-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A42uYIDVApjIlSpvNXvbfNnasE3Z5zF5EHjTBOi72A8Bs1RjNDimpOQRoWA8nm3P P+6MqCIjl79Ky9mBS/QZpw== 0000950149-01-000381.txt : 20010330 0000950149-01-000381.hdr.sgml : 20010330 ACCESSION NUMBER: 0000950149-01-000381 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMPSON MANUFACTURING CO INC /CA/ CENTRAL INDEX KEY: 0000920371 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 943196943 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13429 FILM NUMBER: 1583781 BUSINESS ADDRESS: STREET 1: 4637 CHABOT DR STREET 2: STE 200 CITY: PLEASANTON STATE: CA ZIP: 94588 BUSINESS PHONE: 5106099912 MAIL ADDRESS: STREET 1: 4637 CHABOT DR STREET 2: STE 200 CITY: PLEASANTON STATE: CA ZIP: 94588 10-K 1 f70975e10-k.txt 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________. COMMISSION FILE NUMBER: 0-23804 - -------------------------------------------------------------------------------- SIMPSON MANUFACTURING CO., INC. (Exact name of registrant as specified in its charter) DELAWARE 94-3196943 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4120 DUBLIN BOULEVARD, SUITE 400, DUBLIN, CA 94568 (Address of principal executive offices) Registrant's telephone number, including area code: (925)560-9000 - -------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK, PAR VALUE $0.01 NEW YORK STOCK EXCHANGE, INC. (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: NONE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 1, 2001, there were outstanding 12,077,206 shares of the registrant's common stock, par value $0.01, which is the only outstanding class of common or voting stock of the registrant. The aggregate market value of the shares of common stock held by nonaffiliates of the registrant (based on the closing price for the common stock on the New York Stock Exchange on March 1, 2001) was approximately $417,453,576. DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III is incorporated by reference to the definitive Proxy Statement for the Annual Meeting of Stockholders of the Company to be held May 18, 2001, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2000. ================================================================================ 2 Certain matters discussed below are forward-looking statements that involve risks and uncertainties, certain of which are discussed in this and in other reports filed by the Company with the Securities and Exchange Commission. Actual results might differ materially from results suggested by any forward-looking statements in this report. PART I ITEM 1. BUSINESS. BACKGROUND Simpson Manufacturing Co., Inc. (the "Company"), through its subsidiary, Simpson Strong-Tie Company Inc. ("Simpson Strong-Tie" or "SST"), designs, engineers and is a leading manufacturer of wood-to-wood, wood-to-concrete and wood-to-masonry connectors and shearwalls. SST also offers a full line of adhesives, mechanical anchors and powder actuated tools for concrete, masonry and steel. The Company's subsidiary, Simpson Dura-Vent Company, Inc. ("Simpson Dura-Vent" or "SDV"), designs, engineers and manufactures venting systems for gas and wood burning appliances. The Company markets its products to the residential construction, light industrial and commercial construction, remodeling and do-it-yourself ("DIY") markets. The Company believes that SST benefits from strong brand name recognition among architects and engineers who frequently specify in building plans the use of SST products, and that SDV benefits from strong brand name recognition among contractors, dealers, distributors and original equipment manufacturers ("OEMs") to which SDV markets its products. The Company has continuously manufactured structural connectors since 1956. See Note 14 to the Company's consolidated financial statements for information regarding the net sales, income from operations, depreciation and amortization, capital expenditures and acquisitions and total assets for the Company's two primary segments. Connectors produced by Simpson Strong-Tie typically are steel devices that are used to strengthen, support and connect joints in residential and commercial construction and DIY projects. SST's Anchor Systems product line is included in the connector product segment. These products enhance the safety and durability of the structures in which they are installed and can save time and labor costs for the contractor. SST's connector products increase structural integrity and improve structural resistance to seismic, wind and other forces. Applications range from building framing to deck construction to DIY projects. SST produces and markets over 5,000 standard and custom products. Simpson Dura-Vent's venting systems are used to vent gas furnaces and water heaters, gas fireplaces and stoves, wood burning stoves and pellet stoves. SDV's metal vents, chimneys and chimney liner systems exhaust the products of combustion to the exterior of the building, and some products introduce outside air into the appliance for more efficient combustion. SDV designs its products for ease of assembly and safe operation and to achieve a high level of performance. SDV produces and markets approximately 2,400 different venting products. The Company emphasizes continuous new product development and often obtains patent protection for its new products. The Company's products are marketed in all 50 states of the United States and in Europe, Canada, Japan, Australia, New Zealand and several countries in Central and South America. Both Simpson Strong-Tie and Simpson Dura-Vent products are distributed through a contractor and dealer distributor network, home centers and OEMs. The Company has developed and uses automated manufacturing processes. Its innovative manufacturing systems and techniques have allowed it to control manufacturing costs, even while developing both new products and products that meet customized requirements and specifications. The Company's development of specialized manufacturing processes has also permitted increased operating flexibility and enhanced product design innovation. The Company has developed a quality management system that employs numerous quality-control procedures. Since 1996, SST's quality management system has been registered under ISO 9001. The Company has 14 manufacturing locations in the United States, Canada, France, Denmark and England. The Company is a Delaware corporation organized and merged with its predecessor company in 1999. The Company serves as a holding company for Simpson Strong-Tie, and its subsidiaries, and for Simpson Dura-Vent. -2- 3 INDUSTRY AND MARKET TRENDS Based on trade periodicals, participation in trade and professional associations and communications with governmental and quasi-governmental organizations and with customers and suppliers, the Company believes that a variety of events and trends have resulted in significant developments in the markets that the Company serves. The Company's products are designed to respond to increasing demand resulting from these trends. Some of these events and trends are discussed below. Natural disasters throughout the world have focused attention on safety concerns relating to the structural integrity of homes and other buildings. The 1995 earthquake in Kobe, Japan, the 1994 earthquake in Northridge, California, the 1989 Loma Prieta earthquake in Northern California, Hurricanes Hugo in 1989 and Andrew in 1992 in the Southeast, and other less cataclysmic natural disasters damaged and destroyed innumerable homes and other buildings, resulting in heightened consciousness of the fragility of some of those structures. In recent years, architects, engineers, model code agencies, contractors, building inspectors and legislators have continued efforts to improve structural integrity and safety of homes and other buildings in the face of disasters of various types, including seismic events, storms and fires. Based on ongoing participation in trade and professional associations and communications with governmental and quasi-governmental regulatory agencies, the Company believes that building codes, such as the 1997 Uniform Building Code, have been strengthened and that their enforcement is becoming more rigorous. Recently, there has been consolidation among several of the Company's customer groups. The industry is also experiencing increased complexity in home design and builders are more aggressively trying to reduce their costs. The Company is responding to these trends by marketing its products as systems solutions rather than as individual parts. In some cases, systems marketing is facilitated by the use of sophisticated design and specification software. The requirements of the Endangered Species Act, the Federal Lands Policy Management Act and the National Forest Management Act have resulted in increasingly limited amounts of timber available for harvest from public lands. Over the past several years, this and other factors, have led to the increased use of engineered wood products. Engineered wood products, which substitute for strong, clear-grained lumber historically obtained from logging older, large-diameter trees, have been developed to conserve lumber. Engineered wood products frequently require specialized connectors. Sales of Simpson Strong-Tie's engineered wood connector products increased significantly over the past several years. Concerns about energy conservation and air quality have led to increasing recognition of the advantages of natural gas as a heating fuel, including its clean burning characteristics. Use of natural gas for home heating has been increasing in the United States over a number of years, until recently. According to the U.S. Census Bureau, the share of residential space heating in 1997 heated with natural gas was 70%, an increase from 61% in 1978. In the hearth appliance market, sales of gas stoves and gas fireplaces have increased in recent years relative to those of traditional wood burning appliances. According to the Hearth Products Association, the share of hearth appliances fired with natural gas in 1999 was 55%, an increase from 43% in 1994, but a decrease from 58% in 1998. Consistent with this trend, sales of Simpson Dura-Vent's direct vent products decreased in 2000. Conversely, in 1999 and 2000, sales of wood burning stoves and fireplaces increased significantly. According to the Hearth Products Association sales of these appliances increased 22% in 1999 compared to 1998. In the year 2000, increases in the cost of home heating oil, natural gas, and electricity resulted in a further increase in demand for wood burning appliances and pellet stoves. According to Hearth & Home Magazine (March 2001), sales of wood stoves in 2000 increased 4% over 1999 sales, while sales of pellet stoves in 2000 increased 32% over 1999. SDV's DuraTech chimney system and its pellet vent products are intended to capitalize on this trend towards wood burning and pellet stoves. The Company has developed its distribution through home centers throughout the United States. The Company's sales to home centers increased significantly in 1999 and 2000. See "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations." BUSINESS STRATEGY The Company designs, manufactures and sells products that are of high quality and performance, easy to use and cost-effective for customers. The Company provides rapid delivery of its products and prompt engineering and sales support. Based on its communications with customers, engineers, architects, contractors and other industry -3- 4 participants, the Company believes that its products have strong brand name recognition, and the Company seeks to continue to develop the value of its brand names through a variety of customer-driven strategies. Information provided by customers has led to the development of many of the Company's products, and the Company expects that customer needs will continue to shape the Company's product development, marketing and services. Specification in architects' and engineers' plans and drawings influences which products will be used for particular purposes and therefore is key to the use of the Company's products in construction projects. The Company encourages architects and engineers to specify the installation of the Company's products in projects they design and supervise, and encourages acceptance of the Company's products by construction contractors. The Company maintains frequent contacts with architects, engineers and contractors, as well as private organizations that provide information to building code officials, both to inform them regarding the quality, proper installation, capabilities and value of the Company's products and to update them about product modifications and new products that may be useful or needed. The Company sponsors seminars to inform architects, engineers and building officials on appropriate use and proper installation of the Company's products. The Company seeks to expand its product and distribution coverage through several channels: Distributors. The Company regularly evaluates its distribution coverage and service levels provided by its distributors and from time to time modifies its distribution strategy and implements changes to address weaknesses and opportunities. The Company has various programs to evaluate distributor product mix and conducts promotions to encourage distributors to add Company products that complement their mix of product offerings in their markets. Through its efforts to increase specifications by architects and engineers, and through increasing the number of products sold to particular contractors, the Company seeks to increase sales to channels that serve building contractors. The Company continuously seeks to expand the number of contractors served by each distributor through such sales efforts as demonstrations of product cost-effectiveness and information programs. Home Centers. The Company intends to continue to increase penetration of the DIY markets by solicitation of home centers. The Company's Sales Representatives and Retail Specialists maintain on-going contact with home centers to provide timely product availability and product knowledge training. To satisfy specialized requirements of the home center market, the Company has developed extensive bar coding and merchandising aids and has concentrated a portion of its research efforts on the development of DIY products. OEM Relationships. The Company works closely with manufacturers of engineered wood products and OEMs in developing and expanding the application and sales of Simpson Strong-Tie's engineered wood connector products and Simpson Dura-Vent's gas, wood and pellet stove venting products. SST has relationships with several of the largest manufacturers of engineered wood products, and SDV has OEM relationships with several major gas fireplace and gas stove manufacturers. The Company is expanding its established facilities outside California to increase its presence and sales in markets east of the Rocky Mountains. During the last five years, the Company has expanded or has plans to expand nearly all of its manufacturing and warehouse facilities. As a result of the high sales growth in California in 1999 and 2000, sales in the 37 states east of the Rocky Mountains, while continuing to grow, have declined as a percentage of domestic sales from approximately 48% in 1998 to approximately 44% in 2000. Since 1993, the Company commenced manufacturing in England, opened warehouse and distribution facilities in Western Canada and the Northeastern United States, purchased anchor products manufacturers in Illinois and Eastern Canada and a connector product manufacturer in France, established distribution operations in Chile and Argentina, made an equity investment in a product design and distribution company in Germany and entered into distribution arrangements in Japan and Australia. More recently, the Company acquired a connector manufacturer in Denmark with distribution in northern, central and eastern Europe. The European investments are intended to establish a presence in the European Community through companies with existing customer bases and through servicing U.S.-based customers operating there. The Company intends to continue to pursue and expand operations outside the United States. The Company's goal is to manufacture and warehouse its products in geographic proximity to its markets to provide availability and rapid delivery of products to customers and prompt response to customer requests for specially designed products and services. With respect to the DIY and dealer markets, the Company's strategy is to keep the customer's retail stores continuously stocked with adequate supplies of the full line of the Company's products that -4- 5 those stores carry. The Company manages its inventory to assure continuous product availability. Most customer orders are filled within a few days. High levels of manufacturing automation and flexibility allow the Company to maintain its quality standards while continuing to provide prompt delivery. The Company's product research and development is based largely on needs that customers communicate to the Company. The Company typically has developed 10 to 20 new products annually (some of which may be produced in a range of sizes). The Company's strategy is to develop new products on a proprietary basis where possible. Of 112 patents that the Company owns, 82 cover products that the Company currently manufactures and markets. The Company has filed 60 patent applications that are pending. Some of these applications cover the same product in more than one jurisdiction. The Company's long-term strategy is to develop, acquire or invest in product lines or businesses that (a) complement the Company's existing product lines, (b) can be marketed through its existing distribution channels, (c) might benefit from use of the Simpson Strong-Tie and Simpson Dura-Vent brand names, (d) are responsive to needs of the Company's customers and (e) expand its markets geographically. SIMPSON STRONG-TIE Overview Connectors produced by Simpson Strong-Tie typically are steel devices that are used to strengthen, support and connect joints in residential and commercial construction and DIY projects. These products enhance the safety and durability of the structures in which they are installed and can save time and labor costs for the contractor. SST's connector products increase structural integrity and improve structural resistance to seismic, wind and other forces. Applications range from building framing to deck construction to DIY projects. SST produces and markets over 5,000 standard and custom products. In the United States, connector usage developed faster in the West than elsewhere due to the low cost and abundance of timber and to local construction practices. Increasingly, the market has been influenced both by a growing awareness that the devastation caused by seismic, wind and other disasters can be reduced through improved building codes and construction practices and by environmental concerns that contribute to the increasing cost and reduced availability of wood. Most Simpson Strong-Tie products are listed by recognized building standards agencies as complying with model building codes and are specified by architects and engineers for use in projects they are designing or supervising. The engineered wood products industry is developing in response to concerns about the availability of wood, and the Company believes that SST is the leading supplier of connectors for use with engineered wood products. Products Simpson Strong-Tie is a recognized brand name in the markets it serves. SST manufactures and markets products that strengthen the three types of connections found in light construction: wood-to-wood, wood-to-concrete and wood-to-masonry. The Company's products are installed on the continuous load path from the foundation to the roof system. SST also markets specialty screws and nails for proper installation of certain of its connector products. These products have seismic, retrofit and remodeling applications for both new construction and DIY markets. SST also offers a full line of adhesives, mechanical anchors and powder actuated tools for numerous anchoring applications in concrete, masonry and steel. Almost all of Simpson Strong-Tie's products are listed by recognized model building code agencies. To achieve such listings, SST conducts extensive product testing, which is witnessed and certified by independent testing engineers. The tests also provide the basis for publication of load ratings for SST structural connectors, and this information is used by architects, engineers, contractors and homeowners. The information is useful across the range of applications of SST's products, from the deck constructed by a homeowner to a multi-story structure designed by an architect or engineer in an earthquake zone. Simpson Strong-Tie also manufactures connector products specifically designed for use with engineered wood products, such as wood I-joists. With increased timber costs and reduced availability of trees suitable for making traditional solid sawn lumber, construction with engineered wood products has increased substantially in the last several years. Over the same period, SST's net sales of engineered wood connectors through dealer and contractor distributors and engineered wood product manufacturers have also increased significantly. -5- 6 New Product Development Simpson Strong-Tie commits substantial resources to engineering and new product development. The majority of SST's products have been developed through SST's internal research and development program. Of the 71 U.S. and 28 foreign patents that SST owns, 79 cover products that SST currently manufactures and markets. Over a quarter of SST's 2000 revenues were derived from products that are protected by patents. SST typically has developed 10 to 20 new products each year. SST's research and development expense for the three years ended December 31, 2000, 1999 and 1998, was $1,771,000, $1,376,000 and $1,087,000, respectively. As part of the new product development process, SST engineers, in cooperation with sales and marketing staff, meet regularly with architects, engineers, building inspectors, code officials and customers. Several new products derived from existing product lines are developed annually. SST recently developed and introduced a pre-fabricated shear-wall product for the new construction market and has expanded its line of chemical and mechanical Anchor products. The Company believes that existing distribution channels are receptive to product line extensions, thereby enhancing SST's ability to enter new markets. Sales and Marketing Simpson Strong-Tie's sales and marketing programs are implemented through SST's branch system. SST currently maintains branches in Northern and Southern California, Texas, Ohio, Canada, England, France and Denmark. Each branch is served by its own sales force, as well as manufacturing, warehouse and office facilities. Each branch is responsible for a broad geographic area. Branch managers have significant autonomy in managing their operations. Each is responsible for setting and executing sales and marketing strategies that are consistent with the markets that the branch serves and the goals of the Company. Each domestic branch is an independent profit center with a cash profit sharing bonus program based on its own performance. At the same time, the domestic branches closely integrate their manufacturing activities to enhance product availability. Branch sales forces in the U.S. are supported by marketing managers in the home office in Dublin, California. The sales force maintains close working relationships with customers, develops new business, calls on architects, engineers and building officials and participates in a range of educational seminars. Simpson Strong-Tie sells its products through an extensive distribution system comprising dealer distributors supplying thousands of retail locations nationwide, contractor distributors, home centers, manufacturers of engineered wood products, and specialized contractors such as roof framers. In 2000, sales to The Home Depot were more than 10% of the Company's consolidated net sales (see Note 14 to the Company's consolidated financial statements). SST's DIY and dealer products are used to build projects such as decks, patio covers and shelf and bench systems. SST received C-Mark equivalency clearance from the Japanese building code authorities, which is expected to facilitate acceptance of its products in the Japanese market, and has increased the distribution of its products in Australia, Chile and Argentina. The Company believes that SST's increasing diversification into new and growing markets has reduced its vulnerability to construction industry cycles. Simpson Strong-Tie dedicates substantial resources to customer service. SST produces numerous publications and point-of-sale marketing aids to serve specifiers, distributors, retailers and users for the various markets that it serves. These publications include general catalogs, as well as various specific catalogs, such as those for its Anchor System products and the engineered wood and plated truss industries. The catalogs and publications describe the products and provide load and installation information. SST also maintains several websites, all of which are linked to www.strongtie.com, and include catalogs, product and technical information, code reports and other general information related to SST's product lines and promotional programs. Simpson Strong-Tie's engineers not only design and test products, but also provide engineering support for customers. This support might range from the discussion of a load value in a catalog to testing a unique application for an existing product. SST's sales force communicates with customers in each of its marketing channels, through its publications, seminars and frequent calls. Based on its communications with customers, Simpson Strong-Tie believes that its products are essential to its customers' businesses, and it is SST's policy to ship products ordered within a few days of receiving the order. Many of SST's customers serve contractors that require rapid delivery of needed products. Home centers and dealers also require superior service, because of fluctuating demand. To satisfy these requirements, SST maintains high inventory levels, has redundant manufacturing capability and some multiple dies to produce the same parts. SST also maintains computer sales and inventory control and forecasting capability throughout its nationwide -6- 7 network of factories and warehouses. SST also has special programs for contractors intended to ensure the prompt and reliable manufacture and delivery of custom products. Simpson Strong-Tie believes that dealer and home center sales of SST products are significantly greater when the bins and racks at large dealer and home center locations are adequately stocked with appropriate products. Various retailers carry varying numbers of different SST products, and SST's Retail Specialists are engaged in ongoing efforts to inform retailers about other SST products that can be used in their specific markets and to encourage them to add these products to better meet their customers' needs. Achieving these objectives requires teamwork and significant inventory commitments between SST and the distributors and retailers. Retail Specialists are playing a significant role in keeping the racks full and extending the product lines at the large dealer and home center level. They help retailers order product, set up merchandising systems, stock shelves, hold product seminars and provide SST with daily information that is used to improve service and product mix. SIMPSON DURA-VENT Overview Simpson Dura-Vent's venting systems are used to vent gas furnaces and water heaters, gas fireplaces and stoves, wood burning stoves and pellet stoves. SDV's metal vents, chimneys and chimney liner systems exhaust the products of combustion to the exterior of the building and have been designed for ease of assembly and safe operation and to achieve a high level of performance. SDV produces and markets nearly 2,400 different venting products. The clean burning characteristics of natural gas have gained public recognition, resulting in increased market share for gas appliances in the new construction and the appliance replacement markets. As a result, Simpson Dura-Vent has developed venting systems, such as Direct-Vent, to address changes in appliance technology. Recently, increases in the cost of natural gas have affected demand for gas appliances and have increased demand for alternative energy sources. Historically, sales of wood burning stoves, considered an alternative energy source, have increased during these periods of high oil prices and energy shortages. SDV manufactures venting systems for use with wood burning stoves as well as other types of appliances. Simpson Dura-Vent's objective is to expand market share in all of its distribution channels, by entering expanding markets that address energy and environmental concerns. SDV's strategy is to capitalize on its strengths in new product development and its established distribution network and to continue its commitment to high quality and service. SDV operates manufacturing and warehouse facilities in California and Mississippi. Products Simpson Dura-Vent is a leading supplier of double-wall Type B Gas Vent systems, used for venting gas furnaces, water heaters, boilers and decorative gas fireplaces. SDV's Type B Gas Vent product line features heavy-duty quality construction and a twist-lock design that provides for fast and easy job-site assembly compared to conventional snap together designs. The twist-lock design has broader applications and has been incorporated into SDV's gas, pellet and direct vent product lines. SDV also markets a patented flexible vent connector, Dura/Connect, for use between the gas appliance flue outlet and the connection to the Type B Gas Vent installed in the ceiling. Dura/Connect offers a simple twist, bend and connect installation for water heaters and gas furnaces. Recent increases in the price of natural gas, home heating oil, and electricity have resulted in increases in sales of wood burning appliances. Simpson Dura-Vent's DuraTech and Dura/Plus chimney systems are intended to capitalize on these recent energy trends. In addition, due in part to increases in the cost of energy, sales of pellet stoves in 2000 increased 32% over 1999. SDV experienced a substantial increase in demand for its pellet vent products in 2000. The growing gas fireplace market has evolved into two basic types of fireplace: top-vent fireplaces that are vented with the standard Type B Gas Vent and direct-vent fireplaces that use a special double-wall venting system. SDV's direct-vent system is designed not only to exhaust the flue products, but also to draw in outside air for combustion, an important feature in modern energy-efficient home construction. The direct-vent gas fireplace systems provide ease of installation, permitting horizontal through-the-wall venting or standard vertical through-the-roof venting. SDV has established relationships with several large manufacturers of gas stoves and gas fireplaces to supply direct-vent venting products. In 1996, SDV expanded its direct-vent product line to include both co-axial and co-linear direct vent systems for venting gas stoves and gas inserts into existing masonry chimneys or existing factory-built metal chimneys. -7- 8 New Product Development Simpson Dura-Vent has gained industry recognition by offering innovative new products that meet changing needs of customers. SDV representatives serve on industry committees concerned with issues such as new appliance standards and government regulations. SDV's research and development expense for the three years ended December 31, 2000, 1999 and 1998, was $455,000, $433,000 and $431,000, respectively. SDV also maintains working relationships with research and development departments of major appliance manufacturers, providing prototypes for field testing and conducting tests in SDV's testing laboratory. SDV believes that such relationships provide competitive advantages. For example, SDV introduced the first direct vent system for direct vent gas appliances. In 1999, SDV introduced DuraTech, a twin-walled insulated chimney system for use on wood burning stoves, fireplaces and oil fired appliances. This product line has been designed and manufactured to a new standard of excellence. It is constructed from stainless steel and incorporates blanket insulation for enhanced safety and efficiency. Sales and Marketing Simpson Dura-Vent's sales organization consists of a director of sales and marketing, a marketing communications manager, regional sales managers, and independent representative agencies. SDV markets venting systems for both gas and wood burning appliances through wholesale distributors in the United States, Canada and Australia to the HVAC (heating, ventilating and air conditioning) and PHC (plumbing, heating and cooling) contractor markets, and to fireplace specialty shop distributors. These customers sell to contractor and DIY markets. SDV also markets venting products to home center and hardware store chains. SDV has established OEM relationships with several major gas fireplace and gas stove manufacturers, which SDV believes are leaders in the direct-vent gas appliance market. Simpson Dura-Vent responds to technological changes occurring in the industry through new product development and has developed a reputation for quality and service to its customers. To reinforce the image of quality, SDV produces extensive sales support literature and advertising materials. Recognizing the difficulty that customers and users may have in understanding new, complex venting requirements, SDV publishes a venting handbook to assist contractors, building officials and retail outlets with the science of proper venting. Advertising and promotional literature has been designed to be used by distributors and their customers, as well as home centers and hardware chains. To enhance its marketing effort, SDV has developed a website (www.duravent.com) that includes product descriptions, catalogs and installation instructions, as well as a direct link to SDV's customer service and engineering departments. MANUFACTURING PROCESS The Company has concentrated on making its manufacturing processes as efficient as possible without compromising quality or flexibility necessary to serve the needs of its customers. The Company has developed and uses automated manufacturing processes. The Company's innovative manufacturing systems and techniques have allowed it to control manufacturing costs, even while developing both new products and products that meet customized requirements and specifications. The Company's development of specialized manufacturing processes also has permitted increased operating flexibility and enhanced product design innovation. The Company is committed to helping people build safer structures economically through the design, engineering and manufacturing of structural connector and related products. To this end, the Company has developed a quality management system that employs numerous quality-control procedures, such as computer-generated work orders, constant review of parts as they are produced and frequent quality testing. Since 1996, Simpson Strong-Tie's quality management system has been registered under ISO 9001, an internationally recognized set of quality-assurance standards. The Company believes that ISO registration is becoming increasingly important to U.S. companies. Simpson Strong-Tie operates manufacturing and warehouse facilities in California, Texas, Ohio, Florida, Connecticut, Illinois, Washington, Indiana, British Columbia, Ontario, England, France, Denmark and Poland. SST -8- 9 also stocks products in Chile and Argentina. Most of SST's products are produced with a high level of automation, using progressive dies run in automatic presses making parts from coiled sheet steel often in excess of 100 strokes per minute. SST produces over 500 million product pieces per year. Over half of SST's products (SKUs) are bar coded with a UPC number for easy identification, and nearly all of the products sold to home centers are labeled with bar codes. SST has significant press capacity and has some multiple dies for its high volume products because of the need to produce the product close to the customer and to provide backup capacity. The balance of production is accomplished through a combination of manual, blanking and numerically controlled (NC) processes which include robotic welders, lasers and turret punches. This capability allows SST to produce products with little redesign or set-up time, facilitating rapid turnaround for customers. New tooling is also highly automated. Dies are designed and produced using computer aided design (CAD) and computer aided machining (CAM) systems. CAD/CAM capability enables SST to create multiple dies rapidly and design them to high standards. The Company is constantly reviewing its product line to reduce manufacturing costs, increase automation, and take advantage of new types of materials. For example, SST recently introduced two new products made from an engineered composite plastic, the AnchorMate and the StrapMate. Simpson Dura-Vent operates manufacturing and warehouse facilities in