARTIN
INDUSTRIES, INC. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,157
<SECURITIES> 0
<RECEIVABLES> 10,538
<ALLOWANCES> 432
<INVENTORY> 24,884
<CURRENT-ASSETS> 55,715
<PP&E> 22,904
<DEPRECIATION> 12,587
<TOTAL-ASSETS> 70,980
<CURRENT-LIABILITIES> 12,543
<BONDS> 8,599
0
0
<COMMON> 97
<OTHER-SE> 47,526
<TOTAL-LIABILITY-AND-EQUITY> 70,980
<SALES> 87,351
<TOTAL-REVENUES> 87,351
<CGS> 67,521
<TOTAL-COSTS> 67,521
<OTHER-EXPENSES> 18,218
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 584
<INCOME-PRETAX> 828
<INCOME-TAX> 576
<INCOME-CONTINUING> 252
<DISCONTINUED> (756)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (504)
<EPS-PRIMARY> (0.07)<F1>
<EPS-DILUTED> (0.07)<F1>
<FN>
<F1>THE EARNINGS PER SHARE ("EPS") INFORMATION HAS BEEN PREPARED IN ACCORDANCE
WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128, EARNINGS PER SHARE. AS
SUCH, BASIC EPS AND DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY
DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 27, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-27-1997
<CASH> 11,092
<SECURITIES> 0
<RECEIVABLES> 34,760
<ALLOWANCES> 440
<INVENTORY> 26,929
<CURRENT-ASSETS> 77,057
<PP&E> 23,375
<DEPRECIATION> 12,553
<TOTAL-ASSETS> 92,889
<CURRENT-LIABILITIES> 33,782
<BONDS> 8,610
0
0
<COMMON> 97
<OTHER-SE> 48,212
<TOTAL-LIABILITY-AND-EQUITY> 92,889
<SALES> 63,258
<TOTAL-REVENUES> 63,258
<CGS> 48,102
<TOTAL-COSTS> 48,102
<OTHER-EXPENSES> 13,791
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 471
<INCOME-PRETAX> 873
<INCOME-TAX> 409
<INCOME-CONTINUING> 464
<DISCONTINUED> (253)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211
<EPS-PRIMARY> 0.03<F1>
<EPS-DILUTED> 0.03<F1>
<FN>
<F1>THE EARNINGS PER SHARE ("EPS") INFORMATION HAS BEEN PREPARED IN ACCORDANCE
WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128, EARNINGS PER SHARE.
AS SUCH, BASIC EPS AND DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY
DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE FISCAL QUARTER ENDED JUNE 28, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-28-1997
<CASH> 11,375
<SECURITIES> 0
<RECEIVABLES> 27,393
<ALLOWANCES> 426
<INVENTORY> 23,977
<CURRENT-ASSETS> 67,543
<PP&E> 23,071
<DEPRECIATION> 12,137
<TOTAL-ASSETS> 83,533
<CURRENT-LIABILITIES> 24,211
<BONDS> 9,452
0
0
<COMMON> 97
<OTHER-SE> 47,545
<TOTAL-LIABILITY-AND-EQUITY> 83,533
<SALES> 39,408
<TOTAL-REVENUES> 39,408
<CGS> 30,292
<TOTAL-COSTS> 30,292
<OTHER-EXPENSES> 9,194
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 189
<INCOME-PRETAX> (274)
<INCOME-TAX> (83)
<INCOME-CONTINUING> (191)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (191)
<EPS-PRIMARY> (0.03)<F1>
<EPS-DILUTED> (0.03)<F1>
<FN>
<F1>THE EARNINGS PER SHARE ("EPS") INFORMATION HAS BEEN PREPARED IN ACCORDANCE
WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128, EARNINGS PER SHARE.
AS SUCH, BASIC EPS AND DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY
DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARTIN
INDUSTRIES, INC. FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 29, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-29-1997
<CASH> 12,486
<SECURITIES> 0
<RECEIVABLES> 18,915
<ALLOWANCES> 424
<INVENTORY> 22,779
<CURRENT-ASSETS> 59,774
<PP&E> 23,675
<DEPRECIATION> 12,590
<TOTAL-ASSETS> 75,943
<CURRENT-LIABILITIES> 17,009
<BONDS> 9,411
0
0
<COMMON> 97
<OTHER-SE> 47,158
<TOTAL-LIABILITY-AND-EQUITY> 75,943
<SALES> 15,905
<TOTAL-REVENUES> 15,905
<CGS> 13,007
<TOTAL-COSTS> 13,007
<OTHER-EXPENSES> 4,373
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> (1,508)
<INCOME-TAX> (640)
<INCOME-CONTINUING> (868)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (868)
<EPS-PRIMARY> (0.13)<F1>
<EPS-DILUTED> (0.13)<F1>
<FN>
<F1>THE EARNINGS PER SHARE ("EPS") INFORMATION HAS BEEN PREPARED IN ACCORDANCE
WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128, EARNINGS PER SHARE.
AS SUCH, BASIC EPS AND DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY
DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARTIN
INDUSTRIES, INC. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,326
<SECURITIES> 0
<RECEIVABLES> 18,207
<ALLOWANCES> 419
<INVENTORY> 18,346
<CURRENT-ASSETS> 60,647
<PP&E> 22,964
<DEPRECIATION> 12,189
<TOTAL-ASSETS> 76,344
<CURRENT-LIABILITIES> 15,741
<BONDS> 10,263
0
0
<COMMON> 97
<OTHER-SE> 47,935
<TOTAL-LIABILITY-AND-EQUITY> 76,344
<SALES> 90,194
<TOTAL-REVENUES> 90,194
<CGS> 65,334
<TOTAL-COSTS> 65,334
<OTHER-EXPENSES> 18,717
<LOSS-PROVISION> (117)
<INTEREST-EXPENSE> 473
<INCOME-PRETAX> 5,787
<INCOME-TAX> 2,592
<INCOME-CONTINUING> 3,195
<DISCONTINUED> 1,368
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,827
<EPS-PRIMARY> 0.29<F1>
<EPS-DILUTED> 0.27<F1>
<FN>
<F1> THE EARNINGS PER SHARE ("EPS") INFORMATION HAS BEEN PREPARED IN ACCORDANCE
WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128, EARNINGS PER SHARE.