California and Mississippi. SDV produces component parts for venting systems using NC-controlled punch presses equipped with high-speed progressive and compound tooling. SDV's vent pipe and elbow assembly lines are automated, to produce finished products efficiently from large coils of steel and aluminum. UPC bar coding and computer tracking systems provide SDV's industrial engineers and production supervisors with real-time productivity tools to measure and evaluate current production rates, methods and equipment. Most of the Company's current and planned manufacturing facilities are located in geographic regions that have experienced major natural disasters, such as earthquakes, floods and hurricanes. For example, the 1989 Loma Prieta earthquake in Northern California destroyed a freeway and caused other major damage within a few miles of the Company's facilities in San Leandro, California, and the earthquakes in Northridge, California, in January 1994, destroyed several freeways and numerous buildings in the region in which the Company's facilities in Brea are located. The Company has developed a disaster recovery plan, but it does not carry earthquake insurance. Other insurance that it carries is limited and not likely to be adequate to cover all of the Company's resulting costs, business interruption and lost profits in the event of a major natural disaster in the future. If a natural disaster were to render one or more of the Company's manufacturing facilities totally or partially unusable, whether or not covered by insurance, the Company's business and financial condition could be materially and adversely affected. REGULATION The design, capacity and quality of most of the Company's products and manufacturing processes are subject to numerous and extensive regulations and standards promulgated by governmental, quasi-governmental and industry organizations. Such regulations and standards are highly technical and complex and are subject to frequent revision. The failure of the Company's products or manufacturing processes to comply with any of such regulations and standards could impair the Company's ability to manufacture and market its products profitably and could materially and adversely affect the Company's business and financial condition. Simpson Strong-Tie's product lines are subject to Federal, state, county, municipal and other governmental and quasi-governmental regulations that affect product design, development, testing, applications, marketing, sales, installation and use. Most SST products are recognized by building code and standards agencies. Agencies that recognize Company products include the International Conference of Building Officials ("ICBO"), Building Officials and Code Administrators International ("BOCA"), Southern Building Code Congress International ("SBCCI"), The National Evaluation Service, the City of Los Angeles, Dade County, Florida, and the California Division of Architecture. These and other code agencies adopt various testing and design standards and incorporate them into their related building codes. For example, ICBO requirements are codified in the Uniform Building Code. The Uniform Building Code generally applies to construction in the Western United States. To be recognized by ICBO, SST products must conform to Uniform Building Code requirements. SST considers this recognition to be a significant marketing tool and devotes considerable effort to obtaining and maintaining appropriate approvals for its products. SST believes that architects, engineers, contractors and other customers are less likely to purchase structural products that lack the appropriate code approval or acceptance if code-accepted competitive products are available. SST's management actively participates in industry related professional associations to keep abreast of regulatory changes and to provide information to regulatory agencies. -9- 10 Simpson Dura-Vent operates under a complex regulatory environment that includes appliance and venting performance standards related to safety, energy efficiency and air quality. Gas venting regulations are contained in the National Fuel Gas Code ("NFGC"), while safety and performance regulations for wood burning appliances and chimney systems are contained in a National Fire Protection Association standard ("NFPA 211"). Standards for testing gas vents and chimneys are developed by testing laboratories such as Underwriter's Laboratories ("UL") in compliance with the American National Standards Institute. Clean air standards for both gas and wood burning appliances are regulated by the Environmental Protection Agency ("EPA"). Energy efficiency standards are regulated by the Department of Energy ("DOE") under the authority of the National Appliance Energy Conservation Act. Under this act, the DOE periodically reviews the necessity for increased efficiency standards with respect to gas furnaces and gas water heaters. A substantial percentage of SDV's Type B Gas Vent sales are for gas furnaces and gas water heaters. Minimum appliance efficiency standards might be adopted that could negatively affect sales of Type B Gas Vents, which could materially and adversely affect the Company's operating results and financial condition. The standards and regulations contained in the NFGC and NFPA 211 are ultimately adopted by national building code organizations such as ICBO, BOCA and SBCCI. In turn, the various building codes are adopted by local municipalities, resulting in enforcement through the building permit process. Safety, air quality and energy efficiency requirements are enforced by local air quality districts and municipalities by requiring proper UL, EPA and DOE labels on appliances and venting systems. COMPETITION The Company faces a variety of competition in all of the markets in which it participates. This competition ranges from subsidiaries of large national or international corporations to small regional manufacturers. While price is an important factor, the Company competes primarily on the basis of quality, breadth of product line, technical support, service, field support and product innovation. As a result of differences in structural design and building practices and codes, Simpson Strong-Tie's markets tend to differ by region. Within these regions, SST competes with companies of varying size, several of which also distribute their products nationally. The venting industry is highly competitive. Many of Simpson Dura-Vent's competitors have greater financial and other resources than SDV. SDV's principal competitors include the Selkirk Metalbestos Division of Eljer Industries Inc. (a subsidiary of U.S. Industries, Inc.), American Metal Products Co. (a subsidiary of Masco Corp.), Metal-Fab, Inc., Hart & Cooley, Inc. and the Air Jet Division of General Products Co. The Company believes that Metal-Fab, Inc., Hart & Cooley, Inc. and Air Jet tend to be more regional than SDV, and that they have smaller shares of the national market than SDV. RAW MATERIALS The principal raw material used by the Company is steel, including stainless steel, and is generally ordered to specific American Society of Testing and Materials ("ASTM") standards. Other raw materials include aluminum, aluminum alloys and ceramic and other insulation materials, which are used by Simpson Dura-Vent, and cartons, which are used by both SST and SDV. The Company purchases raw materials from a variety of commercial sources. The Company's practice is to seek cost savings and enhanced quality by purchasing from a limited number of suppliers. The steel industry is highly cyclical and prices for the Company's raw materials are influenced by numerous factors beyond the Company's control, including general economic conditions, competition, labor costs, import duties and other trade restrictions. The Company historically has not attempted to hedge against changes in prices of steel or other raw materials. The Company might not be able to increase its product prices in amounts that correspond to increases in raw materials prices without materially and adversely affecting its sales and profits. See "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations." PATENTS AND PROPRIETARY RIGHTS The Company's subsidiaries own 112 U.S. and foreign patents, of which 82 cover products that they currently manufacture and market. Its subsidiaries have filed 21 U.S. and 39 foreign patent applications that are currently pending. These patents and patent applications cover various design aspects of the subsidiaries' products, as well as processes used in their manufacture. The Company's subsidiaries are continuing to develop new potentially patentable products, product enhancements and product designs. Although the Company's subsidiaries do not intend -10- 11 to apply for additional foreign patents covering existing products, the Company has developed an international patent program to protect new products that its subsidiaries may develop. The Company's subsidiaries hold 165 trademark registrations in the U.S. and foreign countries covering 51 trademarks, have 59 trademark registration applications pending in the U.S. and foreign countries covering 20 trademarks, and use several other trademarks that they have not yet attempted to register. The Company's ability to compete effectively with other companies depends in part on its ability to maintain the proprietary nature of its technology. There can be no assurance, however, as to the degree of protection afforded by these patents or the likelihood that patents will issue pursuant to pending patent applications. Furthermore, there can be no assurance that others will not independently develop the same or similar technology, develop around the patented aspects of any of the Company's products or proposed products, or otherwise obtain access to the Company's proprietary technology. In addition to seeking patent protection, the Company also relies on unpatented proprietary technology to maintain its competitive position. Nevertheless, there can be no assurance that the Company will be able to protect its know-how or other proprietary information. In attempting to protect its proprietary information, the Company expects that it may sometimes be necessary to initiate lawsuits against competitors and others that the Company believes have infringed or are infringing the Company's rights. In such an event, the defendant may assert counterclaims to complicate or delay the litigation or for other reasons. If the Company were to be unable to maintain the proprietary nature of its significant products, the Company's business and financial condition could be materially and adversely affected. ACQUISITIONS AND EXPANSION INTO NEW MARKETS The Company's future growth, if any, may depend to some extent on its ability to penetrate new markets, both domestically and internationally. See "Industry and Market Trends" and "Business Strategy." Therefore, the Company may in the future pursue acquisitions of product lines or businesses. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations and products of the acquired companies, the diversion of management's attention from other business concerns, risks of entering markets in which the Company has little or no direct prior experience, and the potential loss of key employees of the acquired company. In addition, future acquisitions by the Company may result in potentially dilutive issuances of equity securities, the incurring of additional debt, and amortization expenses related to goodwill and intangible assets, all of which could adversely affect the Company's profitability. If an acquisition occurs, no assurance can be given as to its effect on the Company's business or operating results. See "Item 7 -Management's Discussion and Analysis of Financial Condition and Results of Operations." Construction customs, standards, techniques and methods in international markets differ from those in the United States. Laws and regulations applicable in new markets for the Company are likely to be unfamiliar to the Company and compliance may be substantially more costly than the Company anticipates. As a result, it may become necessary for the Company to redesign products or to invent or design new products in order to compete effectively and profitably outside the United States or in markets that are new to the Company in the United States. The Company expects that significant time will be required for it to generate substantial sales or profits in new markets. Other significant challenges to conducting business in foreign countries include, among other factors, local acceptance of the Company's products, political instability, currency controls, changes in import and export regulations, changes in tariff and freight rates, and fluctuations in foreign exchange rates. There can be no assurance that the Company will be able to penetrate these markets or that any such market penetration can be achieved on a timely basis or profitably. If the Company is not successful in penetrating these markets within a reasonable time, it will be unable to recoup part or all of the significant investments it will have made in attempting to do so. See "Business Strategy" and "Industry and Market Trends." In July 2000, Simpson Strong-Tie purchased the assets of Anchor Tiedown Systems, Inc. ("ATS"). ATS manufactures and distributes the MBR product line used to anchor multi-story buildings with a threaded rod hold down system. The purchase price was approximately $4.6 million in cash. In December 2000, SST purchased the assets of Masterset Fastening Systems, Inc. ("Masterset") for approximately $2.3 million in cash plus an earnout of up to $0.3 million. Masterset sells a system of specially designed powder actuated fasteners and installation tools. In -11- 12 January 2001, Simpson Strong-Tie International, Inc. ("SSTI"), a subsidiary of the Company, acquired 100% of the shares of BMF Bygningsbeslag A/S ("BMF") of Denmark for $12.8 million in cash with an additional amount of approximately $2.6 million possible based on operating performance. BMF manufactures and distributes connector products in northern and central Europe. In the third quarter of 1999, SSTI purchased the assets of Furfix Products Limited and Easy Arches Limited (together, "Furfix"), which manufacture a line of structural connectors for the wood and masonry construction markets in the United Kingdom and Europe. The purchase price was approximately $7.8 million in cash plus an earnout based on future operating performance. Included in the purchase price were costs associated with the closure of Furfix's existing facility and integration into SSTI's facility in Tamworth, England. See "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Sources of Capital." SEASONALITY AND CYCLICALITY The Company's sales are seasonal, with operating results varying from quarter to quarter. With some exceptions, the Company's sales and income have historically been lower in the first and fourth quarters and higher in the second and third quarters of the year, as retailers and contractors purchase construction materials in the late spring and summer months for the construction season. In addition, demand for the Company's products and the Company's results of operations are significantly affected by weather conditions, such as unseasonably warm, cold or wet weather, which affect, and sometimes delay or accelerate, installation of certain of the Company's products. Political and economic events can also affect the Company's revenues. The Company has little control over the timing of customer purchases, and sales anticipated in one quarter may occur in another quarter, thereby affecting both quarters' results. In addition, the Company incurs significant expenses as it develops, produces and markets its products in anticipation of future orders. Products typically are shipped as orders are received, and accordingly the Company operates with little backlog. As a result, net sales in any quarter generally depend on orders booked and shipped in that quarter. A significant portion of the Company's operating expenses are fixed, and planned expenditures are based primarily on sales forecasts. If sales fall below the Company's expectations, operating results would be adversely affected for the relevant quarters, as expenses based on those expectations will already have been incurred. See "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's principal markets are in the building construction industry. That industry is subject to significant volatility as a result of fluctuations in interest rates, the availability of credit to builders and developers, inflation rates, weather and other factors and trends, none of which is within the Company's control. Declines in commercial and residential construction may be expected to reduce the demand for the Company's products. The Company cannot provide any assurance that its business will not be adversely affected by future negative economic or construction industry performance or that future declines in construction activity or the demand for the Company's products will not have material adverse effects on the Company and its business and financial condition. See "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations." PRODUCT LIABILITY The Company designs and manufactures most of its standard products and expects that it will continue to do so. The Company employs engineers and designers to design and test its products under development. In addition, the Company maintains a quality control system. The Company has on occasion found manufacturing flaws in its products. In addition, the Company purchases from third party suppliers raw materials, principally steel, and finished goods that are produced and processed by other manufacturers. The Company also has on occasion found flaws in raw materials and finished goods produced by others, some of which flaws have not been apparent until after the products were installed by customers. Many of the Company's products are integral to the structural soundness or fire safety of the buildings in which they are used. As a result, if any flaws exist in the Company's products (as a result of design, raw material or manufacturing flaws) and such flaws are not discovered and corrected before the Company's products are incorporated into structures, the structures could suffer severe damage (such as collapse or fire) and personal injury could result. To the extent that such damage or injury is not covered by the Company's product liability insurance, and if the Company were to be found to have been negligent or otherwise culpable, the Company and its business and financial condition could be materially and adversely affected by the necessity to correct such damage and to compensate persons who might have suffered injury. Furthermore, in the event that a flaw is discovered after installation but before any damage or injury occurs, it may be necessary for the Company to recall products, and the Company may be liable for any costs necessary to retrofit the affected structures. Any such recall or retrofit could entail substantial costs and adversely affect the Company's reputation, sales and financial condition. The Company does not carry insurance against recall costs, and its product liability insurance may not cover retrofit costs. No assurance can be given that claims will not be made against the Company with regard to damage or destruction of structures incorporating Company products resulting from a natural disaster. Any such claims, if asserted, could materially and adversely affect the Company. -12- 13 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS The Company is subject to environmental laws and regulations governing emissions into the air, discharges into water, and generation, handling, storage, transportation, treatment and disposal of waste materials. The Company is also subject to other Federal and state laws and regulations regarding health and safety matters. The Company's manufacturing operations involve the use of solvents, chemicals, oils and other materials that are regarded as hazardous or toxic and the use of complex and heavy machinery and equipment that can pose severe safety hazards (especially if not properly and carefully used). Some of the Company's products also incorporate materials that are hazardous or toxic in some forms (such as zinc and lead, which are used in some steel galvanizing processes) or explosive (such as the powder used in its powder actuated tools). The Company believes that it has obtained all material licenses and permits required by environmental, health and safety laws and regulations in connection with the Company's operations and that its policies and procedures comply in all material respects with existing environmental, health and safety laws and regulations. It is possible that additional licenses or permits may be required, that the Company's policies and procedures might not comply in all respects with all such laws and regulations or, even if they do, that employees might fail or neglect to follow them in all respects, and that the Company's generation, handling, use, storage, transportation, treatment or disposal of hazardous or toxic materials, machinery and equipment might cause injury to persons or to the environment. In addition, properties occupied by the Company may be contaminated by hazardous or toxic substances and remedial action may be required at some time in the future. It is also possible that materials in certain of the Company's products could cause injury or sickness. Relevant laws and regulations could also be changed or new ones could be adopted that require the Company to obtain additional licenses and permits and cause the Company to incur substantial expense. Any such event or contamination could have a material adverse effect on the Company and its liquidity, results of operations and financial condition. See "Regulation." EMPLOYEES AND LABOR RELATIONS As of March 1, 2001, the Company had 1,892 full-time employees, of whom 1,276 were hourly employees and 616 were salaried employees. The Company believes that its overall compensation and benefits for the most part exceed industry averages and that its relations with its employees are good. The Company is dependent on certain key management and technical personnel, including Thomas J Fitzmyers, Michael J. Herbert, Stephen B. Lamson, Barclay Simpson and Donald M. Townsend. The loss of one or more key employees could have a material adverse effect on the Company. The Company's success will also depend on its ability to attract and retain additional highly qualified technical, marketing and management personnel necessary for the maintenance and expansion of the Company's activities. The Company faces strong competition for such personnel and there can be no assurance that the Company will be able to attract or retain such personnel. A significant number of the Company's employees at two of the Company's major manufacturing facilities are represented by labor unions and are covered by collective bargaining agreements. Two of the Company's collective bargaining agreements cover the Company's sheetmetal workers and its tool and die craftsmen in Brea. These two contracts expire in June 2001 and February 2002, respectively. Two other contracts, covering tool and die personnel and sheetmetal workers in San Leandro, expire in June 2003 and July 2003, respectively. A work stoppage or interruption by a significant number of the Company's employees could have a material and adverse effect on the Company and its business and financial condition. -13- 14 ITEM 2. PROPERTIES. Properties The Company maintains its home office in Dublin, California, and other offices, manufacturing and warehouse facilities elsewhere in California and in Texas, Ohio, Florida, Mississippi, Illinois, Connecticut, Indianapolis, Washington, British Columbia, Ontario, England, France, Denmark and Poland. As of March 15, 2001, the Company's facilities were as follows:
APPROXIMATE SQUARE OWNED OR LEASE LOCATION FOOTAGE LEASED LESSEE EXPIRES FUNCTION -------- ------------ -------- ------- ------- -------- Dublin, California 35,400 Leased Company 2007 Office San Leandro, California 47,100 Leased (1) SST 2001 Office, Manufacturing and Warehouse San Leandro, California 71,000 Owned Office, Manufacturing and Warehouse San Leandro, California 57,000 Leased (2) SST 2009 Manufacturing and Warehouse San Leandro, California 48,000 Owned Office and Warehouse San Leandro, California 27,000 Owned Manufacturing and Warehouse San Leandro, California 61,800 Leased SST 2002 Warehouse Brea, California 50,700 Owned Office, Manufacturing and Warehouse Brea, California 78,000 Owned Office and Warehouse Brea, California 30,500 Owned Office, Manufacturing and Warehouse Brea, California 42,900 Owned Warehouse Brea, California 19,200 Owned Warehouse McKinney, Texas 84,300 Owned Office, Manufacturing and Warehouse McKinney, Texas 117,100 Owned Office and Warehouse Columbus, Ohio 153,500 Leased (3) SST 2005 Office, Manufacturing and Warehouse Jacksonville, Florida 74,600 Leased SST 2001 Office and Warehouse Addison, Illinois 52,400 Leased SST 2003 Office, Manufacturing and Warehouse Enfield, Connecticut 55,100 Leased SST 2003 Office and Warehouse Kent, Washington 24,000 Leased SST 2004 Office, Manufacturing and Warehouse Manteca, California 135,700 Leased SST 2005 Office, Manufacturing and Warehouse Visalia, California 50,000 Owned Warehouse Indianapolis, Indiana 19,000 Leased SST 2005 Office, Manufacturing and Warehouse Tamworth, England 78,100 Leased SST (4) 2012 Office, Manufacturing and Warehouse Vacaville, California 125,000 Leased (5) SDV 2007 Office, Manufacturing and Warehouse Vacaville, California 120,300 Owned Office, Manufacturing and Warehouse Vacaville, California 40,200 Leased SDV 2001 Warehouse Fontana, California 17,900 Leased SDV 2001 Warehouse Vicksburg, Mississippi 302,000 Owned Office, Manufacturing and Warehouse
-14- 15
APPROXIMATE SQUARE OWNED OR LEASE LOCATION FOOTAGE LEASED LESSEE EXPIRES FUNCTION -------- ------------ -------- ------- ------- -------- Langley, British Columbia 19,700 Leased SST 2010 Warehouse Toronto, Ontario 104,000 Leased SST (6) 2009 Office, Manufacturing and Warehouse Odder, Denmark 162,500 Owned Office, Manufacturing and Warehouse Warsaw, Poland 5,100 Leased SST (7) 2001 Office and Warehouse St. Hermine, France 11,300 Leased SST (8) 2002 Office, Manufacturing and Warehouse St. Hermine, France 20,900 Leased SST (8) 2001 Office, Manufacturing and Warehouse St. Hermine, France 15,900 Owned Office, Manufacturing and Warehouse St. Gemme La Plaine, France 99,000 Owned (9) Office, Manufacturing and Warehouse
- ------------------- (1) Lessor is Simpson Investment Company, a related party. In February 2001, the Company exercised its option to purchase this property for approximately $1.7 million. The purchase is expected to close in the second quarter of 2001. See Notes 9 and 15 to the Consolidated Financial Statements contained elsewhere herein. (2) Lessor is Doolittle Investors, a related party. In January 2001, the Company amended the lease to extend it to 2009. See Notes 9 and 15 to the Consolidated Financial Statements contained elsewhere herein. (3) Lessor is Columbus Westbelt Investment Company, a related party. See Note 9 to the Consolidated Financial Statements contained elsewhere herein. (4) Lessee is Simpson Strong-Tie International, Inc., a wholly-owned subsidiary of SST. (5) Lessor is Vacaville Investors, a related party. See Note 9 to the Consolidated Financial Statements contained elsewhere herein. (6) Lessee is Simpson Strong-Tie Canada, Ltd., a wholly-owned subsidiary of SST. (7) Lessee is BMF Bygningsbeslag A/S, a wholly-owned subsidiary of SST. (8) Lessee is Simpson Strong-Tie, S.A., a wholly-owned subsidiary of SST. (9) Simpson Strong-Tie, S.A. has commenced construction of a new manufacturing and distribution facility in St. Gemme La Plaine, France, to replace its existing facilities in St. Hermine. The new facility is expected to be completed and occupied in 2001. The Company also owns 63 acres of undeveloped land in McKinney, Texas. The Company has vacated facilities that it leased in Vicksburg, Mississippi, and Vancouver, British Columbia, and is attempting to sublease these facilities. The Lessor of this Vicksburg facility is Vicksburg Investors, a related party. See Note 9 to the Consolidated Financial Statements contained elsewhere herein. The Company's manufacturing facilities are equipped with specialized equipment and use extensive automation. The Company considers its existing and planned facilities to be suitable and adequate for its operations as currently conducted and as planned through 2001. The manufacturing facilities currently are being operated with one full shift and at most plants with at least a partial second or third shift. The Company anticipates that it may require additional facilities to accommodate possible future growth. -15- 16 ITEM 3. LEGAL PROCEEDINGS. From time to time, the Company is involved in litigation that it considers to be in the normal course of its business. No such litigation within the last five years resulted in any material loss. The Company is not engaged in any legal proceedings as of the date hereof, which the Company expects individually or in the aggregate to have a material adverse effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. -16- 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol "SSD." The following table shows the range of high and low closing sale prices per share of the Common Stock as reported by the NYSE for the calendar quarters indicated:
MARKET PRICE -------------------------- QUARTER HIGH LOW ---------- ---------- 2000 Fourth ....................... $ 51.0000 $ 41.7500 Third ........................ 50.8750 44.5625 Second ....................... 53.0000 39.3125 First ........................ 45.6250 38.8750 1999 Fourth ....................... $ 46.8125 $ 39.1875 Third ........................ 54.3750 45.3125 Second ....................... 49.1875 39.1875 First ........................ 40.2500 32.8750
The Company estimates that as of March 1, 2001, 3,158 persons owned shares of the Company's Common Stock either directly or through nominees. The Company currently intends to retain its future earnings, if any, to finance operations and fund internal growth and does not anticipate paying cash dividends on the Company's Common Stock for the foreseeable future. Future dividends, if any, will be determined by the Company's Board of Directors, based on the Company's earnings, cash flow, financial condition and other factors deemed relevant by the Board of Directors. In addition, existing loan agreements require the Company to maintain Tangible Net Worth of $145.1 million plus 50% of net profit after taxes for each fiscal year ending after June 30, 2000. This requirement may limit the amount that the Company may pay out as dividends on the common stock. As of December 31, 2000, the Company had a Tangible Net Worth of $231.1 million. In October 2000, the Board of Directors authorized the Company, for a period of one year, to buy back up to $35 million of the Company's common stock. This replaced the authorization from 1999 when the Board of Directors authorized a buy back of up to $10 million. In the second half of 2000, the Company repurchased 134,280 shares of its common stock at an average price of approximately $43.95 per share. -17- 18 ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected consolidated financial information with respect to the Company for each of the five years ended December 31, 2000, 1999, 1998, 1997 and 1996, derived from the audited Consolidated Financial Statements of the Company, the most recent three years of which appear elsewhere herein. The data presented below should be read in conjunction with the Consolidated Financial Statements and related Notes thereto and "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
(Dollars in thousands, except YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- per share data) 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Net sales $ 369,087 $ 328,440 $ 279,081 $ 246,074 $ 202,409 Cost of sales 227,306 195,839 170,045 149,279 124,394 ----------- ----------- ----------- ----------- ----------- Gross profit 141,781 132,601 109,036 96,795 78,015 Selling expense 37,410 32,204 24,706 23,113 20,104 General and administrative expense 44,634 37,846 33,100 30,358 25,216 ----------- ----------- ----------- ----------- ----------- Income from operations 59,737 62,551 51,230 43,324 32,695 Interest income, net 3,010 1,669 940 429 595 ----------- ----------- ----------- ----------- ----------- Income before income taxes 62,747 64,220 52,170 43,753 33,290 Provision for income taxes 25,639 25,753 21,028 17,767 13,569 Minority interest (1,246) -- -- -- -- ------------ ----------- ----------- ----------- ----------- Net income $ 38,354 $ 38,467 $ 31,142 $ 25,986 $ 19,721 =========== =========== =========== =========== =========== Diluted net income per share of common stock $ 3.12 $ 3.14 $ 2.58 $ 2.17 $ 1.68 =========== =========== =========== =========== ===========
AS OF DECEMBER 31, ---------------------------------------------------------------- (Dollars in thousands) 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Working capital $ 167,918 $ 142,056 $ 105,643 $ 83,297 $ 70,676 Property, plant and equipment, net 63,823 61,144 54,965 42,925 28,688 Total assets 279,480 247,254 191,600 150,765 122,521 Total debt 2,405 2,764 2,896 30 -- Total liabilities 35,134 36,665 30,317 21,814 20,224 Total stockholders' equity 243,591 210,589 161,282 128,951 102,297
-18- 19 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2000 1999 ------------------------------------------ ------------------------------------------ (Dollars in thousands, FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST except per share data) QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER --------- --------- --------- --------- --------- --------- --------- --------- Net sales $ 85,599 $ 101,048 $ 97,826 $ 84,615 $ 81,218 $ 88,808 $ 83,753 $ 74,661 Cost of sales 57,478 60,370 58,658 50,800 48,179 52,359 49,089 46,212 --------- --------- --------- --------- --------- --------- --------- --------- Gross profit 28,121 40,678 39,168 33,815 33,039 36,449 34,664 28,449 Selling expense 9,323 9,806 9,729 8,553 8,141 8,123 8,042 7,898 General and administrative expense 9,683 12,656 11,647 10,648 9,446 10,278 9,999 8,122 --------- --------- --------- --------- --------- --------- --------- --------- Income from operations 9,115 18,216 17,792 14,614 15,452 18,048 16,623 12,429 Interest income, net 916 827 623 644 589 477 255 348 --------- --------- --------- --------- --------- --------- --------- --------- Income before income taxes 10,031 19,043 18,415 15,258 16,041 18,525 16,878 12,777 Provision for income taxes 4,023 7,852 7,586 6,178 6,411 7,408 6,805 5,129 Minority interest (281) (274) (495) (196) -- -- -- -- ---------- ---------- ---------- ---------- --------- --------- --------- --------- Net income $ 6,289 $ 11,465 $ 11,324 $ 9,276 $ 9,630 $ 11,117 $ 10,073 $ 7,648 ========= ========= ========= ========= ========= ========= ========= ========= Diluted net income per share of common stock $ 0.51 $ 0.93 $ 0.92 $ 0.76 $ 0.78 $ 0.90 $ 0.82 $ 0.63 ========= ========= ========= ========= ========= ========= ========= =========
The Company's results of operations fluctuate from quarter to quarter. The fluctuations are caused by various factors, primarily the increase in construction activity during warmer months of the year. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain matters discussed below are forward-looking statements that involve risks and uncertainties, certain of which are discussed in this and in other reports filed by the Company with the Securities and Exchange Commission. Actual results might differ materially from results suggested by any forward-looking statements in this report. The following is a discussion and analysis of the consolidated financial condition and results of operations for the Company for the years ended December 31, 2000, 1999 and 1998, and of certain factors that may affect the Company's prospective financial condition and results of operations. The following should be read in conjunction with the Consolidated Financial Statements and related Notes appearing elsewhere herein. OVERVIEW Annual net sales of the Company increased 32.3% to $369.1 million in 2000 from $279.1 million in 1998. The increase in net sales resulted primarily from increased geographic distribution and a broadening of the Company's customer base and product lines, both internally and through acquisitions. Net sales increased in 2000 from 1998 in all regions of the United States, with above average rates of growth in California. Expansion into overseas markets also contributed to the net sales growth over the last three years. For the year ended December 31, 2000, gross profit margin decreased to 38.4%, from 40.4% in 1999 and 39.1% in 1998. The decrease was primarily due to LIFO charges in 2000 as well as increased costs related to slow moving inventory reserves. Income from operations as a percentage of net sales decreased to 16.2% in 2000 from 19.1% in 1999 and 18.4% in 1998. -19- 20 RESULTS OF OPERATIONS The following table sets forth, for the years indicated, the percentage of net sales of certain items in the Company's consolidated statements of operations.
YEARS ENDED DECEMBER 31, -------------------------------------------- 2000 1999 1998 --------- -------- --------- Net sales 100.0% 100.0% 100.0% Cost of sales 61.6% 59.6% 60.9% --------- -------- --------- Gross profit 38.4% 40.4% 39.1% Selling expense 10.1% 9.8% 8.9% General and administrative expense 12.1% 11.5% 11.9% --------- -------- --------- Income from operations 16.2% 19.1% 18.4% Interest income, net 0.8% 0.5% 0.3% --------- -------- --------- Income before income taxes 17.0% 19.6% 18.7% Provision for income taxes 6.9% 7.9% 7.5% Minority interest (0.3%) -- -- ---------- -------- --------- Net income 10.4% 11.7% 11.2% ========= ======== =========
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND 1999 Net Sales Net sales increased 12.4% to $369.1 million in 2000 from $328.4 million in 1999. Net sales of Simpson Strong-Tie's products increased 16.4% to $303.8 million in 2000 from $260.9 million in 1999, while net sales of Simpson Dura-Vent's products decreased by 3.2% to $65.3 million in 2000 from $67.5 million in 1999. SDV accounted for approximately 17.7% of the Company's total net sales in 2000, a decrease from 20.6% in 1999. The increase in net sales at SST resulted from an increase in sales volume and a small increase in average prices, while the decrease in net sales at SDV resulted from a decrease in sales volume, offset slightly by an increase in average prices. Most of the Company's sales growth occurred domestically, particularly in California. International sales contributed to the annual increase, due in part to the acquisition of Furfix in the third quarter of 1999. See "Item 1. Business. Acquisitions and Expansion into New Markets." Contractor distributors and home centers were the fastest growing connector sales channels. The sales increase was broad based across most of SST's major product lines. SST's Strong-Wall and Anchor Systems product lines had the highest growth rates. With the exception of pellet vent products, sales in 2000 of all of SDV's major product lines declined compared to sales in 1999. Gross Profit Gross profit increased 6.9% to $141.8 million in 2000 from $132.6 million in 1999. As a percentage of net sales, gross profit decreased to 38.4% in 2000 from 40.4% in 1999. This decrease was primarily due to a LIFO charge of approximately $1.7 million in 2000, compared to a LIFO gain of approximately $1.9 million in 1999, as well as increased costs related to slow moving inventory reserves. Selling Expense Selling expense increased 16.2% to $37.4 million in 2000 from $32.2 million in 1999. The increase was primarily due to higher personnel costs related to the increase in the number of sales and merchandising personnel, particularly those associated with selling the Anchor Systems product line, as well as increased promotional expenses. General and Administrative Expense General and administrative expenses increased 17.9% to $44.6 million in 2000 from $37.8 million in 1999, and increased as a percentage of net sales to 12.1% in 2000 from 11.5% in 1999. The increase was primarily due to higher personnel and other administrative overhead costs, including costs associated with the operation of Keybuilder.com and the acquisitions of Furfix in 1999 and ATS and Masterset in 2000. See "Item 1. Business. Acquisitions and Expansion into New Markets." Cash profit sharing expenses also increased relative to 1999 as a result of higher operating income through the first nine months of 2000. -20- 21 European Operations For its combined European operations, the Company recorded an after-tax net loss of $2.3 million in 2000, including $2.1 million in intercompany interest charges, compared to after-tax net losses of $2.4 million in 1999. These losses are primarily associated with the Company's UK operations. Amortization of the intangible assets associated with the acquisition of Furfix as well as depreciation on capital equipment and other administrative overhead costs incurred related to the growing operations contributed significantly to the losses. The Company expects the losses in the UK to continue through at least 2002. In January 2001, Simpson Strong-Tie International, Inc. ("SSTI"), a subsidiary of the Company, purchased 100% of the shares of BMF Bygningsbeslag A/S ("BMF") of Denmark. The purchase price was approximately $12.8 million in cash with an additional amount of approximately $2.6 million possible based on operating performance. See "Item 1. Business. Acquisitions and Expansion into New Markets." BMF is a leading connector manufacturer in northern and central Europe. Other Information In July 2000, Simpson Strong-Tie purchased the assets of Anchor Tiedown Systems, Inc. ("ATS"). ATS manufactures and distributes the MBR product line used to anchor multi-story buildings with a threaded rod hold down system. The purchase price was approximately $4.6 million in cash. In December 2000, SST purchased the assets of Masterset Fastening Systems, Inc. ("Masterset") for approximately $2.3 million in cash plus an earnout of up to $0.3 million. Masterset sells a quality system of specially designed powder actuated fasteners and installation tools. In the first quarter of 2000, Simpson Strong-Tie and Keymark Enterprises, Inc., ("Keymark") formed Keybuilder.com, LLC to develop software and services that can link designers, engineers and building material suppliers and assist engineers in the design and construction of residential structures. Effective January 1, 2001, the Company, through the exercise of an option, acquired 30% of Keymark Enterprises, LLC, a successor to a portion of the business of Keymark. Neither Keybuilder.com, LLC nor Keymark Enterprises, LLC has or in the foreseeable future is expected to generate significant revenues or profits. The Company hopes that the software that is developed by Keymark Enterprises, LLC will also benefit SST's future connector sales through continued specification of its products. The Company has not committed to investing additional money on this project. COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998 Net Sales Net sales increased 17.7% to $328.4 million in 1999 from $279.1 million in 1998. Net sales of Simpson Strong-Tie's products increased 18.4% to $260.9 million in 1999 from $220.3 million in 1998, while net sales of Simpson Dura-Vent's products increased by 14.9% to $67.5 million in 1999 from $58.8 million in 1998. SDV accounted for approximately 20.6% of the Company's total net sales in 1999, a decrease from 21.1% in 1998. The increases in net sales at both SST and SDV resulted from increases in sales volume, with an overall decrease in average prices. Most of the sales growth occurred domestically, particularly in California and the midwestern and southeastern regions of the country. International sales grew at approximately the same rate as the rest of the Company, partially due to the acquisition of Furfix Products Limited and Easy Arches Limited (together, "Furfix"), in the third quarter of 1999. See "Item 1. Business. Acquisitions and Expansion into New Markets." Home centers were the fastest growing connector sales channel. The sales increase was broad based across most of SST's major product lines. Anchor Systems products had the highest growth rate in sales and SST's new Strong-Wall product line also experienced strong sales growth. Sales of most of SDV's major product lines increased in 1999 compared to 1998, led by above average growth rates for its chimney products and Direct-Vent product lines. Gross Profit Gross profit increased 21.6% to $132.6 million in 1999 from $109.0 million in 1998. As a percentage of net sales, gross profit increased to 40.4% in 1999 from 39.1% in 1998. This increase resulted from an increase in the LIFO gain to $1.9 in 1999 from $0.5 million in 1998, as well as lower overall product costs. -21- 22 Selling Expense Selling expense increased 30.3% to $32.2 million in 1999 from $24.7 million in 1998. The increase was primarily due to higher promotional expenses, as well as to higher personnel costs, including those associated with the increase in the number of sales and merchandising personnel. General and Administrative Expense General and administrative expenses increased 14.0% to $37.8 million in 1999 from $33.1 million in 1998, but decreased as a percentage of net sales to 11.5% in 1999 from 11.9% in 1998. The increase in these expenses was primarily due to increased cash profit sharing, which resulted from higher operating profit, and other administrative overhead costs. European Operations In August 1999, Simpson Strong-Tie International, Inc. ("SSTI"), a subsidiary of the Company, purchased the assets of Furfix which manufactures a line of structural connectors for the wood and masonry construction markets in the United Kingdom and Europe. The purchase price was approximately $7.8 million in cash plus an earnout based on future operating performance. Included in the purchase price were costs associated with the closure of Furfix's existing facility and integration into SSTI's facility in Tamworth, England. For its combined European operations, including the operations of Furfix, the Company recorded an after-tax net loss of $2.4 million in 1999, including $1.9 million in intercompany interest charges, compared to after-tax net losses of $2.3 million in 1998. These losses are primarily associated with the Company's UK operations. Depreciation on purchased capital equipment and administrative and other overhead costs incurred related to the growing operations contributed significantly to the losses. LIQUIDITY AND SOURCES OF CAPITAL The Company's liquidity needs arise principally from working capital requirements, capital expenditures and asset acquisitions. During the three years ended December 31, 2000, the Company has relied primarily on internally generated funds to finance these needs. The Company's working capital requirements are seasonal with the highest working capital needs typically occurring in the second and third quarters of the year. Cash and cash equivalents were $59.4 million and $54.5 million at December 31, 2000 and 1999, respectively. Working capital was $167.9 million and $142.1 million at December 31, 2000 and 1999, respectively. As of December 31, 2000, the Company had approximately $2.4 million in debt outstanding and had available to it unused credit facilities of approximately $21.0 million. The Company had cash flows from operating activities of $30.9 million, $36.0 million and $34.7 million for 2000, 1999 and 1998, respectively. In 2000, cash was provided by net income, before removing Keymark's share of the loss related to the Keybuilder.com, LLC joint venture, of $37.1 million and noncash expenses, such as depreciation and amortization, of $13.1 million. Operating cash flows were also increased by increases in trade accounts payable and accrued liabilities, totaling approximately $3.6 million. The Company's primary operating cash flow requirements resulted from increased levels of inventory and accounts receivable that were required as the Company's sales increased. In 2000, 1999 and 1998, the Company used cash of $14.1 million, $23.9 million and $10.8 million, respectively, to fund inventory and accounts receivable requirements. Prepayment of income taxes payable, increased deferred taxes and a decreased amount due for accrued cash profit sharing and commissions in the fourth quarter of 2000 also accounted for approximately $7.6 million cash used. The balance of the cash used in 2000 resulted from changes in the other current asset and liability accounts. Cash used in investing activities was $20.5 million, $23.3 million and $20.0 million for 2000, 1999 and 1998, respectively. Asset acquisitions, primarily related to the purchase of ATS and Masterset, and capital expenditures related primarily to expanding capacity, decreased to $20.7 million in 2000 from $23.6 million in 1999. In 2000, approximately $2.5 million of such capital expenditures was used for real estate and related purchases. Financing activities used net cash of $5.3 million in 2000 and provided $4.4 million and $3.4 million in 1999 and 1998, respectively. In 2000, cash was used primarily to repurchase the Company's Common Stock on the open -22- 23 market. Offsetting the buyback, approximately $0.9 million in cash was provided by the issuance of Common Stock through the exercise of stock options by employees of the Company. The Company believes that cash generated by operations, borrowings available under its existing credit agreements, the majority of which have been renewed through at least November 2001, and other available financing will be sufficient for the Company's working capital needs and planned capital expenditures through at least 2001. INFLATION The Company believes that the effect of inflation on the Company has not been material in recent years, as inflation rates have remained low. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. -23- 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. SIMPSON MANUFACTURING CO., INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Financial Statements Report of Independent Accountants..................................... 25 Consolidated Balance Sheets at December 31, 2000 and 1999............. 26 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998.................................... 27 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1999 and 2000.................................... 28 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.................................... 29 Notes to the Consolidated Financial Statements........................ 30 Financial Statement Schedule Schedule II -- Valuation and Qualifying Accounts...................... 43
-24- 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Simpson Manufacturing Co., Inc.: In our opinion, the accompanying consolidated financial statements listed in the index on page 24 of this Form 10-K present fairly, in all material respects, the financial position of Simpson Manufacturing Co., Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/PricewaterhouseCoopers LLP San Francisco, California February 9, 2001, except for Note 15 for which the date is March 9, 2001 -25- 26 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------------- 2000 1999 ------------- ------------- ASSETS Current assets Cash and cash equivalents $ 59,417,658 $ 54,509,610 Trade accounts receivable, net 45,584,186 42,420,223 Inventories 85,112,695 72,751,245 Deferred income taxes 5,487,254 4,745,534 Other current assets 5,040,017 1,323,215 ------------- ------------- Total current assets 200,641,810 175,749,827 Property, plant and equipment, net 63,822,513 61,143,524 Investments 354,414 374,455 Other noncurrent assets 14,660,979 9,986,187 ------------- ------------- Total assets $ 279,479,716 $ 247,253,993 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable and current portion of long-term debt $ 335,754 $ 349,541 Trade accounts payable 14,630,941 12,780,621 Accrued liabilities 9,373,007 7,819,155 Accrued profit sharing trust contributions 3,929,043 3,504,286 Accrued cash profit sharing and commissions 2,979,060 4,531,861 Accrued workers' compensation 1,475,764 1,345,764 Income taxes payable -- 3,362,254 ------------- ------------- Total current liabilities 32,723,569 33,693,482 Long-term debt, net of current portion 2,069,028 2,414,562 Long-term liabilities 341,600 556,783 ------------- ------------- Total liabilities 35,134,197 36,664,827 ------------- ------------- Minority interest in consolidated subsidiaries 754,278 -- ------------- ------------- Commitments and contingencies (Note 9) Stockholders' equity Preferred Stock, par value $0.01; authorized shares, 5,000,000; issued and outstanding shares, none -- -- Common Stock, par value $0.01; authorized shares, 20,000,000; issued and outstanding shares, 11,966,732 and 12,018,839 at December 31, 2000 and 1999, respectively 40,968,501 44,716,488 Retained earnings 204,811,703 166,457,600 Accumulated other comprehensive income (2,188,963) (584,922) ------------- ------------- Total stockholders' equity 243,591,241 210,589,166 ------------- ------------- Total liabilities and stockholders' equity $ 279,479,716 $ 247,253,993 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. -26- 27 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- Net sales $ 369,087,813 $ 328,439,897 $ 279,081,489 Cost of sales 227,306,484 195,839,260 170,044,933 ------------- ------------- ------------- Gross profit 141,781,329 132,600,637 109,036,556 ------------- ------------- ------------- Operating expenses Selling 37,409,957 32,204,008 24,706,371 General and administrative 44,633,965 37,845,480 33,100,454 ------------- ------------- ------------- 82,043,922 70,049,488 57,806,825 ------------- ------------- ------------- Income from operations 59,737,407 62,551,149 51,229,731 Interest income, net 3,009,974 1,669,243 939,792 ------------- ------------- ------------- Income before income taxes 62,747,381 64,220,392 52,169,523 Provision for income taxes 25,639,000 25,753,000 21,028,000 Minority interest (1,245,722) -- -- ------------- ------------- ------------- Net income $ 38,354,103 $ 38,467,392 $ 31,141,523 ============= ============= ============= Net income per common share Basic $ 3.19 $ 3.25 $ 2.69 Diluted $ 3.12 $ 3.14 $ 2.58 Weighted average number of shares outstanding Basic 12,022,704 11,837,315 11,560,454 Diluted 12,294,922 12,233,865 12,048,197
The accompanying notes are an integral part of these consolidated financial statements. -27- 28 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
ACCUMULATED OTHER COMMON STOCK RETAINED COMPREHENSIVE SHARES AMOUNT EARNINGS INCOME TOTAL ----------- ----------- ------------ ----------- ----------- Balance, January 1, 1998 11,517,113 $32,377,563 $ 96,848,685 $ (275,725) $128,950,523 Comprehensive income: Net income -- -- 31,141,523 -- 31,141,523 Other comprehensive income: Translation adjustment -- -- -- (155,965) (155,965) ------------ Comprehensive income 30,985,558 Options exercised 57,147 576,343 -- -- 576,343 Tax benefit of options exercised -- 600,045 -- -- 600,045 Common stock issued at $33.3125 per share 5,100 169,894 -- -- 169,894 ----------- ----------- ------------ ----------- ----------- Balance, December 31, 1998 11,579,360 33,723,845 127,990,208 (431,690) 161,282,363 Comprehensive income: Net income -- -- 38,467,392 -- 38,467,392 Other comprehensive income: Translation adjustment -- -- -- (153,232) (153,232) ------------ Comprehensive income 38,314,160 Options exercised 436,279 4,568,970 -- -- 4,568,970 Tax benefit of options exercised -- 6,303,873 -- -- 6,303,873 Common stock issued at $37.4375 per share 3,200 119,800 -- -- 119,800 ----------- ----------- ------------ ----------- ------------ Balance, December 31, 1999 12,018,839 44,716,488 166,457,600 (584,922) 210,589,166 Comprehensive income: Net income -- -- 38,354,103 -- 38,354,103 Other comprehensive income: Translation adjustment -- -- -- (1,604,041) (1,604,041) ------------ Comprehensive income 36,750,062 Options exercised 77,673 902,898 -- -- 902,898 Tax benefit of options exercised -- 1,054,238 -- -- 1,054,238 Buyback of common stock (134,280) (5,901,998) -- -- (5,901,998) Common stock issued at $43.75 per share 4,500 196,875 -- -- 196,875 ----------- ----------- ------------ ----------- ------------ Balance, December 31, 2000 11,966,732 $40,968,501 $204,811,703 $(2,188,963) $243,591,241 =========== =========== ============ =========== ============
The accompanying notes are an integral part of these consolidated financial statements. -28- 29 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, -------------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 38,354,103 $ 38,467,392 $ 31,141,523 ------------ ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Loss (gain) on sale of capital equipment (55,969) (44,649) 24,226 Depreciation and amortization 13,135,982 10,861,925 8,257,937 Minority interest (1,245,722) -- -- Deferred income taxes and other long-term liabilities (1,362,889) (970,301) (505,434) Equity in loss (income) of affiliates (23,195) 107,273 (9,000) Noncash compensation related to stock plans 196,875 119,800 169,894 Changes in operating assets and liabilities, net of effects of acquisitions: Trade accounts receivable, net (2,510,320) (8,331,101) (9,463,554) Inventories (11,573,449) (15,563,766) (1,357,108) Other current assets (1,233,190) (40,401) 440,773 Other noncurrent assets (738,506) (1,322,851) (509,138) Trade accounts payable 2,023,783 1,019,384 2,948,041 Accrued liabilities 1,620,192 2,227,864 84,388 Accrued profit sharing trust contributions 431,918 330,924 286,487 Accrued cash profit sharing and commissions (1,552,527) 512,055 924,972 Accrued workers' compensation 130,000 466,492 220,000 Income taxes payable (4,726,708) 8,200,744 2,065,429 ------------ ------------ ------------ Total adjustments (7,483,725) (2,426,608) 3,577,913 ------------ ------------ ------------ Net cash provided by operating activities 30,870,378 36,040,784 34,719,436 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (14,421,672) (15,305,226) (20,057,435) Proceeds from sale of capital equipment 188,809 263,158 57,069 Asset acquisitions, net of cash acquired and equity interest already owned (6,250,783) (8,266,403) -- ------------ ------------ ------------ Net cash used in investing activities (20,483,646) (23,308,471) (20,000,366) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Issuance of debt 148,310 266,700 3,019,247 Repayment of debt (495,833) (398,484) (152,966) Buyback of common stock (5,901,998) -- -- Issuance of Company's common stock 902,898 4,568,970 576,343 ------------ ------------ ------------ Net cash provided by (used in) financing activities (5,346,623) 4,437,186 3,442,624 ------------ ------------ ------------ Effect of exchange rate changes on cash (132,061) (62,339) (177,933) ------------ ------------ ------------ Net increase in cash and cash equivalents 4,908,048 17,107,160 17,983,761 Cash and cash equivalents at beginning of period 54,509,610 37,402,450 19,418,689 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 59,417,658 $ 54,509,610 $ 37,402,450 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION CASH PAID DURING THE YEAR FOR Interest, net of Amounts capitalized $ 235,584 $ 268,184 $ 180,607 ============ ============ ============ Income taxes $ 31,321,526 $ 18,964,736 $ 18,660,244 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -29- 30 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Operations and Summary of Significant Accounting Policies Nature of Operations Simpson Manufacturing Co., Inc., through its subsidiaries Simpson Strong-Tie Company Inc. ("Simpson Strong-Tie") Simpson Dura-Vent Company, Inc. and its other subsidiaries (collectively, the "Company"), designs, engineers and manufactures wood-to-wood, wood-to-concrete and wood-to-masonry connectors and shearwalls and venting systems for gas and wood burning appliances and markets its products to the residential construction, light industrial and commercial construction, remodeling and do-it-yourself markets. Simpson Strong-Tie also offers a line of adhesives, mechanical anchors and powder actuated tools for concrete, masonry and steel. The Company operates exclusively in the building products industry segment. The Company's products are sold primarily throughout the United States of America. Revenues have some geographic market concentration on the West Coast. A portion of the Company's business is therefore dependent upon economic activity within this region and market. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of Simpson Manufacturing Co., Inc. and its subsidiaries. Investments in less than 50% owned affiliates are accounted for using the equity method. All significant intercompany transactions have been eliminated. Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Inventory Valuation Inventories are valued at the lower of cost or market, with cost determined under the last-in, first-out (LIFO) method, except in Europe, Canada and South America, where inventories of approximately $9,794,000 and $9,269,000 at December 31, 2000 and 1999, respectively, are valued using the first-in, first-out (FIFO) method. Property, Plant and Equipment Property, plant and equipment is carried at cost. Major renewals and betterments are capitalized; maintenance and repairs are expensed on a current basis. When assets are sold or retired, their costs and accumulated depreciation are removed from the accounts; the resulting gains or losses are reflected in the consolidated statements of operations. -30- 31 Depreciation and Amortization Depreciation of property, plant and equipment is provided for using accelerated methods over the following estimated useful lives: Factory machinery and equipment 5 to 10 years Automobiles, trucks and other equipment 3 to 10 years Office equipment 3 to 8 years Buildings and site improvements 20 to 45 years Leasehold improvements are amortized using the straight-line method over the shorter of the expected life or the remaining term of the lease. Amortization of intangible assets is computed using the straight-line method over the estimated useful lives of the asset. Product Research and Development Costs Product research and development costs, which are included in cost of sales, were charged against income as incurred and approximated $2,226,000, $1,809,000 and $1,518,000 in 2000, 1999 and 1998, respectively. Tooling Costs Tool and die costs are included in product costs in the year incurred. Income Taxes Income taxes are calculated using an asset and liability approach. The provision for income taxes includes federal and state taxes currently payable and deferred taxes, due to temporary differences between the financial statement and tax bases of assets and liabilities. In addition, the future tax benefits are recognized to the extent that realization of such benefits is more likely than not. Foreign Currency Translation The local currency is the functional currency of the Company's operations in Europe and Canada. Assets and liabilities denominated in foreign currencies are translated using the exchange rate on the balance sheet date. Revenues and expenses are translated using average exchange rates prevailing during the year. The translation adjustment resulting from this process is shown separately as a component of stockholders' equity. Foreign currency transaction gains or losses are included in the determination of net income. Common Stock Subject to the rights of holders of any Preferred Stock that may be issued in the future, holders of Common Stock are entitled to receive such dividends, if any, as may be declared from time to time by the Board of Directors (the "Board") out of legally available funds and in the event of liquidation, dissolution or winding-up of the Company, to share ratably in all assets available for distribution. The holders of Common Stock have no preemptive or conversion rights. Subject to the rights of any Preferred Stock that may be issued in the future, the holders of Common Stock are entitled to one vote per share on any matter submitted to a vote of the stockholders, except that, on giving notice as required by law and subject to compliance with other statutory conditions, stockholders may cumulate their votes in an election of directors, and each stockholder may give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares held by such stockholder or may distribute such stockholder's votes on the same principle among as many candidates as such stockholder thinks fit. There are no redemption or sinking fund provisions applicable to the Common Stock. -31- 32 In 1999, the Company declared a dividend distribution of one Right to purchase Series A Participating Preferred Stock per share of Common Stock. The Rights will be exercisable, unless redeemed earlier by the Company, if a person or group acquires, or obtains the right to acquire, 15% or more of the outstanding shares of Common Stock or commences a tender or exchange offer that would result in it acquiring 15% or more of the outstanding shares of Common Stock, either event occurring without the prior consent of the Company. The amount of Series A Participating Preferred Stock that the holder of a Right is entitled to receive and the purchase price payable on exercise of a Right are both subject to adjustment. Any person or group that acquires 15% or more of the outstanding shares of Common Stock without the prior consent of the Company would not be entitled to this purchase. Any stockholder who holds 25% or more of the Company's Common Stock on the date of the Rights distribution would not be treated as having acquired 15% or more of the outstanding shares unless such stockholder's ownership is increased to more than 40% of the outstanding shares. The Rights will expire on July 29, 2009, or they may be redeemed by the Company at one cent per Right prior to that date. The Rights do not have voting or dividend rights and, until they become exercisable, have no dilutive effect on the earnings of the Company. One million shares of the Company's Preferred Stock have been designated Series A Participating Preferred Stock and reserved for issuance on exercise of the Rights. No event during 2000 made the Rights exercisable. Preferred Stock The Board has the authority to issue the authorized and unissued Preferred Stock in one or more series with such designations, rights and preferences as may be determined from time to time by the Board. Accordingly, the Board is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Company's Common Stock. Net Income per Common Share Basic net income per common share is computed based upon the weighted average number of common shares outstanding. Common equivalent shares, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive. The following is a reconciliation of basic earnings per share ("EPS") to diluted EPS:
2000 1999 ------------------------------------------ ------------------------------------------ PER PER INCOME SHARES SHARE INCOME SHARES SHARE ---------- ---------- ---------- ----------- ---------- ---------- BASIC EPS Income available to common stockholders $38,354,103 12,022,704 $ 3.19 $38,467,392 11,837,315 $ 3.25 EFFECT OF DILUTIVE SECURITIES Stock options -- 272,218 (0.07) -- 396,550 (0.11) ----------- ---------- ---------- ----------- ---------- ---------- DILUTED EPS Income available to common stockholders $38,354,103 12,294,922 $ 3.12 $38,467,392 12,233,865 $ 3.14 =========== ========== ========== =========== ========== ==========
1998 ------------------------------------------ PER INCOME SHARES SHARE ---------- ---------- ---------- BASIC EPS Income available to common stockholders $31,141,523 11,560,454 $ 2.69 EFFECT OF DILUTIVE SECURITIES Stock options -- 487,743 (0.11) ---------- ---------- ---------- DILUTED EPS Income available to common stockholders $31,141,523 12,048,197 $ 2.58 =========== ========== ==========
Comprehensive Income Comprehensive income, which is included in the consolidated statement of stockholders' equity, is defined as net income and other comprehensive income. Other comprehensive income includes changes in foreign currency translation adjustments recorded directly into stockholders' equity. -32- 33 Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash in banks, short-term investments in U.S. Treasury instruments and trade accounts receivable. The Company maintains its cash in demand deposit and money market accounts held primarily by two banks. Adoption of Statements of Financial Accounting Standards In June 2000, Financial Accounting Standards Board ("FASB") statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities--an amendment of FASB statement No. 133" was issued. FASB statement No. 133 was amended by FASB statement No. 137, which deferred the effective date of implementation to the first quarter of fiscal years beginning after June 15, 2000. FASB statement No. 133 requires companies to record derivative financial instruments on the balance sheet as assets or liabilities, as appropriate, at fair value. Gains or losses resulting from changes in the fair value of those derivatives are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company does not believe that the implementation of this standard will have a material effect on its financial position or results of operations. Reclassifications Certain prior year amounts have been reclassified to conform to the 2000 presentation with no effect on net income or retained earnings as previously reported. 2. Acquisitions In July 2000, Simpson Strong-Tie purchased the assets of Anchor Tiedown Systems, Inc. ("ATS"). ATS manufactures and distributes a product line used to anchor multi-story buildings with a threaded rod hold down system. The purchase price was approximately $4.6 million in cash. In December 2000, Simpson Strong-Tie purchased the assets of Masterset Fastening Systems, Inc. ("Masterset") for approximately $2.3 million in cash plus an earnout of up to $0.3 million. Masterset sells a system of specially designed powder actuated fasteners and installation tools. In August 1999, Simpson Strong-Tie International, Inc. ("SSTI"), a subsidiary of the Company, purchased the assets of Furfix Products Limited and Easy Arches Limited (together, "Furfix"), which manufacture a line of structural connectors for the wood and masonry construction markets in the United Kingdom and Europe. The purchase price was approximately $7.8 million in cash plus an earnout based on future operating performance. Included in the purchase price were costs associated with the closure of Furfix's existing facility and integration into SSTI's facility in Tamworth, England. 3. Trade Accounts Receivable Trade accounts receivable consist of the following:
DECEMBER 31, ------------------------------- 2000 1999 ------------ ------------ Trade accounts receivable $ 47,119,344 $ 43,952,137 Allowance for doubtful accounts (1,201,289) (1,203,147) Allowance for sales discounts (333,869) (328,767) ------------ ------------ $ 45,584,186 $ 42,420,223 ============ ============
The Company sells product on credit and generally does not require collateral. -33- 34 4. Inventories The components of inventories consist of the following:
DECEMBER 31, ------------------------------- 2000 1999 -------------- ------------- Raw materials $ 26,883,866 $ 22,816,584 In-process products 10,863,721 7,593,038 Finished products 47,365,108 42,341,623 -------------- ------------- $ 85,112,695 $ 72,751,245 ============== =============
At December 31, 2000, the replacement value of LIFO inventories exceeded LIFO cost by approximately $157,000. At December 31, 1999, LIFO cost exceeded the replacement value of LIFO inventories by approximately $1,503,000. 5. Property, Plant and Equipment, net Property, plant and equipment consists of the following:
DECEMBER 31, ------------------------------- 2000 1999 -------------- ------------- Land $ 4,454,322 $ 4,316,015 Buildings and site improvements 27,634,848 26,724,935 Leasehold improvements 4,042,063 3,942,613 Machinery and equipment 88,221,556 81,147,265 -------------- ------------- 124,352,789 116,130,828 Less accumulated depreciation and amortization (69,293,151) (58,949,908) --------------- -------------- 55,059,638 57,180,920 Capital projects in progress 8,762,875 3,962,604 -------------- ------------- $ 63,822,513 $ 61,143,524 ============== =============
Included in property, plant and equipment at December 31, 2000 and 1999, are fully depreciated assets with an original cost of approximately $26,475,000 and $24,453,000, respectively. These fully depreciated assets are still in use in the Company's operations. 6. Investments The Company's 49% investment in Bulldog-Simpson GmbH is accounted for using the equity method. The Company's equity in the earnings or losses of its equity investments was not material in any of the three years in the period ended December 31, 2000. 7. Accrued Liabilities Accrued liabilities consist of the following:
DECEMBER 31, ------------------------------- 2000 1999 -------------- ------------- Sales incentive and advertising allowances $ 4,372,473 $ 3,138,607 Vacation liability 1,713,400 1,505,409 Other 3,287,134 3,175,139 -------------- ------------- $ 9,373,007 $ 7,819,155 ============== =============
-34- 35 8. Debt The outstanding debt at December 31, 2000 and 1999, and the available credit at December 31, 2000, consisted of the following:
AVAILABLE ON CREDIT FACILITY DEBT OUTSTANDING AT DECEMBER 31, AT DECEMBER 31, ------------------------------- 2000 2000 1999 ------------ ------------ ------------ Revolving line of credit, interest at bank's reference rate less 0.5% (at December 31, 2000, the bank's reference rate less 0.5% was 9.0%), matures November 2001, commitment fees are paid at the annual rate of 0.125% on the unused portion of the facility $ 12,243,241 $ -- $ -- Revolving term commitment, interest at bank's prime rate less 0.5% (at December 31, 2000, the bank's prime rate less 0.5% was 9.0%), matures September 2002, commitment fees are paid at the annual rate of 0.125% on the unused portion of the facility 8,344,838 -- -- Revolving line of credit, interest rate at the bank's base rate of interest plus 2% (at December 31, 2000, this rate was 8.0%), matures July 2001, has an annual commission charge of 0.45% 373,190 -- -- Term loan, interest at LIBOR plus 1.375% (at December 31, 2000, LIBOR plus 1.375% was 8.0213%), expires May 2008 -- 2,250,000 2,550,000 Term loan, fixed interest rate of 5.3%, expires September 2006 -- 119,028 164,562 Standby letter of credit facilities 2,411,921 -- -- Other notes payable -- 35,754 49,541 ------------ ------------ ------------ 23,373,190 2,404,782 2,764,103 Less current portion (335,754) (349,541) ------------ ------------ $ 2,069,028 $ 2,414,562 ============ ============ Less standby letters of credit issued and outstanding (2,411,921) Net credit available $ 20,961,269 ============
The revolving lines of credit are guaranteed by the Company and its subsidiaries. At December 31, 2000, the Company had three outstanding standby letters of credit. Two of these letters of credit, in the aggregate amount of $1,710,324, were used to support the Company's self-insured workers' compensation insurance requirements. The third, in the amount of $701,597, was used to guarantee performance on the Company's leased facility in the UK. These letters of credit mature between November 2001 and September 2002. -35- 36 9. Commitments and Contingencies Leases Certain properties occupied by the Company are leased. The leases expire at various dates through 2012 and generally require the Company to assume the obligations for insurance, property taxes, and maintenance of the facilities. Some of the properties were leased from partnerships formed by certain current and former Company stockholders, directors, officers and employees. Rental expenses under these related party leases were as follows:
YEARS ENDED DECEMBER 31, -------------------------------------------- 2000 1999 1998 ------------- ------------- -------------- Simpson Investment Company $ 197,594 $ 185,100 $ 185,100 Doolittle Investors 253,080 253,080 239,400 Vacaville Investors 437,640 437,640 437,640 Vicksburg Investors 367,013 354,868 353,411 Columbus Westbelt Investment Co. 592,381 581,064 581,064 ------------- ------------- -------------- $ 1,847,708 $ 1,811,752 $ 1,796,615 ============= ============= ==============
Rental expense for 2000, 1999 and 1998 with respect to all other leased property was approximately $2,658,000, $2,362,000 and $2,285,000, respectively. At December 31, 2000, minimum rental commitments under all noncancelable leases are as follows: 2001 $ 6,035,799 2002 5,083,545 2003 4,608,552 2004 3,977,430 2005 3,818,462 Thereafter 8,768,886 ------------- $ 32,292,674 =============
Some of these minimum rental commitments that involve the related parties described above, contain renewal options and provide for periodic rental adjustments based on changes in the consumer price index or current market rental rates. The nominal term of SSTI's lease in the United Kingdom is 25 years but includes an option to terminate without penalty in either the fifteenth or twentieth year upon one year written notice by SSTI. As such, future minimum rental payments associated with the first 15 years of this lease are included in minimum rental commitments in the table above. -36- 37 Environmental At two of the Company's operating facilities, evidence of contamination resulting from activities of prior occupants was discovered. The Company took certain remedial actions at one facility in 1990 and continues to monitor the condition of this property. The Company does not believe that any further action will be required. The Company has been informed by the lessor of the other facility, Vicksburg Investors, that appropriate remedial action has been taken. The Company does not believe that either of these matters will have a material adverse effect on its financial condition or results of operations. Litigation From time to time, the Company is involved in litigation that it considers to be in the normal course of its business. No such litigation within the last five years resulted in any material loss. The Company is not engaged in any legal proceedings as of the date hereof, which the Company expects individually or in the aggregate to have a material adverse effect on the Company's financial condition or results of operations. 10. Income Taxes The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31, ------------------------------------------------- 2000 1999 1998 ------------- ------------- -------------- Current Federal $ 21,885,000 $ 22,509,000 $ 18,075,000 State 4,901,000 4,354,000 3,345,000 Foreign 4,000 97,000 82,000 Deferred (1,151,000) (1,207,000) (474,000) -------------- -------------- --------------- $ 25,639,000 $ 25,753,000 $ 21,028,000 ============= ============= ==============
Reconciliations between the statutory federal income tax rates and the Company's effective income tax rates as a percentage of income before income taxes are as follows:
YEARS ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 --------- -------- --------- Federal tax rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 4.6% 4.3% 4.5% Other 0.5% 0.8% 0.8% --------- -------- --------- Effective income tax rate 40.1% 40.1% 40.3% ========= ======== =========
-37- 38 The tax effects of the significant temporary differences that constitute the deferred tax assets and liabilities at December 31, 2000, 1999 and 1998, were as follows:
YEARS ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ----------- ---------- ----------- Current deferred tax assets State tax $ 1,680,197 $1,488,904 $ 1,170,805 Compensation related to stock plans 83,375 46,728 128,657 Workers' compensation 584,912 298,808 115,436 Health claims 486,665 604,580 435,294 Vacation 642,637 555,420 399,472 Accounts receivable allowance 567,577 600,439 573,265 Inventory allowance 1,252,000 874,726 619,447 Sales incentive and advertising allowances 87,489 125,277 163,008 Other 102,402 150,652 144,215 ----------- ---------- ----------- $ 5,487,254 $4,745,534 $ 3,749,599 =========== ========== =========== Long-term deferred tax assets (liabilities) Depreciation $ 1,377,291 $1,161,552 $ 911,723 Goodwill amortization 715,992 560,479 602,182 Other (484,595) (419,829) (421,710) ----------- ---------- ----------- $ 1,608,688 $1,302,202 $ 1,092,195 =========== ========== ===========
No valuation allowance has been recorded for deferred tax assets for the years ended December 31, 2000, 1999 and 1998, due to the Company's taxable income in 2000 and prior years. 11. Profit Sharing and Pension Plans The Company has five profit sharing plans covering substantially all salaried employees and nonunion hourly employees. Two of the plans, covering U.S. employees, provide for annual contributions in amounts that the Board of Directors may authorize, subject to certain limitations, but in no event more than the amounts permitted under the Internal Revenue Code as deductible expense. The other three plans, covering the Company's European and Canadian employees, require the Company to make contributions ranging from 3% to 15% of the employees' compensation. The total cost for these profit sharing plans for the years ended December 31, 2000, 1999 and 1998, was approximately $4,009,000, $3,360,000 and $3,078,000, respectively. The Company also contributes to various industry-wide, union-sponsored defined benefit pension funds for union, hourly employees. Payments to these funds aggregated approximately $1,149,000, $977,000 and $809,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 12. Related Party Transactions The Chairman and the President and Chief Executive Officer of the Company, who are directors and significant stockholders of the Company, served as directors and officers of the Simpson PSB Fund (a charitable organization) until October 1997. The Company contributed $75,496 to this organization in 1998. The Chairman and the President and Chief Executive Officer of the Company were again appointed as directors and officers of the Simpson PSB Fund in January 1999. Refer to Note 9 regarding related party transactions involving Company leases. -38- 39 13. Stock Bonus and Stock Options Plans The Company applies Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its non-qualified stock option plan as stock options granted under this plan have an exercise price equal to 100% of the market price on the date of grant. If the compensation cost for this plan had been determined based on the fair value at the grant dates for awards consistent with the method of SFAS No. 123, the pro forma effect on the Company's net income and earnings per share in 2000, 1999 and 1998 would have been:
YEARS ENDED DECEMBER 31, ------------------------------------------------ 2000 1999 1998 ------------- ------------- ------------- Net income, as reported $ 38,354,103 $ 38,467,392 $ 31,141,523 Pro forma 37,517,425 37,458,366 30,423,968 Diluted earnings per share, as reported 3.12 3.14 2.58 Pro forma 3.05 3.06 2.53
The fair value of each option granted was estimated on the date of grant using the Black-Sholes option-pricing model with the following assumptions for 2000, 1999 and 1998, respectively: risk-free interest rate of 4.86%, 4.60% and 4.63% for 2000, 1999 and 1998, respectively; no dividend yield for all years; expected lives of 6.3 years for options committed to be granted for 2000 and 6.2 for options granted for 1999 and 1998; and volatility of 29.7% for 2000, 30.4% for 1999 and 30.7% for 1998. The weighted average fair value per share of options granted during 2000, 1999 and 1998 was $21.78, $17.49 and $15.09, respectively. The Company currently has two stock option plans. The first is principally for the Company's employees and the second is for the Company's independent directors. Last year, the Company met some of the operating goals established for one of its stock option plans and has committed to grant options to purchase 7,000 shares for the year 2000. During 1999 and 1998, the Company met most of the operating goals established for both of its stock option plans and accordingly, and granted options to purchase 143,250 and 118,750 shares for 1999 and 1998, respectively. These options have an exercise price of $51.00 per share for 2000, and an exercise price range of $38.94 to $48.13 per share for 1999 and an exercise price range of $36.63 to $41.18 per share for 1998. The following table summarizes the Company's stock option activity for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 --------------------------- --------------------------- --------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE NON-QUALIFIED STOCK OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at beginning of year 738,990 $ 26.08 1,033,019 $ 17.05 978,917 $ 14.29 Granted 7,000 51.00 143,250 43.65 118,750 37.44 Exercised (77,673) 11.62 (436,279) 10.49 (57,147) 10.09 Forfeited (5,670) 37.93 (1,000) 33.90 (7,501) 31.37 ---------- ---------- ---------- Outstanding at end of year 662,647 27.93 738,990 26.08 1,033,019 17.05 ========== ========== ==========
The number of stock options exercisable at the end of 2000, 1999 and 1998 was 448,930, 414,817 and 740,638, respectively. -39- 40 The following table summarizes information about the Company's stock options outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------- ------------------------------- WEIGHTED- NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED- OUTSTANDING REMAINING AVERAGE OUTSTANDING AVERAGE AT DECEMBER CONTRACTUAL EXERCISE AT DECEMBER EXERCISE RANGE OF EXERCISE PRICES 31, 2000 LIFE PRICE 31, 2000 PRICE ------------------------ ------------- ------------- ------------- ------------ ------------ $ 3.64 31,112 0.5 years $ 3.64 31,112 $ 3.64 $ 11.50 70,476 0.4 years 11.50 70,476 11.50 $10.00 to $11.28 46,208 1.1 years 10.23 46,208 10.23 $ 13.50 58,716 2.0 years 13.50 58,716 13.50 $23.00 to $29.25 90,054 3.0 years 23.08 84,152 23.11 $33.31 to $37.31 106,045 4.0 years 33.37 74,718 33.38 $36.63 to $41.18 112,493 5.0 years 37.45 50,934 37.43 $38.94 to $48.13 140,543 6.0 years 43.65 32,614 43.23 $ 51.00 7,000 7.0 years 51.00 -- -- ------- ------------ $3.64 to $51.00 662,647 3.6 years 27.93 448,930 19.01 ======= ============
The tax benefit to the Company from the exercise of stock options, a reduction of the Company's income tax payable, was $1,054,238, $6,303,873 and $600,045 for 2000, 1999 and 1998, respectively. The Company also maintains a Stock Bonus Plan whereby, for each ten years of continuous employment with the Company, each employee who does not participate in one of the Company's stock option plans receives 100 shares of common stock. In 2000, 1999 and 1998, the Company committed to issue 2,700, 4,500 and 3,200 shares, respectively, which resulted in compensation charges of $210,359, $353,149 and $203,500, respectively. The shares are issued in the year following the year in which they are earned. 14. Segment Information The Company is organized into two primary segments. The segments are defined by types of products manufactured, marketed and distributed to the Company's customers. The two product segments are construction connector products and venting products. These segments are differentiated in several ways, including the types of materials used, the production process, the distribution channels used and the applications in which the products are used. Transactions between the two segments were immaterial for each of the years presented. The following table illustrates certain measurements used by management to assess the performance of the segments described above as of December 31, 2000, 1999 and 1998, or for the years then ended:
CONNECTOR VENTING 2000 PRODUCTS PRODUCTS ALL OTHER TOTAL - ------------------------------- ------------- ------------- ------------- ------------- Net sales $ 303,774,000 $ 65,314,000 $ -- $ 369,088,000 Income from operations 51,068,000 8,676,000 (7,000) 59,737,000 Depreciation and amortization 10,951,000 2,063,000 122,000 13,136,000 Capital expenditures and acquisitions 18,277,000 2,226,000 169,000 20,672,000 Total assets 171,997,000 43,067,000 64,416,000 279,480,000
-40- 41
CONNECTOR VENTING 1999 PRODUCTS PRODUCTS ALL OTHER TOTAL - ------------------------------- ------------- ------------- ------------- ------------- Net sales $ 260,943,000 $ 67,497,000 $ -- $ 328,440,000 Income from operations 51,902,000 10,628,000 21,000 62,551,000 Depreciation and amortization 8,895,000 1,867,000 100,000 10,862,000 Capital expenditures and acquisitions 21,642,000 1,930,000 -- 23,572,000 Total assets 148,328,000 38,828,000 60,098,000 247,254,000
CONNECTOR VENTING 1998 PRODUCTS PRODUCTS ALL OTHER TOTAL - ------------------------------- ------------- ------------- ------------- ------------- Net sales $ 220,319,000 $ 58,762,000 $ -- $ 279,081,000 Income from operations 42,674,000 8,709,000 (153,000) 51,230,000 Depreciation and amortization 6,738,000 1,417,000 103,000 8,258,000 Capital expenditures and acquisitions 11,509,000 8,548,000 -- 20,057,000 Total assets 115,507,000 35,095,000 40,998,000 191,600,000
Cash collected by the Company's subsidiaries is routinely transferred into the Company's cash management accounts, and therefore, has been included in the total assets of the segment entitled "All Other." Cash balances in this segment were approximately $54,183,000, $53,682,000 and $36,433,000 as of December 31, 2000, 1999 and 1998, respectively. The following table illustrates how the Company's net sales and long-lived assets are distributed geographically as of December 31, 2000, 1999 and 1998, or for the years then ended.
2000 1999 1998 ----------------------------- ----------------------------- ---------------------------- NET LONG-LIVED NET LONG-LIVED NET LONG-LIVED SALES ASSETS SALES ASSETS SALES ASSETS -------------- ------------- ------------- ------------- ------------- ------------- United States $ 347,516,000 $ 64,615,000 $ 310,300,000 $ 55,097,000 $ 265,201,000 $ 50,753,000 Other countries 21,572,000 12,615,000 18,140,000 15,105,000 13,880,000 6,891,000 -------------- ------------- ------------- ------------- ------------- ------------- $ 369,088,000 $ 77,230,000 $ 328,440,000 $ 70,202,000 $ 279,081,000 $ 57,644,000 ============== ============= ============= ============= ============= =============
Net sales and long-lived assets are attributable to the country where the operations are located. In 2000, net sales of approximately 12% were from one customer and were attributable mostly to the Connector segment. -41- 42 15. Subsequent Events In January 2001, SSTI acquired 100% of the shares of BMF Bygningsbeslag A/S ("BMF") of Denmark for $12.8 million in cash with an additional amount of approximately $2.6 million possible based on operating performance. BMF manufactures and distributes connector products in northern and central Europe. Also in January 2001, the Company reached agreements to amended a certain related party lease and to exercise an option to purchase the property which is subject to another related party lease. Both of the transactions relate to properties that are located in San Leandro, California. Both of the transactions were unanimously approved by the outside members of the Board of Directors. The Doolittle Investors lease was extended through December 31, 2009, and the option to purchase the property from Simpson Investment Company has been exercised and is expected to close in May 2001 (See Note 9). The effect of these changes on the Company's future minimum rental commitments is as follows:
Minimum Rental Commitments at Revised Future December 31, Effect of Minimum Rental 2000 Modifications Commitments ------------- ------------- ------------- 2001 $ 6,035,799 $ (131,729) $ 5,904,070 2002 5,083,545 367,992 5,451,537 2003 4,608,552 367,992 4,976,544 2004 3,977,430 367,992 4,345,422 2005 3,818,462 367,992 4,186,454 Thereafter 8,768,886 1,471,968 10,240,854 ------------- ------------- ------------- $ 32,292,674 $ 2,812,207 $ 35,104,881 ============= ============= =============
-42- 43 SCHEDULE II SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS --------------------------- CHARGED CHARGED BALANCE AT TO COSTS TO OTHER BALANCE BEGINNING AND ACCOUNTS -- AT END CLASSIFICATION OF YEAR EXPENSES WRITE-OFFS DEDUCTIONS OF YEAR -------------- ----------- ----------- ----------- ----------- ----------- YEAR ENDED DECEMBER 31, 2000 Allowance for doubtful accounts $ 1,203,147 $ 684,356 $ -- $ 686,214 $ 1,201,289 Allowance for obsolete inventory 1,641,746 2,439,787 -- 1,080,741 $ 3,000,792 YEAR ENDED DECEMBER 31, 1999 Allowance for doubtful accounts 1,173,656 646,236 -- 616,745 1,203,147 Allowance for obsolete inventory 944,331 967,074 -- 269,659 1,641,746 YEAR ENDED DECEMBER 31, 1998 Allowance for doubtful accounts 1,539,691 767,339 -- 1,133,374 1,173,656 Allowance for obsolete inventory 742,578 212,334 -- 10,581 944,331
-43- 44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information required by this Item will be contained in the Registrant's proxy statement for the annual meeting of stockholders to be held on May 18, 2001, to be filed not later than 120 days following the end of the Registrant's fiscal year ended December 31, 2000, which will set forth certain information with respect to the directors and executive officers of the Registrant and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information required by this Item will be contained in the Registrant's proxy statement for the annual meeting of stockholders to be held on May 18, 2001, to be filed not later than 120 days following the end of the Registrant's fiscal year ended December 31, 2000, which will set forth certain information with respect to executive compensation of the Registrant and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required by this Item will be contained in the Registrant's proxy statement for the annual meeting of stockholders to be held on May 18, 2001, to be filed not later than 120 days following the end of the Registrant's fiscal year ended December 31, 2000, which will set forth certain information with respect to security ownership of certain beneficial owners and management of the Registrant and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required by this Item will be contained in the Registrant's proxy statement for the annual meeting of stockholders to be held on May 18, 2001, to be filed not later than 120 days following the end of the Registrant's fiscal year ended December 31, 2000, which will set forth certain information with respect to certain relationships and related transactions of the Registrant and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. a. Exhibits 10.1 Asset Purchase Agreement, dated November 17, 2000, between Masterset Fastening Systems, Inc., Brian Berry, John E. Swiggard, Manzo Associates Inc. and Leo V. Peterson and Simpson Strong-Tie Company Inc. 10.2 Share Purchase Agreement, dated January 11, 2001, between Simpson Strong-Tie International, Inc. and BMF Holdings A/S. 11. Statement re computation of earnings per share. 21. List of Subsidiaries of the Registrant. 23. Consent of Independent Accountants. b. Reports on Form 8-K Report on Form 8-K, dated December 1, 2000, reporting under Item 5 that the Company acquired the assets of Masterset Fastening Systems, Inc. -44- 45 SIGNATURES Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 29, 2001 SIMPSON MANUFACTURING CO., INC. ----------------------------------------- (Registrant) By /s/ Michael J. Herbert ----------------------------------------- Michael J. Herbert Chief Financial Officer and Duly Authorized Officer of the Registrant Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
Signature Title Date --------- ----- ---- CHIEF EXECUTIVE OFFICER: /s/ Thomas J Fitzmyers President, Chief Executive March 29, 2001 - -------------------------------------------- Officer and Director (Thomas J Fitzmyers) CHIEF FINANCIAL OFFICER: /s/ Michael J. Herbert Chief Financial Officer, March 29, 2001 - -------------------------------------------- Treasurer and Secretary (Michael J. Herbert) DIRECTORS: /s/ Barclay Simpson Chairman of the Board March 29, 2001 - -------------------------------------------- (Barclay Simpson) /s/ Earl F. Cheit Director March 29, 2001 - -------------------------------------------- (Earl F. Cheit) /s/ Stephen B. Lamson Director March 29, 2001 - -------------------------------------------- (Stephen B. Lamson) /s/ Peter N. Louras Director March 29, 2001 - -------------------------------------------- (Peter N. Louras) /s/ Sunne Wright McPeak Director March 29, 2001 - -------------------------------------------- (Sunne Wright McPeak) /s/ Barry Lawson Williams Director March 29, 2001 - -------------------------------------------- (Barry Lawson Williams)
45 46
EXHIBITS DESCRIPTION - -------- ----------- 10.1 Asset Purchase Agreement, dated November 17, 2000, between Masterset Fastening Systems, Inc., Brian Berry, John E. Swiggard, Manzo Associates Inc. and Leo V. Peterson and Simpson Strong-Tie Company Inc. 10.2 Share Purchase Agreement, dated January 11, 2001, between Simpson Strong-Tie International, Inc. and BMF Holdings A/S. 11. Statement re computation of earnings per share. 21. List of Subsidiaries of the Registrant. 23. Consent of Independent Accountants.