AS SUCH, BASIC EPS AND DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY
DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 28, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-28-1996
<CASH> 13,395
<SECURITIES> 0
<RECEIVABLES> 32,016
<ALLOWANCES> 889
<INVENTORY> 20,209
<CURRENT-ASSETS> 69,588
<PP&E> 22,853
<DEPRECIATION> 11,725
<TOTAL-ASSETS> 85,575
<CURRENT-LIABILITIES> 26,975
<BONDS> 10,294
0
0
<COMMON> 97
<OTHER-SE> 45,932
<TOTAL-LIABILITY-AND-EQUITY> 85,575
<SALES> 73,952
<TOTAL-REVENUES> 73,952
<CGS> 56,684
<TOTAL-COSTS> 56,684
<OTHER-EXPENSES> 15,030
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 386
<INCOME-PRETAX> 1,829
<INCOME-TAX> 987
<INCOME-CONTINUING> 842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 842
<EPS-PRIMARY> 0.13<F1>
<EPS-DILUTED> 0.12<F1>
<FN>
<F1>THE EARNINGS PER SHARE ("EPS") INFORMATION HAS BEEN PREPARED IN ACCORDANCE
WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128, EARNINGS PER SHARE. AS
SUCH, BASIC EPS AND DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY
DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARTIN
INDUSTRIES, INC. FORM 10-Q FOR THE FISCAL QUARTER ENDED JUNE 29, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-29-1996
<CASH> 15,386
<SECURITIES> 0
<RECEIVABLES> 24,305
<ALLOWANCES> 801
<INVENTORY> 19,608
<CURRENT-ASSETS> 61,743
<PP&E> 21,998
<DEPRECIATION> 11,305
<TOTAL-ASSETS> 77,296
<CURRENT-LIABILITIES> 18,724
<BONDS> 11,121
0
0
<COMMON> 97
<OTHER-SE> 45,080
<TOTAL-LIABILITY-AND-EQUITY> 77,296
<SALES> 47,691
<TOTAL-REVENUES> 47,691
<CGS> 36,380
<TOTAL-COSTS> 36,380
<OTHER-EXPENSES> 10,000
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> 1,122
<INCOME-TAX> 660
<INCOME-CONTINUING> 462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462
<EPS-PRIMARY> 0.07<F1>
<EPS-DILUTED> 0.07<F1>
<FN>
<F1>THE EARNINGS PER SHARE ("EPS") INFORMATION HAS BEEN PREPARED IN ACCORDANCE
WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128, EARNINGS PER SHARE.
AS SUCH, BASIC EPS AND DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY
DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARTIN
INDUSTRIES, INC. FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-30-1996
<CASH> 15,716
<SECURITIES> 0
<RECEIVABLES> 18,536
<ALLOWANCES> 819
<INVENTORY> 20,551
<CURRENT-ASSETS> 58,331
<PP&E> 21,605
<DEPRECIATION> 10,942
<TOTAL-ASSETS> 73,951
<CURRENT-LIABILITIES> 17,210
<BONDS> 11,126
0
0
<COMMON> 97
<OTHER-SE> 43,298
<TOTAL-LIABILITY-AND-EQUITY> 73,951
<SALES> 21,044
<TOTAL-REVENUES> 21,044
<CGS> 16,698
<TOTAL-COSTS> 16,698
<OTHER-EXPENSES> 5,014
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> (690)
<INCOME-TAX> (179)
<INCOME-CONTINUING> (511)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (511)
<EPS-PRIMARY> (0.08)<F1>
<EPS-DILUTED> (0.08)<F1>
<FN>
<F1>THE EARNINGS PER SHARE ("EPS") INFORMATION HAS BEEN PREPARED IN ACCORDANCE
WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128, EARNINGS PER SHARE.
AS SUCH, BASIC EPS AND DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY
DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 20,439
<SECURITIES> 0
<RECEIVABLES> 14,418
<ALLOWANCES> 594
<INVENTORY> 16,534
<CURRENT-ASSETS> 54,336
<PP&E> 16,988
<DEPRECIATION> 10,642
<TOTAL-ASSETS> 63,582
<CURRENT-LIABILITIES> 11,031
<BONDS> 7,228
0
0
<COMMON> 97
<OTHER-SE> 42,981
<TOTAL-LIABILITY-AND-EQUITY> 63,582
<SALES> 75,905
<TOTAL-REVENUES> 75,905
<CGS> 55,113
<TOTAL-COSTS> 55,113
<OTHER-EXPENSES> 14,991
<LOSS-PROVISION> (583)
<INTEREST-EXPENSE> 539
<INCOME-PRETAX> 5,845
<INCOME-TAX> 2,624
<INCOME-CONTINUING> 3,221
<DISCONTINUED> 1,349
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,570
<EPS-PRIMARY> 0.99<F1>
<EPS-DILUTED> 0.88<F1>
<FN>
<F1>THE EARNINGS PER SHARE ("EPS") INFORMATION HAS BEEN PREPARED IN ACCORDANCE
WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128, EARNINGS PER SHARE.
AS SUCH, BASIC EPS AND DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND
FULLY DILUTED, RESPECTIVELY.
</FN>
</TABLE>