EX-10.1 2 f70975ex10-1.txt ASSET PURCHASE AGREEMENT 1 Exhibit 10.1 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT is made as of November 17, 2000, by and among Masterset Fastening Systems, Inc., an Indiana corporation ("Seller"), and Brian Berry ("Berry"), John E. Swiggard ("Swiggard"), Manzo Associates Inc., a New Jersey corporation ("Manzo"), and Leo V. Peterson ("Peterson" and, together with Berry, Swiggard and Manzo, the "Shareholders"), on the one hand, and Simpson Strong-Tie Company Inc., a California corporation ("Buyer"), on the other hand, with reference to the following facts: Seller is engaged in the business principally of developing, designing, manufacturing, marketing, distributing and selling powder actuated tooling products used in building construction. Buyer is engaged in the business principally of developing, designing, manufacturing, marketing, distributing and selling connectors, fasteners and other products used in the construction industry. Seller and the Shareholders desire to sell to Buyer and Buyer desires to purchase from Seller and the Shareholders substantially all of the assets of Seller and all Shareholder Patent Rights, as that term is defined in section 1.2 (such assets and the Shareholder Patent Rights being called, collectively, the "Assets"), as a going concern, although Seller will continue to be liable, and Buyer will not assume or otherwise have any liability, for any of the debts or obligations of Seller (except for obligations accruing under certain contracts after their assignment to Buyer hereunder). For purposes of this Agreement, the term "affiliate" shall mean, with respect to a specified person, a person controlling, controlled by or under common control with the specified person. Swiggard is part owner and intimately involved in Manzo, and Peterson is a part owner and intimately involved in a separate corporation known as Peterson & Company, a Michigan corporation ("Peterson & Company"). Other than the Shareholder Patent Rights (as that term is defined in section 1.2), this Asset Purchase Agreement is not intended to encompass, and the Assets do not include, the Excluded Assets (as that term is defined in section 1.1.5) or any assets owned by either Manzo or Peterson & Company. The Shareholders are parties to this Agreement as shareholders and corporate representatives of Seller. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein, Buyer, Seller and the Shareholders agree as follows: 1. Purchase and Sale. Subject to and in reliance on the respective representations, warranties and agreements of Seller, the Shareholders and Buyer and subject to the terms and conditions provided in this Agreement: 1.1 Assets. At the closing on the Closing Date (as that term is defined in section 2.5), except only as is provided in section 1.2, Buyer shall purchase from Seller and Seller shall sell to Buyer all of the Assets, as follows: 1.1.1 Equipment and Furnishings. All apparatus, equipment, appliances, machines and machinery, devices, furniture, furnishings, tools, cloth and synthetic material goods, fuel, spare parts and supplies (collectively, the "Equipment"); 1.1.2 Inventory. All inventory, whether held for sale or held for demonstration or as samples ("Inventory"); 2 1.1.3 Intangible Property. All intangible property ("Intangible Property"), including, without limitation, (a) all right, title and interest of Seller in, to and under all leases, contracts and contract rights (including, without limitation, all licenses and license agreements) to which Seller is a party or which are for the benefit of Seller, and which are listed in Schedule 1.1.3(a) attached hereto (the "Assigned Contracts"); provided that Buyer shall not purchase or acquire any interest in, and the Assigned Contracts do not include, any automobile leases, or any other contract or agreement that is not listed on Schedule 1.1.3(a); (b) all permits, authorizations and licenses, if any, applicable to Seller or its business and assignable by Seller (whether or not subject to the consent or approval of any third party), including, without limitation, all findings, reports and approvals of the International Conference of Building Officials ("ICBO"), the ICBO Evaluation Service, Inc. or any other code approval agency (collectively, the "Code Approvals"), all of such Code Approvals being listed and described in Schedule 1.1.3(b) attached hereto; (c) all secret inventions, patents, letters patent, patent applications, trade secrets, know-how and other intellectual property, including, without limitation, the patents and patent applications listed and described as being owned by Seller on Schedule 5.1.13 attached hereto (the "Seller Patent Rights"); (d) all confidential or proprietary information, documents, matter or materials, trade secrets, customer lists and information, know-how, technologies, algorithms and other intellectual property related to or useful in connection with any or all of the Assigned Contracts, the Code Approvals and the Seller Patent Rights or any development, design, making, use, marketing, distribution or sales of products or other commercialization thereof (collectively, the "Trade Secrets"), which may consist of, among other things, ideas; designs; equipment; devices; patterns; electronically recordable data or concepts; computer programs, software and hardware; software and hardware enhancements, modifications and improvements; secret inventions; processes; compilations of information; books; papers; records and specifications; operating practices and related data; (e) all copyrights, trademarks, service marks, trade names (including, without limitation, all right, title and interest in and to the trademark and trade name "Masterset", the trademark "Tru-Set", applications for the registration thereof, registrations thereof, and the goodwill associated therewith; (f) all judgments, orders, decrees, files, books, records, financial statements, tax returns, correspondence, instruments, plans, projections, data, information and documents of or relating to the Assets or Seller's business; (g) all prepaid deposits and expenses; (h) all other accounts (including, without limitation, accounts and notes receivable, other than accounts receivable that are Excluded Assets), chattel paper, contract rights and general intangibles; 2 3 (i) all cash, certificates of deposit, bank accounts, brokerage accounts, money market accounts or similar accounts; and (j) all goodwill; and 1.1.4 After-Acquired Assets. All property used or useful in Seller's business and acquired by Seller after the date hereof. 1.1.5 Excluded Assets. Accounts receivable of Seller that shall, on and as of the Closing Date, have been outstanding and unpaid for more than ninety days (the "Excluded Assets") are not and shall not be included in the Assets. 1.2 Shareholder Patent Rights. At the closing on the Closing Date (as that term is defined in section 2.5), Buyer shall purchase from the Shareholders and their respective affiliates the patents and patent applications listed and described as being owned by the Shareholders or their affiliates on Schedule 5.1.13 attached hereto (the "Shareholder Patent Rights" and together with the Seller Patent Rights, the "Patent Rights"), and the Shareholders shall sell and cause their affiliates to sell to Buyer the Shareholder Patent Rights; provided that none of the Shareholders and their respective affiliates shall be entitled to any payment or other consideration for the Shareholder Patent Rights, it being understood that the consideration therefor is included as part of the Purchase Price (as that term is defined in section 2.1.2). 1.3 No Assumption of Liabilities. Anything herein to the contrary notwithstanding, the parties intend and agree that Buyer shall not under any circumstances assume or become liable for or obligated to pay or discharge any debt, duty, obligation or liability of Seller, and Seller shall pay and discharge all of the same as they become due; provided that Buyer shall assume and pay or discharge when due all debts, duties, obligations and liabilities of Seller accruing after the closing hereunder under all Assigned Contracts that are duly and validly assigned to Buyer on the Closing Date. 2. Payment and Delivery. Subject to and in reliance on the respective representations, warranties and agreements of Buyer, Seller and the Shareholders and subject to the terms and conditions provided in this Agreement: 2.1 Purchase Price. 2.1.1 Initial Calculation. Subject to the post-closing adjustment pursuant to section 2.1.2, the initial purchase price of the Assets (the "Initial Purchase Price") shall be $2,500,000.00, reduced by: (a) $465,856.40, being the principal amount advanced by Buyer to Seller pursuant to that certain Loan and Security Agreement dated as of September 25, 2000, between Buyer and Seller; (b) an amount equal to all interest on such principal amount accrued as of the Closing Date; and 3 4 (c) the aggregate amount of the Excluded Assets as of the Closing Date. 2.1.2 Post-Closing Adjustment. The Initial Purchase Price shall be adjusted as provided in this section 2.1.2 (as so adjusted, the "Purchase Price"). Within ninety days from the Closing Date, Buyer shall prepare a balance sheet of Seller as of the Closing Date (the "Closing Date Balance Sheet") in accordance with Generally Accepted Accounting Principals ("GAAP"), and shall calculate the total assets of Seller shown on the Closing Date Balance Sheet and the total assets of Seller shown on Seller's balance sheet as of June 30, 2000, which Seller furnished to Buyer and which is attached hereto as Schedule 2.1.2 (the "June 30 Balance Sheet"), and by adding back to the Closing Date Balance Sheet any amount of depreciation shown on the Closing Date Balance Sheet in excess of the amount of depreciation shown on the June 30 Balance Sheet. Buyer shall promptly notify Seller of the amount by which such total assets as so calculated shown on the Closing Date Balance Sheet are more or less than such total assets as so calculated shown on the June 30 Balance Sheet (hereinafter called the "Asset Surplus" or the "Asset Shortfall," respectively) and shall include in such notice the manner and basis for such calculation. Buyer's determination of the Asset Surplus or the Asset Shortfall shall be final, binding and conclusive in the absence of fraud, bad faith and manifest error; provided that accounts receivable over ninety days will not be considered assets for purposes of this section 2.1.2. 2.2 Payments. 2.2.1 At Closing. On the Closing Date, Buyer shall pay the Initial Purchase Price to Seller by check or wire transfer in accordance with such written instructions as Seller may furnish to Buyer at least three business days prior to the Closing Date, minus $200,000 (the "Payables Holdback"), which will be held back from Purchase Price to pay trade accounts payable or debts that (a) are set forth in Schedule 5.1.31 and are not paid by Seller within thirty days from the Closing Date or (b) are not specifically or accurately set forth in Schedule 5.1.31 on the Closing Date. Seller shall pay in full, on the Closing Date, all of the Trade Payables and deliver to Buyer evidence thereof satisfactory to Buyer. 2.2.2 Asset Value Adjustment. Within ten days after Buyer notifies Seller of the Asset Surplus or the Asset Shortfall, Seller shall pay in cash to Buyer the amount of the Asset Shortfall, if any, or Buyer shall pay in cash to Seller the amount of the Asset Surplus, if any. 2.2.3 Payables Holdback. If, within ninety days after the Closing Date (the "Holdback Period"), Buyer shall determine that Seller owes any amount as a trade account payable or debt accrued prior to the Closing Date and not shown on Schedule 5.1.31, or shown on Schedule 5.1.31 but not paid in full pursuant to section 2.2.1, Buyer shall pay such amount out of the Payables Holdback, to the extent thereof. If any portion of the Payables Holdback shall not have been so paid on or before the expiration of the Holdback Period, Seller shall promptly pay such portion to Buyer, without interest; provided that Buyer shall have the right to offset against such portion any other amount owing by Seller to Buyer hereunder or otherwise. 4 5 2.3 Delivery of Certain Assets. At the closing on the Closing Date, Seller shall deliver to Buyer (a) originals or true and complete copies of all Assigned Contracts, all Code Approvals and all Patent Rights, (b) all warranties or guaranties received by Seller from any contractors, subcontractors, suppliers or materialmen in connection with Seller's business, (c) originals or true and complete copies of all building permits and certificates of occupancy in the possession of Seller that have been issued for the buildings occupied by Seller, (d) such written notices as Buyer may request, executed by Seller and addressed to all parties to Assigned Contracts (other than Seller) and to taxing authorities having jurisdiction over any or all of the Assets, notifying such parties and authorities of the sale of the Assets and changing the address for service of notice and delivery of statements and bills, (e) keys and combinations to all doors and gates in all premises occupied by Seller and all tangible personal property included among the Assets, which keys and combinations shall be properly and clearly tagged for identification, and (f) any other documents, instruments or agreements required hereunder which are not otherwise delivered. 2.4 Bill of Sale and Assignment. At the closing on the Closing Date, Seller shall deliver to Buyer a Bill of Sale and Assignment, in substantially the form of Exhibit A attached hereto (the "Bill of Sale"), listing or describing all of the Assets. Seller shall also deliver to Buyer at or prior to the closing, a certificate from each of the Indiana Secretary of State and the California Secretary of State and other appropriate governmental officials confirming that as of the Closing Date there are no filings against Seller or any of the Assets in the office of either such Secretary of State or such other governmental officials under any applicable Uniform Commercial Code that would be a lien on any of the Assets specified (other than such filings, if any, as either are in favor of Buyer as creditor or are released at the time of the closing). 2.5 The Closing. The closing of the sale and purchase of the Assets hereunder shall take place at the offices of Shartsis, Friese & Ginsburg LLP, counsel for Buyer, at One Maritime Plaza, 18th Floor, San Francisco, California, at 10:00 a.m., California time, on ____________, 2000, or at such other place, time and date as shall be mutually satisfactory to the parties (the "Closing Date"); provided that the closing may be extended, at the election of either party, to any date not later than November 30, 2000, if the condition in section 3.1.5 shall not have been satisfied or waived by Buyer. On the Closing Date, Seller shall deliver to Buyer, in addition to the matter otherwise required hereby, such other certificates, instruments and documents as Buyer may request to evidence or perfect Buyer's ownership of the Assets, and Seller shall turn over to Buyer possession of all of the Assets. 2.6 Earn-Out Payment Provisions. 2.6.1 Definitions. The following terms have the following meanings: (a) "Earn-out Year" means a calendar year ending on December 31, 2001, 2002 or 2003. (b) "Minimum Revenue Level" means Product Revenues of $5,500,000 for the Earn-out Year ending December 31, 2001, $7,5000,000 for the Earn-out Year ending December 31, 2002, and $10,000,000 for the Earn-out Year ending December 31, 2003. 5 6 (c) "Products" means the products listed and described on Schedule 2.6 attached hereto, all of which are regularly manufactured or sold by Seller. (d) "Product Revenues" means the aggregate gross revenues (determined by Buyer in accordance with GAAP from Buyer's sales reports prepared in the ordinary course of Buyer's business) from sales by Buyer of Products, reduced by discounts, rebates and charges for returns of any Products not sold. 2.6.2 Payment Obligation. Subject to and except as provided in section 2.6.3, Buyer shall pay to Seller, within sixty days after the end of each Earn-out Year a payment (an "Earn-out Payment") in the amount of $100,000, if (a) during such Earn-out Year, Buyer receives all of the vendor discounts set forth in Schedule 2.6.2, and (b) the Product Revenues for such Earn-out Year exceed the Minimum Revenue Level for such Earn-out Year. Each such payment shall be made to Seller, or as Seller may direct, by check or wire transfer in accordance with instructions provided by Seller to Buyer not later than March 1 of the year when such payment is required to be made. 2.6.3 Failure to Achieve Minimum Revenue Level. (a) Provided that the condition in clause (a) of section 2.6.2 is satisfied, if the Minimum Revenue Level for an Earn-out Year is not achieved but the Minimum Revenue Level for a subsequent Earn-out Year is achieved, Seller shall be entitled to receive Earn-out Payments for both of such Earn-out Years. (b) Provided that the condition in clause (a) of section 2.6.2 is satisfied, if Product Revenues exceed $7,500,000 but are less than $10,000,000 for the Earn-out Year ending December 31, 2003, Seller shall be entitled to receive a pro rata portion of the Earn-out Payment for that Earn-out Year, determined by multiplying the Earn-out Payment for that Earn-out Year by the quotient of the amount of Product Revenues for that Earn-out Year in excess of $7,500,000 divided by $2,500,000. 2.6.4 Aggregate Maximum. Anything herein to the contrary notwithstanding, Buyer shall have no obligation whatsoever under this section 2.6 to pay any amount in excess of $300,000 in the aggregate. 2.7 Allocation of Purchase Price. The parties shall allocate the Purchase Price and all payments made under section 2.6 among the Assets as set forth in Schedule 2.7 attached hereto. The parties agree consistently to state or report such allocation on all tax and information returns and statements and other statements, notices or other documents furnished or submitted to or filed with any governmental bureau, agency or instrumentality of the United States or any state, territory, protectorate, possession or other jurisdiction of the United States or any political subdivision thereof. 3. Conditions to Parties' Obligations. 3.1 Conditions to Buyer's Obligations. The obligation of Buyer to purchase the Assets and all other obligations of Buyer hereunder shall be subject to the satisfaction on or prior to the Closing Date of the following conditions precedent: 6 7 3.1.1 Due Diligence. Buyer shall have completed to Buyer's satisfaction such review, examination and inspection of Seller's assets, business, operations and affairs as Buyer may consider advisable. 3.1.2 Representations and Warranties. The representations and warranties of Seller and the Shareholders in this Agreement shall be true and complete on and as of the Closing Date with the same effect as if those representations and warranties had been made on and as of the Closing Date, and Seller shall have delivered to Buyer a certificate to that effect dated the Closing Date and signed by the President and the Secretary of Seller; provided that, immediately prior to the closing hereunder, Seller shall have amended section 5.1.31 to contain a complete and accurate list of all Trade Payables (as that term is defined in Schedule 5.1.31) and the respective amounts thereof at that time, certified by the President and the Secretary of Seller to be true and complete as of the Closing Date. 3.1.3 Conditions and Covenants. On or prior to the Closing Date, Seller shall have performed or satisfied all covenants, agreements and conditions to be performed or satisfied on or prior to the Closing Date by Seller hereunder, and Seller shall have delivered to Buyer a certificate to that effect dated the Closing Date and signed by the President and the Secretary of Seller. 3.1.4 Consents and Waivers. Seller shall have obtained all necessary consents and waivers with respect to the sale, conveyance, transfer and delivery of Assets from all parties to any Assigned Contracts and Code Approvals, with regard to which any such consent or waiver is required to effect any of such sales, conveyances, transfers or deliveries, to prevent acceleration of the maturity of any indebtedness secured by a lien on real or personal property, or to prevent the termination of any of the Assigned Contracts and Code Approvals, except in any instance in which Buyer in its exclusive discretion deems the obtaining of such consents or waivers not material. 3.1.5 Permits. Buyer shall have obtained such licenses, permits, authorizations and approvals from all federal, state, local and other governmental agencies, instrumentalities and authorities that Buyer may consider necessary or advisable for its purchase of the Assets and for the conduct by Buyer of the business of Seller from and after the Closing Date as Seller has heretofore conducted such business. 3.1.6 Inventory. Buyer shall have inspected the Inventory and found it to be in good and marketable condition and otherwise satisfactory. 3.1.7 Books and Records. Seller shall have furnished to Buyer and Buyer shall have reviewed and approved all of the books and records of Seller. 3.1.8 Licenses and Contracts. Seller shall have furnished to Buyer and Buyer shall have reviewed and approved all of the licenses and permits to which clause (b) of section 1.1.3 refers (including, without limitation, all of the Code Approvals) and all Assigned Contracts and all other material contracts, agreements, purchase orders, leases, commitments or understandings, whether written or oral, relating to the business of Seller and to which Seller is a party or by which any of the Assets are bound or affected. 7 8 3.1.9 Bill of Sale. Seller shall have duly executed, acknowledged and delivered the Bill of Sale to Buyer. 3.1.10 Assignments of Intellectual Property. Seller, the Shareholders and affiliates of the Shareholders, as appropriate, shall have duly executed, acknowledged and delivered to Buyer an Assignment of Patent Rights (the "Patent Assignment") and an Assignment of Trademark (the "Trademark Assignment") in substantially the forms of Exhibits B and C, respectively, attached hereto. 3.1.11 Business Relationship. Seller shall have furnished to Buyer the names and addresses and all pertinent information regarding all customers, employees, suppliers, distributors and others who have business relationships with Seller and shall have introduced Buyer to each of them, and Buyer shall have satisfied itself that each of such relationships may reasonably be expected to be continued with Buyer from and after the Closing Date. 3.1.12 Opinion of Counsel. On the Closing Date, Seller and the Shareholders shall have delivered to Buyer an opinion, dated the Closing Date, of McNeeley, Stephenson, Thopy & Harrold, counsel for Seller and the Shareholders, to the effects set forth in Exhibit D attached hereto. 3.1.13 Supply Contract. Peterson & Company shall have entered into a Supply Contract with Buyer in substantially the form attached hereto as Exhibit E ("Supply Contract"). 3.2 Conditions to Seller's Obligations. The obligation of Seller to sell the Assets and all other obligations of Seller and the Shareholders hereunder shall be subject to the satisfaction on or prior to the Closing Date of the following conditions precedent: 3.2.1 Representations and Warranties. The representations and warranties of Buyer in this Agreement shall be true and complete on and as of the Closing Date with the same effect as if those representations and warranties had been made on and as of the Closing Date, and Buyer shall have delivered to Seller a certificate to that effect dated the Closing Date and signed by the President and the Secretary of Buyer. 3.2.2 Conditions and Covenants. On or prior to the Closing Date, Buyer shall have performed or satisfied all covenants, agreements and conditions to be performed or satisfied on or prior to the Closing Date by Buyer hereunder, and Buyer shall have delivered to Seller a certificate to that effect dated the Closing Date and signed by the President and the Secretary of Buyer. 3.3 Failure of Condition. 3.3.1 Buyer's Remedies. If any of the conditions specified in section 3.1 are not satisfied, Buyer shall have the right, at its exclusive election, either to waive the condition in question and proceed with the purchase of the Assets or to terminate this Agreement; provided that the Closing Date may be extended, at Buyer's exclusive election, for a reasonable period to allow all of such conditions to be satisfied, subject to Buyer's further right to terminate this Agreement on the expiration of the period of the extension if all of such conditions shall not then 8 9 have been satisfied. If Buyer so elects to terminate this Agreement, neither Buyer nor Seller nor any of the Shareholders shall have any further rights or obligations under this Agreement, except that the covenants and agreements in sections 4.3, 4.5.4 and 4.11 shall survive any termination of this Agreement. Notwithstanding any of the foregoing provisions of this section 3.3.1 to the contrary, in the event of any breach by any of Seller and the Shareholders of any covenant or agreement herein or hereunder, Buyer may elect nevertheless either (a) to proceed with the purchase of the Assets, reserving the right to recover damages for such breach from Seller and the Shareholders, or (b) to terminate this Agreement by notice to Seller on or prior to the Closing Date, and on such termination, Buyer shall be relieved of all obligations and liabilities hereunder and Buyer may proceed against Seller and the Shareholders to recover any damages occasioned by such breach. 3.3.2 Seller's Remedies. If any of the conditions in section 3.2 are not satisfied, Seller shall have the right, at Seller's exclusive election, either to waive the condition in question and proceed with the sale or to terminate this Agreement; provided that the Closing Date may be extended, at Seller's exclusive election, for a reasonable period to allow all of such conditions to be satisfied, subject to Seller's further right to terminate this Agreement on the expiration of the period of the extension if all of such conditions shall not then have been satisfied. If Seller so elects to terminate this Agreement, neither Buyer nor Seller nor the Shareholders shall have any further rights or obligations under this Agreement, except that the covenants and agreements in sections 4.3, 4.5.4 and 4.11 shall survive any termination of this Agreement. 4. Covenants. 4.1 Permits. Buyer shall, at its own expense, forthwith apply for and diligently pursue the issuance of the licenses, permits, authorizations and approvals to which section 3.1.5 refers. Buyer shall take all reasonable actions to apply for the same and shall diligently and in good faith process such applications and avoid taking any action that would delay the investigation and processing thereof by the appropriate governmental authorities. Seller shall cooperate fully and in good faith with Buyer, as and to the extent that Buyer may reasonably request, in making and processing such applications, and Seller shall execute and deliver all such certificates, instruments and documents as Buyer may reasonably request in connection therewith. 4.2 Assignments of Permits, Contracts, Patent Rights and Trademarks. Seller shall apply for and obtain legal, valid and binding assignments to Buyer of the permits, authorizations and licenses to which clause (b) of section 1.1.3 refers (including, without limitation, all of the Code Approvals) and to the Assigned Contracts, and all consents and waivers in connection therewith that Buyer may reasonably consider to be necessary or advisable. Seller shall also execute, acknowledge and deliver the Patent Assignment and the Trademark Assignment. Seller and the Shareholders shall cooperate, and the Shareholders shall cause their affiliates to cooperate, fully and in good faith with Buyer to record the Patent Assignment and the Trademark Assignment in accordance with the requirements of the United States Patent and Trademark Office to effect the assignment and transfer of exclusive rights to the letters patent, applications for letters patent, trademark registrations and applications for trademark registrations included in the Assets. Buyer shall cooperate fully and in good faith with 9 10 Seller, as and to the extent that Seller may reasonably request, in obtaining the same, and Buyer shall execute and deliver all such certificates, instruments and other documents as Seller may reasonably request in connection therewith. 4.3 Indemnity. 4.3.1 By Buyer. Buyer agrees to indemnify and defend Seller, its directors, officers, employees and agents and the Shareholders and to hold them harmless from and against any and all claims, liabilities, damages and expenses (including, without limitation, the fees and expenses of attorneys and expert witnesses, the costs of investigation and court costs) suffered or incurred by them, when and as suffered or incurred, whether or not any of such claims, liabilities, damages or expenses are suffered or incurred in connection with the ownership, operation, use, sale or possession of any of the Assets, (a) in connection with the Assigned Contracts and arising after the Closing Date, to the extent that such claims, liabilities, damages or expenses are specifically disclosed in writing by Seller to Buyer and accepted in writing by Buyer prior to the Closing Date, or (b) as a direct or indirect result of any breach of any covenant, agreement, representation or warranty by Buyer hereunder. 4.3.2 By Seller and the Shareholders. Seller and the Shareholders, jointly and severally, agree to indemnify and defend Buyer and Buyer's directors, officers, employees and agents and to hold them harmless from and against any and all claims, liabilities, damages and expenses (including, without limitation, the fees and expenses of attorneys and expert witnesses, the costs of investigation and court costs) suffered or incurred by them, when and as suffered or incurred, whether or not any of such claims, liabilities, damages or expenses are suffered or incurred in connection with the ownership, operation, use, sale or possession of any of the Assets, directly or indirectly in connection with (a) the Assigned Contracts and arising on or prior to the Closing Date, to the extent that any of such claims, liabilities, damages and expenses are not specifically disclosed in writing by Seller to Buyer or are not accepted by Buyer prior to the Closing Date, or (b) any written or oral contracts, agreements, understandings or commitments that are not included in the Assets or are not legally and validly assigned hereunder, or (c) any breach of any covenant, agreement, representation or warranty by any of Seller and the Shareholders hereunder, (d) any infringement or violation by Seller of any intellectual property rights of any other person, or (e) any flaw or default in the design, materials used in, manufacture or installation of any Product manufactured or sold by Seller, or (f) the use or ownership of any of the Intangible Property. 4.3.3 Limitations. Anything herein to the contrary notwithstanding, neither Buyer nor Seller and the Shareholders shall have any liability or obligation under section 4.3.1 or 4.3.2, respectively, (a) with respect to any claim, liability, damage or expense suffered or incurred by the other party unless and until the aggregate of all such claims, liabilities, damages and expenses exceed $25,000, (b) with respect to any claim, liability, damage or expense suffered or incurred by a party seeking indemnity hereunder, if such party does not provide notice thereof to the other party within ninety days of the date that such party is notified of such claim for indemnity, to the extent (but only to the extent) that the party entitled to notice is prejudiced by the failure to receive notice within such ninety-day period, or (c) with respect to any claim made against such party more than five years after the Closing Date; provided that the 10 11 aggregate liability of the Shareholders under section 4.3.2 for product liability claims shall not exceed $1,000,000. 4.4 Operation Prior to Closing Date. Prior to the closing on the Closing Date, Seller and the Shareholders shall use their best efforts to preserve the organization of Seller intact, keep available the services of Seller's employees and preserve Seller's relationships with suppliers, distributors, customers and others having business relations with Seller. Prior to the closing on the Closing Date and except as may be first approved by Buyer or as is otherwise permitted by this Agreement, (a) Seller shall conduct its business only in the usual and ordinary course and the character and extent of its business shall not be changed, (b) no increase shall be made in the compensation payable or to become payable by Seller to any of its employees, nor shall any bonus payment or arrangement be made by Seller to or with any such employee, (c) Seller shall not acquire or dispose of any Assets except for sales of inventory in good faith in the usual and ordinary course of business and, in the event of any disposition of any Asset, shall replace such Asset as may be reasonable in the ordinary conduct of business, (d) Seller shall maintain all tangible Assets in good condition and repair and in accordance with all applicable laws, rules and regulations, as is reasonable in the ordinary course of business, and (e) Seller shall not, and the Shareholders shall not suffer or permit Seller to, declare or pay any dividend or other distribution to its shareholders, as such. 4.5 Buyer's Investigation. 4.5.1 Entry and Inspection. Seller and the Shareholders shall make available to Buyer and Buyer's officers, employees, attorneys, accountants and other authorized representatives reasonable access at all times to all of the Assets and related properties, operations, books and financial records, contracts, commitments and sales, production and maintenance records, will permit Buyer and such representatives to enter any real property occupied by Seller, will make Seller's officers, employees, agents, contractors and consultants and the Shareholders available to Buyer and such representatives so that Buyer may make such inquiries as Buyer may deem appropriate, and will furnish Buyer with all information concerning the Assets and the operations, affairs and business of Seller as is required hereby or as Buyer may reasonably request. 4.5.2 No Waiver. Anything in this Agreement to the contrary notwithstanding, no inquiry or investigation by or on behalf of Buyer shall constitute a waiver of, negate, abrogate or otherwise affect the validity of any representation, warranty or covenant of Seller or the Shareholders in, pursuant to or in connection with this Agreement or modify or affect any of Seller's or any Shareholder's obligations or Buyer's rights herein or hereunder in the event of any breach of any such representation, warranty or covenant. 4.5.3 Indemnity. Buyer agrees to indemnify and defend Seller and hold Seller harmless from and against any and all mechanics' liens, physical damage to property or persons and claims arising therefrom, and losses arising out of any interference with contractual relations between Seller and third parties, if any of the foregoing result from entry by Buyer or such representatives on premises occupied by Seller pursuant to section 4.5.1. 11 12 4.5.4 Return of Materials. On any termination of this Agreement without consummation of the transactions contemplated hereby, Buyer shall return to Seller all documents, work papers and other materials (including all copies thereof) in connection with the transactions contemplated hereby and shall use all reasonable efforts to keep confidential any information obtained pursuant to this Agreement, unless disclosure is required by law or unless such information has otherwise been obtained by third parties without any obligation of confidentiality to Seller through no fault of Buyer. 4.6 Further Assurances. Seller and the Shareholders shall cooperate with Buyer, at Buyer's request, after the Closing Date and without further consideration, (a) to execute, deliver, record and publish as Buyer considers appropriate such other certificates, instruments and documents of sale, assignment, transfer and conveyance of the Assets, and take such other action, as Buyer may reasonably request more effectively to convey, assign, sell and transfer to or vest in Buyer, and to put Buyer in possession of, any and all of the Assets, (b) in the case of Assigned Contracts, if any, that have not at the Closing Date been transferred effectively due to the lack of consents of third parties, to continue to endeavor to obtain such consents promptly and, if any such consents are not obtainable, to provide Buyer with the benefit thereof in some other manner, and (c) to assist Buyer in connection with any actions, proceedings or arrangements or disputes relating to ownership of and other rights in the Assets. The parties shall each do or perform such further acts and things and execute and deliver such further certificates, instruments and other documents as may be reasonably necessary and proper to implement the intent of the parties as expressed in this Agreement. 4.7 Proceedings. Each party shall promptly inform the other of the making of any threat or claim or the commencement of any investigation, litigation or proceeding against or affecting Seller, the business or operations of Seller, the Assets or any of the transactions contemplated hereby. 4.8 Employees. From and after the closing hereunder, Buyer shall not assume any obligation or liability of any nature whatsoever with respect to, and shall have no duty to employ, any of the employees of Seller, or any consultants engaged to render services to Seller; and Seller shall deliver the Assets to Buyer free and clear of any such obligations, liabilities and duties. Notwithstanding the foregoing, Buyer shall be permitted to interview the individuals employed or engaged by Seller during the thirty-day period prior to the closing and the thirty-day period following the closing to determine which employees and consultants Buyer might desire to employ or engage after the Closing Date. The hiring of any such employees or consultants by Buyer shall be on such terms and conditions as may be agreeable to Buyer and shall be without regard to the terms and conditions of the employment or engagement of such individuals established by Seller prior to the Closing Date. 4.9 Sales Tax. Except as specifically provided in section 4.10, Seller shall pay when due, to the appropriate governmental authority or authorities, all sales, use and excise taxes and levies, if any, arising from the sale of any of the Assets hereunder. 4.10 Prorations. Real property taxes, water, sewer, gas, electric, telephone and other utility charges, permit fees, inspection fees, insurance premiums (as to those policies, if any, that Buyer determines will be continued for Buyer's benefit after the Closing Date), and 12 13 other expenses normal to the operation and maintenance of the business of Seller shall be prorated as of 12:01 a.m. on the Closing Date on the basis of a 365-day year. If any of the aforesaid prorations cannot be calculated accurately at such time on the Closing Date, the same shall be calculated within thirty days after the Closing Date and either party owing the other a sum of money based on such subsequent proration shall promptly pay said sum to the other party. 4.11 Expenses. Each party shall pay all costs, expenses and fees of his or its own attorneys, accountants, auditors and other advisers and consultants incurred in negotiating the terms and conditions of this Agreement, making any investigation in connection herewith, preparing and executing this Agreement and any certificates, instruments and documents necessary in connection herewith and consummating the transactions contemplated hereby. 4.12 Risk of Loss. Risk of loss, damage or destruction of any of the Assets shall be borne by Seller and the Shareholders until the closing on the Closing Date and delivery of possession thereof to Buyer. 4.13 Bulk Sales. Seller either (a) shall pay or otherwise discharge in full all of Seller's debts, duties, obligations and liabilities of any nature whatsoever on or prior to the Closing Date and provide to Buyer on or prior to the Closing Date evidence thereof that is satisfactory to Buyer, or (b) shall forthwith effect compliance, at Seller's own expense, with the bulk sales laws of the States of California and Indiana, Article 6 of the Uniform Commercial Code as in effect in such States, and if Seller elects to effect such compliance, Buyer shall cooperate with and assist Seller therewith as Seller may reasonably request. 4.14 Casualty and Condemnation. If, prior to the closing on the Closing Date, any of the Assets or any part of any Asset is destroyed or materially damaged, or if condemnation proceedings are commenced against any of the Assets, Buyer shall have the right, exercisable by notice to Seller within fifteen days after receiving actual notice of such damage, destruction or condemnation proceedings, to terminate this Agreement, in which event neither Seller nor the Shareholders nor Buyer shall have any further rights or obligations hereunder, except that the covenants and agreements in sections 4.3, 4.5.4 and 4.11 shall survive such termination. If Buyer does not so elect to terminate this Agreement, Buyer may elect to accept the Assets in their then condition and all proceeds of insurance or condemnation payable to Seller by reason of such damage, destruction or condemnation shall be paid and assigned to Buyer. In the event of any immaterial damage to any Assets that Seller is unwilling to repair or replace, Buyer shall have the right, exercisable by notice within fifteen days after receiving actual notice of such damage, either (a) to terminate this Agreement as provided above in this section 4.14 or (b) to accept the Assets in their then condition and proceed with the purchase, in which event Buyer shall be entitled to a reasonable reduction of the Purchase Price to offset the cost of repairing or replacing the damaged Assets. 4.15 Buyer's Consent to New Contracts. None of Seller and the Shareholders shall hereafter enter into any oral or written lease, amendment of lease, contract, agreement, commitment or understanding pertaining to any of the Assets, other than in the ordinary course of Seller's business as heretofore conducted, without obtaining Buyer's prior written consent thereto, which consent shall not be unreasonably withheld. 13 14 4.16 Brokers and Finders. Buyer represents and warrants to Seller and the Shareholders, and Seller and the Shareholders represent and warrant to Buyer, that it or they, respectively, have not had any contact or dealings regarding any of the Assets, or communications in connection with the subject matter of this Agreement, with or through any broker or finder who can claim a valid and lawful right to a commission or fee as a procuring cause of the transactions contemplated hereby. If any such broker or finder perfects a claim for any commission or fee based on any such contact, dealings or communications, the party or parties through whom or by whose authority such broker or finder makes such claim shall be responsible for such commission or fee and all costs and expenses (including reasonable attorneys' fees) incurred by the other party or parties in defending the same. 4.17 No Solicitation. Prior to the Closing Date, none of Seller or the Shareholders shall contact, solicit or discuss or negotiate with any person other than Buyer any of the transactions contemplated hereby, the possible sale to any person of the Assets or any substantial part thereof or any of the capital stock of the Seller or any possible business combination involving Seller. 4.18 Publicity. Prior to the closing on the Closing Date, no publicity, release, announcement, notice, statement or report concerning the transactions contemplated hereby shall be issued by any party without the prior approval of the form and substance thereof by Buyer and Seller; provided that Buyer and its affiliates shall have the right, in their absolute discretion, to make or file with the Securities and Exchange Commission or any other governmental agency such releases, announcements, notices, statements or reports as they may determine to be necessary or advisable for Buyer or any of its affiliates to comply with applicable laws, rules and regulations. 4.19 Consultation by Seller. From and after the Closing Date, Seller shall, without further consideration, cooperate with and assist Buyer in effecting an orderly transition of ownership and operation of the Assets and the business of Seller as contemplated hereby. 4.20 Noncompetition. None of Seller and the Shareholders shall, at any time within three years after the Closing Date, directly or indirectly, own an interest in, join, operate, control or participate in, or be connected as an officer, employee, agent, independent contractor, consultant, partner, member, manager, shareholder (except as holder of not more than one percent of the outstanding stock of any corporation, which stock is actively and publicly traded) or principal with, any corporation, limited liability company, partnership, joint venture, proprietorship, association, firm or other entity or person engaged in any business that would be competitive with the business of Seller as conducted by Seller on or prior to the Closing Date in any state where Seller shall have conducted business or where any customer of Seller is located on or prior to the Closing Date; provided that this section 4.20 shall not prohibit Peterson from continuing to be engaged in the business activities unrelated to Seller's business in which he is engaged on the date hereof, so long as such activities do not include the design, manufacture or sale for or to persons other than Buyer of any of the products described on Schedule 2.6 or any parts or components thereof; and provided further that, during the three-year period beginning on the Closing Date, Peterson shall not, and shall not permit Peterson & Company to, design or manufacture powder actuated tools for or sell any powder actuated tools to any person other than Buyer, except strictly in accordance with the Supply Contract. Notwithstanding the foregoing 14 15 provision for a three-year period, this section 4.20 shall only apply for a period of one year for Swiggard and Manzo if, and only if, during such one-year period Buyer shall maintain non-exclusive distribution areas for Masterset brand name products with Swiggard or Manzo. If Buyer fails to maintain the non-exclusive distribution areas for Swiggard or Manzo, through no fault of Swiggard or Manzo, Swiggard and Manzo shall have no further obligation under this section 4.20. 4.21 Name Change. On or promptly after the Closing Date (and in any event within ten days thereafter), Seller shall change its name to a name that does not include any of the words in Seller's name at the date hereof or any variation or abbreviation thereof, which new name is not similar to Seller's name at the date hereof. 4.22 Seller's and Shareholders' Representative. Seller and the Shareholders hereby designate and appoint Berry as their attorney-in-fact and agent, to act in their place and stead and on their behalf, in connection with all matters arising under or relating to this Agreement, including, without limitation, the defense and settlement of all claims within the scope of their indemnification obligations under section 4.3.2 of this Agreement. Such attorney-in-fact shall have full power and authority to do and perform every act, deed, matter and thing whatsoever in connection therewith, as fully and effectually to all intents and purposes as Seller or the Shareholders might or could do in person if personally present. This power of attorney shall become effective on the date of this Agreement and shall terminate when all of Seller's and the Shareholders' obligations under this Agreement are satisfied in full or expire. This power of attorney shall not be affected by the disability or death of any of the Shareholders and shall be irrevocable for its term. Any person acting without negligence and in good faith in reasonable reliance on this power of attorney shall not incur any liability thereby. Any actions so taken, unless otherwise invalid or unenforceable, shall be binding on the successors, assigns, heirs and personal representative of Seller and the Shareholders. Buyer shall be entitled to rely on instructions of the attorney-in-fact without reservation, unless and until all the Shareholders and Seller state to the contrary by written notice to Buyer signed by all of them. 5. Representations and Warranties. 5.1 Of Seller and the Shareholders. Seller and Shareholders, jointly and severally, hereby represent and warrant to and agree with Buyer, as follows: 5.1.1 Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana, and has full power and authority to carry on its business as now conducted and to own its assets. Seller is duly qualified to conduct business and is in good standing as a foreign corporation under the laws of each jurisdiction where, by virtue of its business conducted therein, it is required to be so qualified. The copies of the Articles of Incorporation and Bylaws of Seller heretofore delivered by Seller to Buyer are true and complete copies thereof as in effect on the date hereof. The minute books of Seller, true and complete copies of which have heretofore been furnished by Seller to Buyer, contain substantially accurate records of all meetings of Seller's Board of Directors, all committees of such Board of Directors, and Seller's shareholders since inception and accurately reflect all material transactions to which such minutes refer. 15 16 5.1.2 Capitalization. The authorized capital stock of Seller consists of 1,000 shares of common stock, of which 1,000 shares have been validly issued and are outstanding, fully paid, nonassessable and free of preemptive and similar rights. Such issued and outstanding shares and all right, title and interest therein, of record and beneficial, are owned by the persons and in the amounts stated on Schedule 5.1.2 attached hereto. No shares of capital stock of Seller have been issued, sold, transferred, assigned, pledged, hypothecated or otherwise disposed of since 1991. 5.1.3 Subsidiaries. Seller has no subsidiaries and does not own of record or beneficially any capital stock or other equity securities issued by any other person. 5.1.4 Options, Warrants, Convertible Securities, etc. There are no outstanding options, rights, warrants, convertible securities, commitments or agreements calling for the issuance or the transfer, sale or disposition by any person of any shares of capital stock of Seller or of any securities convertible into or exchangeable therefor. 5.1.5 Directors and Officers. The directors and officers of Seller are as set forth on Schedule 5.1.5 attached hereto. No other person is a director or officer of Seller. 5.1.6 No Restriction on Transaction. Neither Seller nor any of the properties, business or operations of Seller nor any of the Shareholder Patent Rights is subject to (a) any mortgage, pledge, lien, claim, charge, encumbrance, security interest or other restriction or defect in title (each, a "Lien"), except as shown on Schedule 5.1.6 attached hereto, each of which Liens will be discharged and released on or prior to the Closing Date, or (b) any indenture, lease, agreement, instrument, law, statute, code, ordinance, rule, regulation, order, judgment or decree, or any other restriction, that would interfere with consummation of the transactions contemplated by this Agreement or the conduct by Seller of its business and operations hereafter or the conduct of such business by Buyer from and after the closing hereunder. This Agreement has been duly authorized, executed and delivered by each of Seller and the Shareholders and is the legal, valid and binding agreement of each of them, enforceable against each of them in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws relating to or affecting the rights of creditors generally and except for limitations imposed by general principles of equity on the availability of equitable remedies. 5.1.7 No Conflicts. The execution and delivery by each of Seller and the Shareholders of this Agreement, the performance by each of them of its or his respective obligations hereunder and its or his performance of, fulfillment of and compliance with all of the terms and conditions hereof, do not and will not conflict with, breach or result in a breach of the terms, conditions or provisions of, or constitute a default under, result in the creation of any Lien on any of its or his properties pursuant to, give any third party the right to accelerate any obligation under, violate or result in a violation of, or require any authorization, consent, approval, exemption or other action by or notice to any person or any court or administrative or governmental body or agency pursuant to, any agreement, indenture, mortgage, instrument, law, statute, code, ordinance, rule, regulation, order, judgment or decree to or by which any of them or any of the Assets is a party, is subject or is bound. 16 17 5.1.8 Financial Statements. Seller has furnished to Buyer Seller's financial statements consisting in each case of unaudited balance sheets as of December 31, 1998 and 1999, and the related unaudited statements of earnings and cash flows for the years then ended, accompanied in each case by the compilation or review report of independent certified public accountants, and Seller's unaudited balance sheets as of March 31 and September 30, 2000, and the related statements of earnings and cash flows for the three-month and nine-month periods, respectively, then ended. Such financial statements are complete and correct and fairly present the financial position and results of operations of Seller at the dates and for the periods indicated, in conformity with GAAP consistently applied throughout such periods, except to the extent disclosed in such statements. At the respective dates of such financial statements, there were no material liabilities of Seller (actual, contingent or accrued) which, in accordance with GAAP, should have been shown or reflected therein or in the notes thereto which are not shown or reflected therein. 5.1.9 Changes in Condition. Since March 31, 2000, there has not been (a) any change in the assets or liabilities or condition (financial or other) of Seller from that set forth in Seller's balance sheet as of that date, except changes in the ordinary course of business, none of which has been material or adverse, (b) any damage, destruction or loss materially or adversely affecting Seller or its business or the Assets, whether covered by insurance or not, (c) any substantial increase in the compensation paid or payable to any employee of Seller, including any direct or indirect form of payment made to or with respect to any such person, or (d) any labor dispute involving Seller. 5.1.10 Books of Account. The books of account of Seller are complete and correct in all material respects and have been furnished to Buyer, and all monies due or to become due from or to or owing by, and all liabilities (actual, contingent or accrued) of, Seller by reason of any transaction, matter, cause or thing which, in accordance with GAAP should be entered therein, have been duly, correctly and completely entered therein. 5.1.11 Validity of Contracts. The Assigned Contracts are legal, valid, binding and subsisting agreements of Seller and each other party thereto, enforceable against each other party thereto in accordance with their respective terms. No party to any contractual arrangements with Seller (including Seller) is not in compliance with or is in default (without regard to any requirement of notice or grace period or both) in the observance or performance of any term, condition or provision of any such contractual arrangement relating to or affecting Seller or its business or the Assets in any manner so as presently or at any future time to have any material adverse effect on Seller or its business, operations or financial condition or any of the Assets. 5.1.12 Properties. (a) Seller and the Shareholders have all requisite power, capacity and authority to own and hold, and have good and marketable indefeasible title to, all of the Assets respectively owned by them, which are all of the assets and properties used or useful in or in connection with Seller's business, subject to no Lien, excepting only such as will be discharged or released on or prior to the Closing Date, the Assigned Contracts and minor easements and exceptions, none of which will interfere with the use by Buyer of the Assets. 17 18 (b) At the closing on the Closing Date, Buyer will acquire good and marketable indefeasible title to all of the Assets, subject to no Lien, except only the Assigned Contracts and such as shall have then been approved by Buyer herein or hereunder. (c) No condemnation proceeding or eminent domain proceeding of any kind is pending or, to the best knowledge of Seller and the Shareholders, contemplated or threatened, against any of the Assets. (d) No permits, licenses or certificates pertaining to the ownership or operation of any of the Assets, other than those that are transferable therewith and those to which section 3.1.5 refers, are required by any governmental agency having jurisdiction over any of the Assets or Seller's business or operations. Seller has furnished to Buyer true and complete copies of all Code Approvals relating to any one or more products designed, developed, manufactured or marketed by Seller. All such Code Approvals are valid and in full force and effect and are based on and supported by bona fide, accurate and complete test results, engineering calculations and other information procured by Seller and furnished to ICBO or any other code approval agency. The load values and other information set forth in each such Code Approval are accurate and complete. 5.1.13 Intellectual Property. (a) "Intellectual Property" means all Code Approvals, Patent Rights, Trade Secrets, trademarks, service marks, trade names and copyrights and all rights and licenses relating thereto and all other tangible or intangible proprietary information and materials used or useful in Seller's business, as well as all registrations and pending applications for registration of any of the foregoing in any jurisdiction, and including each license, sublicense or other contract relating thereto. Seller owns absolutely and exclusively all of the Intellectual Property used or useful in Seller's business free and clear of any Lien. The Shareholders own absolutely and exclusively all of the Shareholder Patent Rights free and clear of any Lien. Seller and the Shareholders have fully disclosed to Buyer all material information regarding the Intellectual Property, all of which is listed and described on Schedule 5.1.13 attached hereto. (b) Schedule 5.1.13 sets forth a complete and correct list and description of all of the following Intellectual Property owned by any of Seller, the Shareholders and affiliates of the Shareholders and a corresponding list of each jurisdiction in which a patent or registration for such item has been issued or in which an application has been filed therefor in the name of Seller, the Shareholders or affiliates of the Shareholders: (i) letters patent and patent applications, (ii) trademarks, service marks and trade names, and (iii) copyrights. Each item set forth on Schedule 5.1.13 that is registered is registered in the name and for the exclusive benefit of Seller, the Shareholders or affiliates of the Shareholders. (c) Seller has sole and exclusive rights to, and no other person or entity has any claim of ownership, whether joint or individual, with respect to, the Intellectual Property. The Shareholders have sole and exclusive rights to and no other person or entity has any claim of ownership, whether joint or individual, with respect to, the Shareholder Patent Rights. Each patent and each registration listed on Schedule 5.1.13 is valid, enforceable, subsisting and in full force and effect and has been duly prosecuted, registered and maintained by 18 19 Seller, the Shareholders or affiliates of the Shareholders in each jurisdiction listed. No pending application for a patent or for registration of a trademark has been rejected, suspended, made a subject of an office action or other challenge by the agency with which such application has been filed or by any third party, except as disclosed in Schedule 5.1.13. No patent has been claimed or adjudicated to be invalid or unenforceable as a whole or in part, no trademark or service mark has been the subject of any claim of abandonment or otherwise challenged as invalid and no copyright has been invalidated or alleged to be in the public domain. No patent or registration is subject to any current tax, maintenance fee or renewal fee which has not been paid. All trademarks, service marks and trade names set forth on Schedule 5.1.13 have been used continuously by Seller since adoption by Seller. (d) All of the Trade Secrets are valid and protectable, are not publicly known and have not been disclosed or otherwise made available to any person except pursuant to a written confidentiality agreement. Seller has taken all reasonable and appropriate steps to protect and preserve all of the Trade Secrets and all other Intellectual Property that is not otherwise protected by patents or by copyright registrations. Each item of the Trade Secrets qualifies as a "trade secret" under the Uniform Trade Secrets Act as enacted as part of the California Civil Code. Seller does not possess and has not used in its business any confidential information or trade secrets owned by any person other than Seller except in strict compliance with the terms and conditions of a valid and enforceable agreement between Seller and the owner or owners of such trade secret or confidential information. (e) Seller owns or is licensed or otherwise possesses legally enforceable rights to use all Intellectual Property that is used or useful in the business of Seller. No license, consent or other authorization is required from any third party with respect to any Intellectual Property used or useful in the business of Seller or, if so required, each such license or consent has been obtained, is valid and enforceable in accordance with its terms and is in full force and effect and is not the subject of any notice of termination or nonrenewal, and there is no default or alleged or threatened default with respect to any such license or consent. (f) Seller's possession and use of the Intellectual Property does not conflict with, infringe, violate, interfere with or constitute a misappropriation of any right, title, interest or goodwill of any other person. The Shareholders' and their affiliates' possession and use of the Shareholder Patent Rights does not conflict with, infringe, violate, interfere with or constitute a misappropriation of any right, title, interest or goodwill of any other person. None of Seller and the Shareholders possesses any information or is otherwise aware of any basis for any claim against any of Seller and the Shareholders with respect to any infringement, misappropriation or other misuse of any intellectual property of any third party. None of Seller, the Shareholders and affiliates of the Shareholders has infringed, misappropriated or misused or is now infringing, misappropriating or misusing any intellectual property belonging to any other person. 5.1.14 Tax Returns and Payments. Seller has filed all tax and information returns and reports required by law to be filed by Seller, including those with respect to receipts, income, sales, use, value added, ad valorem, withholding, social security, excise, franchise and unemployment taxes. All returns are proper and all taxes shown to be due and all additional assessments and charges on Seller or on or measured by properties, assets, receipts, income, sales 19 20 or payroll of Seller have been paid. The reserves for current taxes accrued on the books of Seller are reasonable and substantially adequate in amount. Seller has not received any notice of assessment or proposed assessment of any United States, state, municipal or other tax on or measured by income, receipts or sales, nor to the best of Seller's and the Shareholders' knowledge, is there any basis for any additional assessment of any such tax. 5.1.15 Litigation. None of Seller and the Shareholders is a party to any pending, and neither Seller nor any of the Shareholders has any notice or knowledge of any threatened or any knowledge of any basis for any, action, suit, proceeding or investigation, at law or in equity or otherwise, in, before or by any court or arbitrator or any governmental board, commission, agency, department or officer, in which an adverse determination could have any material adverse effect on Seller or its business, operations or financial condition or on any of the Assets. 5.1.16 Employee Claims. No present or former employee or consultant of Seller has asserted any material claim directly or indirectly against Seller or its business or the Assets on account of or for (a) overtime pay, other than overtime pay for work done in the current payroll period, (b) wages or salary for any period other than the current payroll period, (c) any material amount of vacation time off or pay in lieu of vacation time off, other than vacation time off (or pay in lieu thereof) earned in or in respect of the current fiscal year, or (d) any violation of any statute, ordinance or regulation relating to minimum wages or maximum hours of work. No person or party (including, but not limited to, governmental agencies of any kind) has asserted any claim, or has any basis for any action or proceeding, against Seller under or arising out of any statute, ordinance or regulation relating to discrimination in employment or employment practices. 5.1.17 Contracts for Personal Services. Seller is not a party or subject to any contract, agreement or commitment, written or oral, for or relating to personal services rendered or to be rendered to Seller, and the Assets do not include, and after the closing hereunder will not be affected by, any such contract, agreement or commitment. 5.1.18 Employee Benefit Arrangements. None of Seller and the Shareholders is a party to or bound by any contract, agreement or commitment by the terms of which any person is or may become entitled (for any reason or in any capacity) to any share in the proceeds, earnings or profits of Seller or its business or the Assets or of any department, division or other unit of Seller or its business, and Seller has no pension or retirement income plan, contract, agreement or commitment in force for the benefit of any of its employees or consultants, the obligations under which will not at the Closing Date have been fully discharged. No person or party has asserted any claim under which Seller has any liability under any health, sickness, disability, medical, surgical, hospital or similar benefit plan or arrangement (whether legally binding or not) maintained by Seller, or to or by which Seller or its business or any of the Assets is a party or is subject or is bound, or under any workers' compensation or similar law, which is not fully covered by insurance maintained with reputable, financially responsible insurers. 5.1.19 Collective Bargaining Agreements. Seller is not a party to or bound by any collective bargaining agreement or other labor agreement with any bargaining 20 21 agent (exclusive or otherwise) of any of its employees, except only for such collective bargaining agreements as shall have been terminated and fully performed and discharged by Seller on or prior to the Closing Date. 5.1.20 Other Interested Parties. None of Seller and the Shareholders has adopted or become a party to any plan, contract, agreement or commitment for the sale, distribution or issuance of any interest in Seller or its business or any of the Assets to any person (other than as provided herein). 5.1.21 Contracts for Purchase or Sale. Seller is not a party to or bound by any contract, agreement or commitment with any person or party for the purchase of any properties or assets which requires that payment for such properties or assets shall be made whether or not delivery is ever made thereof, and Seller is not a party to or bound by any other contract, agreement or commitment for the purchase or for the sale of any properties or assets of any nature, except only such as have been made in the ordinary course of business. 5.1.22 Insurance. All of the tangible Assets are insured to their full replacement value with financially sound and reputable insurers. Schedule 5.1.22 attached hereto contains a true and complete list and description of all insurance policies of which Seller is the owner or beneficiary. 5.1.23 Condition of Assets. All of the tangible Assets are accepted "as is" after acceptance on final inspection in good operating condition and repair and in compliance with all applicable laws and regulations. The use and operation of the Assets is in full compliance with applicable building codes, environmental, zoning and land use laws, and all other local, state and federal laws and regulations. All of the Assets described in clause (h) of section 1.1.3 will have arisen or accrued, at the Closing Date, in the ordinary course of business, will at the Closing Date represent legal, valid and binding obligations due to Seller, and will at the Closing Date be collectible in the ordinary course of business in the full recorded amounts thereof (except only for any amount thereof for which reserves have been established on Seller's balance sheet as of June 30, 2000). The Inventory is in good and merchantable condition, reasonably in balance and currently of a usable and saleable quality in the ordinary course of Seller's business. The Inventory is valued on Seller's financial statements at the lower of cost or net realizable value, with cost being determined on a consistent basis. 5.1.24 Utilities. All water, sewer, gas, electric, telephone and drainage facilities and all other utilities required by law or by the normal use and operation of the Assets are installed to the property lines of the premises on which such Assets are located, are connected pursuant to valid permits and are adequate to service such premises and the Assets and to permit full compliance with all requirements of law and normal usage of the Assets by licensees and invitees of Seller. 5.1.25 Licenses. Seller has obtained, and the Assets include, all licenses, permits, easements and rights of way, but excluding those to which section 3.1.5 refers, required from all governmental authorities having jurisdiction over Seller or any of the Assets or from private parties, for the normal use and operation of the Assets and Seller's business and to insure vehicular and pedestrian ingress to and egress from the premises where the Assets are located. 21 22 5.1.26 Additions. Seller is not a party to any contract, agreement or commitment for any additions, repairs or improvements to any Assets for which payment has not been made in full. 5.1.27 No Liens. None of the Assets is subject to or affected by any Lien, no such Lien has been claimed and there is no basis for any such claim, except only for the security interest granted by Seller to Buyer in the Loan and Security Agreement between them dated as of September 25, 2000. 5.1.28 Compliance with Laws. Each of Seller and the Shareholders has complied with, and is not in violation of or default under, any laws, rules, regulations, orders or decrees applicable to Seller or any of the Assets. To the best of Seller's and the Shareholders' knowledge, (a) the sale and assignment hereunder of the Assets to Buyer will include all rights necessary to ensure compliance with all governmental statutes, laws, rules and regulations, and (b) since December 31, 1999, no law, code, regulation or ordinance has been adopted or is pending before ICBO or any other code approval agency or any legislative or administrative body in any jurisdiction where Seller carries on its business, which would, if adopted or enacted, materially and adversely affect such business as now conducted. 5.1.29 Buyer's Use. None of Seller and the Shareholders has any knowledge of any plan, study or effort of ICBO or any other code approval agency or any governmental authority that would materially affect the business of Seller or the use of the Assets, or any portion thereof, for their intended uses, or of any intended public improvements that could result in any charge being levied against, or any Lien assessed on, Seller or its business or any of the Assets. None of Seller and the Shareholders has any notice or knowledge of any facts that would adversely affect Buyer's usage and operation of the Assets after the closing hereunder in the manner in which the Assets are now used and operated by Seller. 5.1.30 Environmental Matters. (a) Seller has complied and is presently in compliance with all federal, state and local laws, ordinances, codes, rules, regulations, permits, orders, judgments, awards, decrees, consent judgments, consent orders and requirements applicable to it relating to the public health, safety or protection of the environment (collectively, "Environmental Laws"). No party has asserted that Seller has violated, or is in violation of, any Environmental Laws. Specifically and without limiting the generality of the foregoing: (1) Except as permitted under applicable laws and regulations, including, without limitation, the federal Resource Conservation Recovery Act, 42 US Section 6901 et seq. ("RCRA"), Seller has not accepted, processed, handled, transferred, generated, treated, stored or disposed of any Hazardous Material (as defined in Section 5.1.30(a)(6) below), and Seller has not accepted, processed, handled, transferred, generated, treated, stored or disposed of asbestos, medical waste, radioactive waste or municipal waste, except in compliance with Environmental Laws. (2) During Seller's ownership or leasing of the Assets and any other property owned or leased by Seller ("Corporate Property") and, to the knowledge 22 23 of Seller and the Shareholders, prior to the Seller's ownership or leasing of such Corporate Property, no Hazardous Material, other than that allowed under Environmental Laws, including, without limitation, RCRA, has been disposed of, or otherwise released on any Corporate Property. (3) During Seller's ownership or leasing of the Corporate Property and, to the knowledge of the Seller and the Shareholders, prior to the Seller's ownership or leasing of such Corporate Property, no Corporate Property has ever been subject to or received any notice of any private, administrative or judicial action, or notice of any intended private, administrative or judicial action relating to the presence or alleged presence of Hazardous Material in, under, on or emanating from any Corporate Property or any real property now or previously owned or leased by Seller. There are no pending and, to Seller's and Shareholders' knowledge, no threatened actions or proceedings from any governmental agency or any other entity involving remediation of any condition of the Corporate Property, including, without limitation, petroleum contamination, pursuant to Environmental Laws. (4) Except as allowed under Environmental Laws, Seller has not knowingly sent, transported or arranged for the transportation or disposal of any Hazardous Material to any site, location or facility. (5) Schedule 5.1.30(a) includes copies of: (i) all records, notifications, reports, permit or license applications, engineering or geologic studies, and environmental impact reports, tests or assessments (collectively, "Records, Notifications and Reports") that (A) affect the business of Seller, or (B) relate to the discharge or release by Seller of materials into the environment and/or the handling or transportation by Seller of waste materials or hazardous or toxic substances or otherwise relate to the protection of the public health or the environment, or (C) were filed with or submitted to appropriate governmental agencies during the past twenty-four months by Seller or the Shareholders or their agents with respect to the business of Seller, and (ii) all material notifications from such governmental agencies to Seller, the Shareholders or their agents in response to or relating to any of such Records, Notifications and Reports. (6) As used in this Agreement, "Hazardous Material" means the substances (i) defined as "Hazardous Waste" in 40 CFR 261, and substances defined in any comparable state statute or regulation; (ii) any substance the presence of which requires remediation pursuant to any Environmental Laws; and (iii) any substance required to be disposed of in a manner expressly prescribed by Environmental Laws. (b) Except as set forth on Schedule 5.1.30(b), no underground storage tanks containing petroleum products or wastes or other hazardous substances regulated by 40 CFR 280 or Environmental Laws are currently or have been located on any Corporate Property. Except as set forth on Schedule 5.1.30(b), the Corporation has not owned or leased any real property not included in the Corporate Property having any underground storage tanks containing petroleum products or wastes or other hazardous substances regulated by 40 CFR 280. As to each such underground storage tank ("UST") identified on Schedule 5.1.30(b), Seller has provided to SST on Schedule 5.1.30(b), the following: 23 24 (1) the location of the UST, information and material, including any available drawings and photographs, showing the location, and whether the Seller currently owns or leases the property on which the UST is located (and if the Seller does not currently own or lease such property, the dates on which it did and the current owner or lessee of such property); (2) the date of installation and specific use or uses of the UST; (3) copies of tank and piping tightness tests and cathodic protection tests and similar studies or reports for each UST; (4) a copy of each notice to or from a governmental body or agency relating to the UST; (5) other material records with regard to the UST, including, without limitation, repair records, financial assurance compliance records and records of ownership; and (6) to the extent not otherwise set forth pursuant to the above, a summary description of instances, past or present, in which the UST failed to meet applicable standards and regulations for tightness or otherwise and the extent of such failure, and any other operational or environmental problems with regard to the UST, including, without limitation, spills, whether in connection with delivery of materials to the UST, releases from the UST, soil contamination or otherwise. Except to the extent set forth on Schedule 5.1.30(b), the Seller has complied with Environmental Laws regarding the installation, use, testing, monitoring, operation and closure of each UST described on Schedule 5.1.30(b). 5.1.31 Trade Payables. Schedule 5.1.31 contains a complete and accurate list of all trade accounts and debts payable of Seller (the "Trade Payables") and the respective amounts thereof, including (without limitation) late charges, penalties and interest thereon. Other than as set forth on Schedule 5.1.31, as it may be amended pursuant to section 3.1.2, Seller has no trade accounts payable or debts in any amount, regardless of whether past due, now due or becoming due in the future. All of the Trade Payables were incurred in the ordinary course of Seller's business pursuant to arm's length transactions. 5.1.32 Disclosure. Neither this Agreement nor the financial statements delivered as provided in section 5.1.8 nor any exhibit or schedule hereto nor any other certificate, instrument, document or information furnished by Seller or any of the Shareholders to Buyer hereunder or in connection herewith contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements contained therein or herein not misleading. There is no fact which adversely affects or in the future may (so far as Seller and the Shareholders can reasonably foresee) materially adversely affect any of the Assets or the business of Seller that has not been set forth herein or in an exhibit or schedule hereto or otherwise disclosed in writing to Buyer. 24 25 5.2 Of Buyer. Buyer hereby represents and warrants to and agrees with Seller, as follows: 5.2.1 Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has full corporate power and authority to carry on its business as now conducted and to own its assets. 5.2.2 No Restrictions on Transaction. Buyer is not subject to any charter provision, bylaw, Lien, indenture, lease, agreement, instrument, law, rule, regulation, order, judgment or decree or any other restriction that would interfere with consummation of the transactions contemplated by this Agreement. This Agreement has been duly authorized, executed and delivered by Buyer and is the legal, valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar law relating to or affecting the rights of creditors generally and except for limitations imposed by general principles of equity on the availability of equitable remedies. 5.2.3 No Conflicts. The execution and delivery by Buyer of this Agreement, the performance by Buyer of its obligations hereunder and its performance of, fulfillment of and compliance with all of the terms and conditions hereof, do not and will not conflict with, breach or result in a breach of the terms, conditions or provisions of, or constitute a default under, result in the creation of any Lien on any of its properties pursuant to, give any third party the right to accelerate any obligation under, violate or result in a violation of, or require any authorization, consent, approval, exemption or other action by or notice to any person or any court or administrative or governmental body or agency pursuant to, any agreement, indenture, mortgage, instrument, law, statute, code, ordinance, rule, regulation, order, judgment or decree to or by which Buyer is a party, is subject or is bound. 5.2.4 Litigation. Buyer is not a party to any pending, and has no notice or knowledge of any threatened or any knowledge of any basis for any, action, suit, proceeding or investigation, at law or in equity or otherwise, in, before or by any court or arbitrator or any governmental board, commission, agency, department or officer, in which an adverse determination could have a material adverse effect on the execution, delivery or performance by Buyer of this Agreement. 5.3 Survival. All representations, warranties and agreements in this Agreement shall survive any investigation made by or on behalf of any party and shall survive the consummation of the transactions contemplated by this Agreement, except that the representations and warranties of Seller and the Shareholders in section 5.1 or in any information furnished by them to Buyer hereunder relating to the physical quality or physical condition of any of the Assets shall expire on the fifth anniversary of the Closing Date. 6. Attorneys' Fees. If any party hereto shall fail to perform any of its or his obligations under this Agreement or if a dispute arises concerning the meaning or interpretation of any provision of this Agreement, the defaulting party or parties or the party or parties not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party or parties in enforcing or establishing their or its or his rights hereunder, 25 26 including, without limitation, court costs and the fees and expenses of attorneys and expert witnesses. 7. Time. Time is of the essence of this Agreement. 8. Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes any and all prior or contemporaneous negotiations, correspondence, understandings and agreements between or among the parties, written or oral, regarding the subject matter hereof. 9. Modification and Waiver. This Agreement may be amended or modified at any time only by a written instrument executed by Seller, Shareholders holding a majority of the shares of common stock of Seller owned by all of the Shareholders, and Buyer. Any of the terms, covenants, representations, warranties or conditions hereof may be waived by a written instrument executed by the party waiving compliance; provided that, for this purpose, the Shareholders all be deemed to be a single party, and such instrument need be executed only by the holders of a majority of the shares of common stock of Seller held by all of them. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by any party of the breach of any term, agreement, covenant, representation or warranty in this Agreement as a condition to such party's obligations hereunder shall release or affect any liability resulting from such breach, and no waiver of any nature, whether by conduct or otherwise, in any one or more instances shall be deemed to be or be construed as a further or continuing waiver of any such condition or of any breach of any other term, agreement, covenant, representation or warranty. 10. Notices. All notices, requests, waivers, approvals, instructions, consents, demands and other communications hereunder shall be in writing and shall be deemed duly given and received when delivered personally, when transmitted by facsimile, one business day after being deposited for next-day delivery with a nationally recognized overnight delivery service, or three days after being deposited with the United States Postal Service as first class mail, with all charges or postage prepaid, properly addressed, as follows: If to Seller, at -- 4130 Englewood Drive Indianapolis, Indiana 46226 Facsimile No. 317-591-5911 Attention: Brian Berry With a copy to: McNeeley, Stephenson, Thopy & Harrold 30 W. Washington Street, Suite 400 Shelbyville, IN 46176 Facsimile No. 317-835-7777 Attention: Michael Stephenson, Esq. 26 27 If to Buyer, at -- 4637 Chabot Drive, Suite 200 P.O. Box 10789 Pleasanton, California 94588 Facsimile No. 925-847-9114 Attention: Mr. Michael J. Herbert With a copy to: Shartsis, Friese & Ginsburg LLP One Maritime Plaza, 18th Floor San Francisco, California 94111 Facsimile No. 415-421-2922 Attention: Douglas L. Hammer, Esq. 11. Counterparts. This Agreement may be executed in any number of counterparts, or by different parties in different counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12. Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns; provided that none of Seller and the Shareholders shall assign this Agreement or any rights hereunder or delegate any duties hereunder, without the prior consent of Buyer, and any attempted or purported assignment or delegation by any of Seller and the Shareholders without the consent of Buyer shall be void. 13. Exhibits. All schedules and exhibits attached hereto and the documents and instruments delivered at the closing hereunder are expressly made a part of this Agreement as fully as though completely set forth herein, and all references to this Agreement herein or in any of such documents and instruments (whether or not such references include a specific reference to such documents and instruments) shall be deemed to refer to and include all such documents and instruments. Any breach of or default under any provision of any of such documents and instruments, shall, for all purposes, constitute a breach or default under this Agreement. 14. Number and Gender. Whenever the context requires, the use in this Agreement of the singular number shall be deemed to include the plural and vice versa, each gender shall be deemed to include each other gender, and "person" shall be deemed to include, in addition to natural person, corporation, partnership, limited liability company, trust, association, firm or other entity or organization. 15. No Third Party Beneficiaries. This Agreement is not intended, nor shall it be construed, to confer any enforceable rights on any person who is not a party hereto. 16. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California. 17. Headings. The headings herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction or interpretation of any provision hereof. [Signature Page Follows] 27 28 IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly executed by or on behalf of the parties hereto as of the date first above written. SIMPSON STRONG-TIE COMPANY INC. /s/BRIAN BERRY - -------------------------- Brian Berry By /s/MICHAEL J. HERBERT ------------------------------ Michael J. Herbert /s/JOHN E. SWIGGARD Chief Financial Officer - -------------------------- John E. Swiggard /s/LEO V. PETERSON - -------------------------- Leo V. Peterson MASTERSET FASTENING SYSTEMS, INC. By /s/BRIAN BERRY ----------------------- Brian Berry President LIST OF EXHIBITS AND SCHEDULES ------------------------------ Exhibit A Form of Bill of Sale and Assignment Exhibit B Form of Assignment of Patent Rights Exhibit C Form of Assignment of Trademark Exhibit D Form of Opinion of Counsel for Seller and the Shareholders Exhibit E Form of Supply Contract Schedule 1.1.3(a) Assigned Contracts Schedule 1.1.3(b) Code Approvals Schedule 2.1.2 June 30 Balance Sheet Schedule 2.6 Products Schedule 2.6.2 Vendor Discounts Schedule 2.7 Allocation of Purchase Price and Earn-out Payments Schedule 5.1.2 Share Ownership of Seller Schedule 5.1.5 Directors and Officer of Seller Schedule 5.1.6 Liens Affecting Seller or Its Properties or Business Schedule 5.1.13 Intellectual Property Schedule 5.1.22 Insurance Schedule 5.1.30(a) Records, Notifications and Reports Schedule 5.1.30(b) Underground Storage Tanks Schedule 5.1.31 Trade Payables
28 29 EXHIBIT A BILL OF SALE AND ASSIGNMENT AND ASSUMPTION OF LIABILITIES FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, and pursuant to that certain Asset Purchase Agreement dated as of November 17, 2000 (the "Agreement"), among Masterset Fastening Systems, Inc., an Indiana corporation ("Transferor"), Brian Berry, John E. Swiggard, Manzo Associates, Inc., a New Jersey corporation, and Leo V. Peterson, and Simpson Strong-Tie Company Inc., a California corporation ("Buyer"), Transferor hereby sells, assigns and transfers to Buyer all right, title and interest in and to all of the tangible and intangible assets identified or described on Exhibits I, II, III, IV, V and VI attached hereto and incorporated herein by this reference (the "Assets"). Capitalized terms used and not otherwise defined herein have the meanings respectively ascribed to them in the Agreement. Transferor covenants and warrants that: (a) Transferor has fully paid for, and is the owner of, and has absolute title to, all of the Assets, free and clear of all mortgages, pledges, liens, claims, charges, encumbrances, community property rights, security interests and other defects of title, of any kind or nature, except only as is expressly set forth in an exhibit attached hereto. (b) Transferor has not made any prior sale, assignment, transfer or other disposition of any of the Assets to any person, firm or association. (c) Transferor has all right, power, authority and capacity to sell, assign, convey and transfer each and all of the Assets to Buyer. (d) None of the licenses or permits, Assigned Contracts or Code Approvals, included in the Assets, has been amended or changed, nor has any oral or written notice of breach, violation or default been received by Transferor under any of such licenses, permits, leases or contracts. (e) No notice is necessary or desirable to be given to, and no consent or approval is necessary or desirable to be obtained from, any person or party or governmental authority in connection with the transactions effected hereby, except such as have been given or obtained by Transferor and are in full force and effect. (f) All of the Assets that are tangible, and each item thereof, are in good repair, condition and working order, reasonable wear and tear excepted, and, in the case of inventory, are in merchantable condition and of a usable and saleable quality. A-1 30 (g) All acts, proceedings and things necessary and required by law or any instrument to which Transferor is a party or by which Transferor is bound to make this Bill of Sale and Assignment a valid, binding and legal obligation of Transferor, have been done and taken and have happened, and the execution and delivery of this Bill of Sale and Assignment have in all respects been authorized in accordance with law. Transferor shall forever warrant and defend the sale, assignment, transfer, conveyance and delivery of each and every item of the Assets to Buyer and Buyer's successors and assigns, against each and every person lawfully claiming the same. Possession of all of the Assets and any and all instruments representing the same is being delivered to Buyer concurrently with this Bill of Sale and Assignment. Transferor hereby appoints Buyer as Transferor's attorney-in-fact to demand, receive and collect for Buyer's own use and benefit all debts and obligations owing to Transferor on the effective date hereof in connection with the Assets. Transferor further authorizes Buyer to do all things legally permissible that may be required to recover and collect such debts and obligations and to use Transferor's name in any manner Buyer may deem necessary for the collection and recovery of those debts and obligations, but without cost, expense or damage to Transferor. Buyer hereby assumes the performance and payment when due of all of the terms, covenants and conditions imposed on Transferor under or in connection with the Assigned Contracts identified in Exhibit III and all permits, licenses and authorizations included in the Assets. Buyer agrees to indemnify Transferor and hold Transferor harmless from and against any and all of such terms, covenants and conditions. This Bill of Sale and Assignment and Assumption of Liabilities shall bind and inure to the benefit of Transferor and Buyer and their respective successors and assigns. This Bill of Sale and Assignment and Assumption of Liabilities shall be governed by and construed and interpreted in accordance with the laws of the State of California. [Signature Page Follows] A-2 31 IN WITNESS WHEREOF, this Bill of Sale and Assignment and Assumption of Liabilities has been duly executed by or on behalf of Transferor and Buyer on this ____________, 2000, at ____________, California. BUYER: TRANSFEROR: SIMPSON STRONG-TIE COMPANY INC. MASTERSET FASTENING SYSTEMS, INC. By By ------------------------------- -------------------------------- Its Its ---------------------------- ----------------------------- By By ------------------------------- -------------------------------- Its Its ---------------------------- ----------------------------- EXHIBITS ATTACHED: I Equipment II Inventory III Assigned Contracts and Code Approvals IV Trade Names, Trademarks, Service Marks and Copyrights V Patent Rights VI Other Intangible Property A-3 32 ADD ACKNOWLEDGMENTS 33 EXHIBIT B ASSIGNMENT WHEREAS, Masterset Fastening Systems, Inc., a corporation of the State of Indiana, having a place of business at 4130 North Englewood Drive, Indianapolis, Indiana 46226, a/k/a Masterset Corporation, and a/k/a/ Masterset Inc. (hereinafter "Assignor") owns the entire right, title and interest in United States Letters Patents Nos. 5,119,634, granted June 9, 1992; 5,237,613, granted August 17, 1993; and 5,657,919, granted August 19, 1997; (referred to collectively hereinafter as "Patent Rights"); and WHEREAS, Simpson Strong-Tie Company Inc., a corporation of the State of California, having a place of business at 4120 Dublin Blvd., Suite 400, Dublin, California 94568 (hereinafter "Assignee") desires to obtain the entire right, title and interest in, to and under said Patent Rights. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, Assignor does hereby sell, assign, transfer and set over unto the said Assignee, its successors, and assigns, the entire right, title and interest in, to and under the said Patent Rights, and all reissues, reexaminations and extensions thereof. 1. Assignment of Patent Rights. Assignor hereby sells, assigns, transfers and sets over to Assignee and its successors and assigns, full and exclusive right, title and interest in and to the Patent Rights or similar legal protection in the United States of America and its territorial possessions and in all foreign countries, now existing or that may be obtained, and to any continuation, division, renewal, substitute, reissue or reexamination thereof or any legal equivalent thereof in the United States of America or any foreign country for the full term or terms for which the same may be granted, including all priority rights under the International Convention. 2. Further Assurances. Assignor further covenants that Assignee will, upon request, be provided promptly with all pertinent facts and documents relating to the Patent Rights and all legal equivalents as may be known or accessible to Assignor, and that Assignor, at Assignee's expense, will testify as to the same in any interference or litigation relating thereto and will promptly execute and deliver to Assignee or its legal representatives any and all papers, instruments or affidavits required to apply for, obtain, maintain, issue and enforce the Patent Rights and its equivalents in the United States of America or in any foreign country, which may be necessary or desirable to carry out the purposes thereof. Assignor authorizes Assignee to record this Assignment with the United States Patent and Trademark Office without any further consent or signature from Assignor. 3. No Prior Transfer. Assignor hereby covenants that it has the full right to convey the interest assigned, and that no assignment, sale, agreement or encumbrance has been or will be made or entered into that would conflict with this Assignment. 4. No Licenses. Except for proprietary information agreements with its own employees or consultants, and with the exception of standard end-user license agreements, there are no outstanding options, licenses, or agreements of any kind relating to the Patent Rights, nor B-1 34 is the Assignor bound by or a party to any options, licenses, or agreements of any kind with respect to the Patent Rights. 5. No Infringement. The Assignor has not received any communications alleging, nor does the Assignor have reason to believe, that the use or exploitation of the Patent Rights has violated or would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets, or other proprietary rights or processes of any other person or entity, and is not aware, based on reasonable investigation, of any reasonable basis therefor or threat thereof. The Assignor is not aware that any of its employees, agents, consultants or contractors is obligated under any contract (including licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree, or order of any court or administrative agency, that would interfere with the use or exploitation of the Patent Rights. The Assignor is not aware of any violation or infringement by a third party of any of the Patent Rights. 6. Absolute and Exclusive Assignment. This Assignment is absolute, exclusive and irrevocable. 7. Successors and Assigns. This Assignment shall bind and inure to the benefit of the parties and their respective successors and assigns. Masterset Fastening Systems, Inc., by: - ------------------------------ --------------------------------- Brian Berry Date President State of Indiana ) County of _____________________ ) ss: On this _____________ day of ___________________, 20__ before me personally appeared Brian Berry to me personally known, and known to me to be the person who signed the foregoing assignment, and acknowledged the signing of same as his free act and deed. - ----------------------------- NOTARY PUBLIC Seal My Commission Expires: B-2 35 EXHIBIT C ASSIGNMENT WHEREAS, Masterset Fastening Systems, Inc., a corporation of the State of Indiana, having a place of business at 4130 North Englewood Drive, Indianapolis, Indiana 46226, a/k/a Masterset Corporation, and a/k/a/ Masterset Inc. (hereafter "MASTERSET") is the owner of United States Trademark Reg. Nos.: 1,687,553 granted May 19, 1992 for the trademark "MASTERSET and Design"; 1,695,772 granted June 23, 1992 for the trademark "MASTERSET and Design"; and 1,695,773 granted June 23, 1992 for the trademark "MASTERSET and Design" (collectively the "Registrations"); and is the owner of United States Trademark Application No. 75/557,337 filed September 23, 1998 for the trademark "TRU-SET and Design" ("Application"); and WHEREAS, Simpson Strong-Tie Company Inc., a corporation of the State of California, having a place of business at 4120 Dublin Blvd., Suite 400, Dublin, CA 94568 (hereinafter "SIMPSON") is desirous of acquiring all right and title to said Registrations and Application (collectively the "Marks"). NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, MASTERSET does hereby assign unto SIMPSON all right, title and interest in and to the said Marks. 8. Assignment of Mark. MASTERSET hereby sells, assigns, transfers and conveys to SIMPSON all right, title and interest MASTERSET may now have or ever has had in and to the Marks for any and all purposes, together with all good will of the business symbolized by the Marks and the trademark registrations corresponding to the Marks. The foregoing assignment of the Marks shall include without limitation (a) the right to register or renew the Marks in the United States and in any foreign country, (b) all right, title and interest of MASTERSET in any pending registration applications for the Marks, (c) the exclusive right to sell, assign, lease, license, use or otherwise transfer or exploit the Marks, and (d) the right to enforce, sue for and collect damages by reason of any past or future infringement or misuse of the Marks. 9. Further Assurances. MASTERSET agrees to execute and deliver to SIMPSON any and all instruments or documents that may be necessary or convenient, and to provide all assistance reasonably requested by SIMPSON, to evidence, maintain, defend or enforce this Assignment as well as SIMPSON's right, title and interest in and to the Marks and to effect the assignment and transfer of the Marks to SIMPSON, including but not limited to the recordation of this Assignment with the United States Patent and Trademark Office. 10. No Prior Transfers. MASTERSET represents and warrants that it has not previously assigned to any third party any right, title or interest in or to the Marks or the associated goodwill. MASTERSET acknowledges that it shall have no right to receive any royalty, fee or other share of income or revenue that may be received by SIMPSON from the use, sale, license, publication, distribution or any other transfer or exploitation of the Marks. C-1 36 11. No Licenses. Except for proprietary information agreements with its own employees or consultants, and with the exception of standard end-user license agreements, there are no outstanding options, licenses, or agreements of any kind relating to the Marks, nor is MASTERSET bound by or a party to any options, licenses, or agreements of any kind with respect to the Marks. 12. No Infringement. MASTERSET has not received any communications alleging, nor does MASTERSET have reason to believe, that MASTERSET's use of the Marks has violated or would violate any of the trademarks, service marks, trade names, copyrights, or other proprietary rights of any other person or entity, and is not aware, based on reasonable investigation, of any reasonable basis therefor or threat thereof. MASTERSET is not aware of any violation or infringement by a third party of any of the Marks. 13. Absolute and Exclusive Assignment. This Assignment is absolute, exclusive and irrevocable. 14. Successors and Assigns. This Assignment shall bind and inure to the benefit of the parties and their respective successors and assigns. Masterset Fastening Systems, Inc., by: - ------------------------------ --------------------------------- Brian Berry Date President State of Indiana ) County of _____________________ ) ss: On this _____________ day of ___________________, 20__ before me personally appeared Brian Berry to me personally known, and known to me to be the person who signed the foregoing assignment, and acknowledged the signing of same as his free act and deed. - ------------------------------ NOTARY PUBLIC Seal My Commission Expires: C-2 37 EXHIBIT D OPINION OF COUNSEL FOR SELLER AND THE SHAREHOLDERS Capitalized terms used and not otherwise defined herein have the meanings respectively ascribed to them in the Asset Purchase Agreement. (a) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana. Seller is duly qualified to conduct business and is in good standing as a foreign corporation under the laws of each jurisdiction where, by virtue of its business conducted therein, it is required to be so qualified, except where the failure to be so qualified will not have any material adverse effect on Seller or its business, assets or financial condition. (b) The authorized capital stock of Seller consists of 1,000 shares of common stock, of which 1,000 shares have been duly and validly issued in compliance with the securities laws of the State of Indiana and are outstanding, fully paid, nonassessable and free of preemptive and similar rights. (c) Seller has all necessary power, authority and capacity to carry on its business as now being conducted, to own its assets, to sell the Assets to Buyer as contemplated by the Agreement, to execute and deliver the Agreement, the Bill of Sale, the Patent Assignments and the Trademark Assignments (collectively, the "Transaction Documents") and all certificates, instruments and other documents contemplated thereby and to perform its obligations thereunder, and all necessary action and other proceedings, including obtaining all necessary waivers, approvals and consents from third parties and others, required to be taken by any or all of Seller and the Shareholders to authorize and carry out the Transaction Documents and the transactions thereunder have been duly and properly taken or obtained. (d) The Transaction Documents and the instruments and documents of transfer and conveyance of the Assets in connection therewith have been duly executed and delivered by Seller and the Shareholders party thereto, respectively, and constitute legal, valid and binding agreements of Seller and the Shareholders, enforceable against them in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws relating to or affecting the rights of creditors generally and except for limitations imposed by general principles of equity on the availability of equitable remedies. (e) To the best of our knowledge and belief after reasonable inquiry, Seller has, and at the closing on the Closing Date Buyer will acquire, good and marketable title to all of the Assets, free and clear of all Liens, except Liens in favor of Buyer. (f) The execution and delivery by Seller and the Shareholders of the Transaction Documents, the performance by each of them of its or his respective obligations thereunder and its or his performance of, fulfillment of and compliance with all of the terms and conditions thereof, do not and will not conflict with, breach or result in a breach of, or constitute a default under, result in the creation of any Lien on any of its or his properties pursuant to, violate or D-1 38 result in a violation of any Lien, agreement, indenture or instrument known to us, or any law, statute, code, ordinance, rule, regulation, order, judgment or decree, to or by which any of Seller and the Shareholders is a party, is subject or is bound. (g) We do not know, after reasonable inquiry, of any litigation, proceeding or governmental investigation pending or threatened against or relating to Seller, any of the Assets or any of the transactions contemplated by the Transaction Documents or of any legal impediment to the continued operation and use of the Assets by Buyer in the ordinary course of business in the manner in which the Assets have heretofore been used by Seller. The opinions in the second sentence of paragraph (a), the opinion in paragraph (b) that the shares of Seller have been fully paid and the opinion in paragraph (g) are provided in reliance in part on an Officer's Certificate from Seller, a copy of which has been provided to Buyer. D-2 EX-10.2 3 f70975ex10-2.txt SHARE PURCHASE AGREEMENT 1 EXHIBIT 10.2 SHARE PURCHASE AGREEMENT 11 January 2001 between Simpson Strong-Tie(R) International, Inc. or its designee or affiliate and BMF Holding A/S 2 CONTENTS 1. Definitions.................................................................... 2 2. Purchase Price................................................................. 4 3. Incorporation of the company................................................... 6 4. Subsidiaries................................................................... 7 5. Authorised share capital, shares, distributions................................ 7 6. Financial statements........................................................... 8 7. Net equity..................................................................... 10 8. Assets......................................................................... 10 9. Receivables and debts.......................................................... 11 10. Depreciations and provisions................................................... 12 11. Off balance sheet commitments, guarantees, endorsements, security interests.... 12 12. Disputes....................................................................... 12 13. Bankruptcy proceedings......................................................... 12 14. Product claims................................................................. 13 15. Insurance...................................................................... 14 16. Environmental Matters.......................................................... 14 17. Intellectual property rights (IPR) and IT...................................... 15 18. Taxes, social security contributions, customs.................................. 16 19. Real estate.................................................................... 18 20. Contracts...................................................................... 18 21. Outstanding amounts............................................................ 19 22. Employees/management........................................................... 19 23. Competition law and legal regulations.......................................... 21 24. Due diligence.................................................................. 22 25. Confidentiality and press release.............................................. 22 26. Interim period................................................................. 23 27. Powers......................................................................... 23 28. Indemnification of the buyer and remedies...................................... 24 29. Buyer's intentions, representations and warranties............................. 25 30. The future business of the company............................................. 26
i 3 31. Non-competition clause......................................................... 27 32. Closing........................................................................ 27 33. Expenses....................................................................... 28 34. Competition authorities........................................................ 28 35. Governing law and arbitration.................................................. 28 36. Counterparts................................................................... 28 37. Schedules...................................................................... 29
ii 4 SHARE PURCHASE AGREEMENT BETWEEN Simpson Strong-Tie(R) International, Inc. 4120 Dublin Boulevard, Suite 400 Dublin California 94568 USA or its designee or affiliate ("the Buyer") AND BMF Holding A/S Hedegardsvej 11 Boulstrup DK-8300 Odder Danmark ("the Seller") regarding the shares in BMF Bygningsbeslag A/S WHEREAS, BMF Bygningsbeslag A/S ("the Company") is a public limited liability company (in Danish "aktieselskab") having its registered office at Hedegardsvej 11, Boulstrup, DK-8300 Odder, Denmark. WHEREAS, the Seller is the owner of A-shares of a nominal value of DKK 300,000 and B-shares of a nominal value of DKK 3,200,000 or in total a share capital of DKK 3,500,000. The differ- 1 5 ence between the A-shares and the B-shares is that the A-shares have tenfold voting rights compared to the B-shares; WHEREAS, the Company's business is to produce and manufacture structural timber metalwork; WHEREAS, the Seller has the intention to sell to the Buyer and the Buyer has the intention to buy from the Seller 100 percent of the shares of the Company (the "Shares"), consisting of in total DKK 300,000 A-shares and DKK 3,200,000 B-shares; WHEREAS, the Parties have signed a Letter of Intent on November 12, 2000; WHEREAS, the Parties have agreed on the terms and conditions of such sale; WHEREAS, the Buyer has had access to carry through a due diligence on the Company in the period from the end of November 2000 to January 11, 2001. NOW, THEREFORE, on the basis of the representations, warranties and agreements contained in this Agreement, the Parties hereinafter agree as follows: 1. DEFINITIONS 1.1 In this Agreement the following expressions are defined as follows, unless the context requires otherwise: a) "Additional Purchase Price (1)" shall mean the additional purchase price for the Shares as set out in Clause 2.4. b) "Additional Purchase Price (2)" shall mean the additional purchase price for the Shares as set out in Clause 2.5. c) "Agreement" shall mean this Share Purchase Agreement. 2 6 d) "Assets" shall mean (i) all assets figuring or reflected in the Interim Balance (ii) the IPR belonging to the Company and the Subsidiaries (iii) other assets owned by the Company and the Subsidiaries and which are not shown in the Interim Balance including Assets which have been written of or expensed. e) "Audited Financial Statements" shall mean the annual accounts of the Company for the financial years 1997, 1998 and 1999 (Schedule 1) and the reviewed annual accounts of BMF Holzverbinder GmbH, Germany, for the financial years 1997, 1998 and 1999 and the non audited annual accounts for 1998 and 1999 for BMF Jutor SP.z.o.o. cf. Schedule 2. f) "Closing" shall mean the completion of the sale and purchase of the Shares. g) "Closing Date" shall mean 11 January 2001. h) "Company" shall mean BMF Bygningsbeslag A/S, company reg. no. 65 65 38 18. i) "GADAP" shall mean Generally Accepted Danish Accounting Principles. j) "Interim Balance" shall mean an interim balance sheet and profit and loss account of the Company and the Subsidiaries as at 30 September 2000 reviewed by the Company's auditor (PricewaterhouseCoopers) including report on review of interim financial statements of 13 December 2000 on interim accounts prepared by the Company's auditor, cf. Schedule 3. k) "IPR" shall mean intellectual property rights, including patents, utility patents, trademarks, registered design rights, copyright and know-how. 3 7 l) "Net equity" shall mean the aggregate amount of the share capital and the retained profit as shown in the balance sheet of the Interim Balance. m) "Party" or "Parties" shall mean the Buyer and the Seller or one of them individually. n) "Purchase Price" shall mean the sum of the basic Purchase Prise, Additional Purchase Price (1) and Additional Purchase Price (2). o) "Seller Represents" shall mean that the Seller informs the Buyer, based upon what the Seller knows or ought to have known upon due inquiry into the affairs of the Company. Seller's knowledge shall include any knowledge which Poul Bentsen and Henrik Bentsen personally may have and shall also include knowledge of any material matters which Henrik Bentsen and Poul Bentsen normally ought to have had as managers, and knowledge which they normally would have obtained upon due inquiry if any matters of the Company or of this Agreement would give reasonably cause for such inquiry. p) "Shares" shall mean all shares of the Company at a nominal value of DKK 3.5 million in the Company and being the entire share capital of the Company. q) "Subsidiaries" shall mean BMF Holzverbinder GmbH and BMF Jutor Spz.o.o. 2. PURCHASE PRICE 2.1 The Purchase Price for the Shares consists of the basic purchase price, the Additional Purchase Price (1) and the Additional Purchase Price (2). 2.2 The Purchase Price shall be payable in three instalments. 4 8 2.3 At Closing Date the basic purchase price DKK 100,000,000 (in writing Danish kroner one hundred million) shall be paid in cash by wire transfer to Sellers bank, account no. 5494 689377 (reg. no. 2191), in Unibank A/S, Copenhagen K. 2.4 If the profit before tax according to the financial statement for the financial year 2000 in the audited consolidated accounts for the Company is equal to or exceeding DKK 8,200,000 the Buyer shall pay Additional Purchase Price (1), DKK 10,000,000 (in writing Danish kroner ten million). The Additional Purchase Price (1) shall be paid 14 days after the financial statement is audited. If the profit before tax according to the financial statement for the financial year 2000 in the audited consolidated accounts is less than DKK 8,200,000 the Additional Purchase Price (1) shall be DKK 0 (in writing Danish kroner zero). The principles for calculating the profit before tax is outlined in Schedule 3 A. The Additional Purchase Price (1) shall be placed in an escrow account with Lett & Co. in the name of the Seller to be released to the Buyer or the Seller as applicable subject to the joint instruction from the Buyer and the Seller or an arbitration decision to this effect.. Interest accrued on the escrow account shall be released to the Buyer 2.5 If the operating profit according to the financial statement for the financial year 2001 in the audited consolidated accounts for the Company is equal to or exceeding DKK 12,000,000 the Buyer shall pay Additional Purchase Price (2), DKK 10,000,000 (in writing Danish kroner ten million). The Additional Purchase Price (2) shall be paid 14 days after the financial statement is audited, and with a 4% p.a. interest from the signing of this Agreement. If the operating profit according to the financial statement for the financial year 2001 in the audited consolidated accounts for the Company is less than DKK 12,000,000 the Additional Purchase Price (2) shall be DKK 0 (in writing Danish kroner zero). The principles for calculating the operating profit is outlined in Schedule 3 B. 5 9 2.6 The audited consolidated accounts for the Company shall include the Company and the Subsidiaries and other subsidiaries, if any, that the Company may control. 2.7 If Simpson Strong-Tie International Inc. transfers the Agreement to a designee or affiliate Simpson Strong-Tie International Inc. guarantees the payment of the Additional Purchase Price (2). 2.8 Resolution regarding dividend for the Company for the accounting year 1999 has been validly passed at the ordinary shareholders' meeting on 23 May 2000 as reflected in the Audited Financial Statement of 1999 and paid to the Seller in the fall of 2000. Dividend, if any, for the fiscal year 2000 will not be decided until after the Closing Date and shall be decided by and for the benefit of the Buyer. 3. INCORPORATION OF THE COMPANY 3.1 Seller warrants ("garanterer") that the Company has been duly incorporated and is lawfully established and existing in accordance with Danish law. Seller warrants that the copy of the Company's Articles of Association and the transcript from the Danish Commerce and Companies Agency (in Danish "Erhvervs-og Selskabsstyrelsen") attached as Schedule 4 are true, correct and complete. 3.2 Seller warrants that the Company's Shareholders' Register and all other records which must be drawn up or kept by the Company in accordance with current laws and regulations are in good order, complete and exact and up to date on the date of signature of this Agreement with the only exception that minutes of the general meeting held in 1998 for the financial year 1997 have not been prepared. 3.3 Seller warrants that there are no reportable corporate changes regarding the Company that have not yet been registered with the Danish Commerce and Companies Agency. 6 10 4. SUBSIDIARIES 4.1 Seller warrants that the Company has the subsidiaries BMF Holzverbinder GmbH, Germany and BMF Jutor Sp.z.o.o, Poland. 4.2 Seller warrants that the Company owns shares of a nominal value of Euro 150,000 of the shares in BMF Holzverbinder GmbH, company reg. no. HR.B. 2587 representing the entire issued and outstanding share capital of the Company. 4.3 Seller warrants that the Company owns shares of a nominal value of PLZ 130,500 of the shares in BMF Jutor Sp.z.o.o., company reg. no. DZ IAL B. 53884 representing the entire issued and outstanding share capital of the Company. 4.4 Seller warrants that the Subsidiaries has been duly incorporated and are lawfully established and existing in accordance with German and Polish law respectively. 4.5 Seller warrants that the Shareholders Register for the Subsidiaries and all other records which must be drawn up or kept by the Company in accordance with current laws and regulations are in good order, complete and exact and up to date on the date of signature of this Agreement. 5. AUTHORISED SHARE CAPITAL, SHARES, DISTRIBUTIONS 5.1 Seller warrants that the Company has an outstanding share capital of DKK 3,500,000. Seller warrants that the Shares and the shares in the Subsidiaries are validly issued. Seller warrants that the Seller has a valid, unrestricted and transferable title to the Shares representing 100 per cent of the share capital of the Company and 100 percent of the voting power in the Company, and that the Company has valid and unrestricted title to the shares in the Subsidiaries and all voting rights in the Subsidiaries. Seller warrants that the Shares and the shares in the Subsidiaries are free of all liens, beneficial interests, co-ownership, options, guarantees, appropriations, security inter- 7 11 ests, pledges, distraint, escrow, protective measures, encumbrances, priority rights, pre-emptive rights, prior consents or other rights, requests, claims or other restrictions whatsoever to the free transferability thereof. 5.2 Seller warrants that the Company has not at present issued any share certificates due to the fact that the Company in 1996 decided to withdraw the issued share certificates and such share certificates have been destroyed. 5.3 Seller warrants that BMF Holzverbinder GmbH has not at present issued any share certificates. 5.4 Seller warrants that BMF Jutor Sp.z.o.o. has not at present issued any share certificates. 5.5 Seller warrants that neither the Company nor the Subsidiaries have issued any debt convertible into shares and that neither the Company nor the Subsidiaries have issued any warrants or other rights to any person to subscribe for or acquire new shares in the Company and/or the Subsidiaries or granted any third party right to the profits of the Company and/or the Subsidiaries. 6. FINANCIAL STATEMENTS 6.1 Seller warrants that the Audited Financial Statements (Schedule 1) and the Interim Balance (Schedule 3) give a true and fair view of the Company's and the Subsidiaries' operation and financial position as well as a true and fair view of the profit and losses of the Company and the Subsidiaries, and in the period from the Interim Balance to the signing of the Agreement there has been no indication that the Interim Balance does not give a true and fair view of the Company's and the Subsidiaries' operation and financial position. Seller warrants that from the date of the Interim Balance and to the signing of this Agreement, the Company and the Subsidiaries have acted in the ordinary course of business only, and that there has been no material changes in the financial position of the Company and/or the Subsidiaries at the signing of this 8 12 Agreement compared to the date of the Interim Balance. Seller informs that the fourth quarter of the year 2000 will result in a seasonal deficit of approx. DKK 2-4 million, which in light of the Company's past history is not out of the ordinary for the season. 6.2 Seller warrants that the Audited Financial Statements and Interim Balance have been prepared in accordance with the books and records of the Company and for the Company in accordance with the Danish Companies Account Act (in Danish "Arsregnskabsloven") and with GADAP and in accordance with the accounting principles specified in the Audited Financial Statements and the Interim Balance. Seller warrants that the Audited Financial Statements and the Interim Balance have been prepared using the same accounting principles throughout the period, unless otherwise expressly stated in the Audited Financial Statements or in the Interim Balance, and that the Company from the date of The Interim Balance has followed and throughout the period until payment mentioned in Clause 2.4 and 2.5 has been made will follow the same accounting principles. 6.3 Seller Represents that no liabilities, known or anticipated, exist as pr 30 September 2000 except those fully disclosed to the Buyer or sufficiently provided for in the Interim Balance. Seller Represents that no further liabilities except for liabilities relating to the ordinary course of business have arisen since 30 September 2000. 6.4 Seller warrants that the annual accounts of the Company have since the incorporation of the Company in 1981 been certified by the Company's statutory auditors without qualifications. 9 13 6.5 The Company's and the Subsidiaries' budget for the financial year 2001 is attached as Schedule 5. The budget is based on a stand alone-scenario for the Company and the Subsidiaries. Seller warrants that the budget is based on the same accounting principles as the last of the Audited Financial Statements and the Interim Balance. The Seller Represents that the budget for the financial year 2001 (Schedule 5) in the Seller's opinion is realistic and should be reasonably obtainable. 7. NET EQUITY 7.1 The Company is having a Net Equity of minimum DKK 60 million as at 30 September 2000 according to the Interim Balance. Seller warrants that there has been no material reduction of the Net Equity from 30 September 2000 to the signing of this Agreement except for the ordinary fourth quarter, cf. Clause 6.1 i.f. 8. ASSETS 8.1 Seller warrants that all Assets are owned by the Company and the Subsidiaries and are free of liens or mortgages except as otherwise provided in Clause 19.2 and Schedule 22 and are in existence on the date of signature of this Agreement except otherwise provided in Schedule 6 and all obsolete or deteriorated stocks have been fully written down in accordance with the accounting principles stipulated in the Interim Balance. 10 14 8.2 Subject to Clause 16, Seller warrants that the Assets in all major aspects are legal, in legal use and in fair and good working condition, except normal wear and tear, and in general comply with all regulations for continued legal use. However, Seller Represents that at present there are eight machines for internal production use which are not CE-marked, due to the fact that there is no sufficient documentation to fulfil the requirements of the CE-marking directives. Seller Represents that it is possible to CE-mark the machines, and that this will involve external costs in the amount of DKK 100,000 as a maximum as well as internal costs, which have been accounted for in the Company's Budget for 2001(Schedule 5). 8.3 Seller warrants that the Assets comprise all the assets necessary for the continued conduct of the business of the Company and the Subsidiaries, except for the assets listed in Schedule 7 which are leased. 8.4 Seller warrants that the Assets in the Interim Balance are and will until Closing be recorded in accordance with the Danish Company Accounts Act (Arsregnskabsloven) and GADAP. 9. RECEIVABLES AND DEBTS 9.1 Seller warrants that the Company does not owe any sum whatsoever and has not undertaken to pay any sum whatsoever to any of its shareholders, directors, employees, sales representatives, agents or distributors, whether past or present, or to any of their spouses, children or relatives or any person acting on their behalf or any legal entity in which the Seller, directly or indirectly, holds more than 10% of the shares or the voting rights, otherwise than in payment for services provided on arm's length terms. Buyer is aware of the pension amounts to be paid in for Poul and Henrik Bentsen for the year 2000 which amounts have been taken into account in the Interim Balance, cf. Schedule 3. 11 15 10. DEPRECIATIONS AND PROVISIONS 10.1 Seller warrants that the depreciations and provisions in the Audited Financial Statements and in the Interim Balance are adequate and have been determined in accordance with applicable laws, regulations and trade practices and with GADAP and the principles of conservatism and sound management. 11. OFF BALANCE SHEET COMMITMENTS, GUARANTEES, ENDORSEMENTS, SECURITY INTERESTS 11.1 Seller Represents that there are at the signing of this Agreement no off balance sheet commitments not included or mentioned in the Interim Balance. 11.2 Seller warrants that the Company and the Subsidiaries have not given and will not give before Closing, unless as accepted in writing by the Buyer, any guarantee (except from product guarantees given in the ordinary course of business) security interest or endorsement relating to the fulfilment of obligations contracted by third parties (including by its shareholders, directors or employees). 12. DISPUTES 12.1 Seller warrants that except as set forth in Schedule 8, neither the Company nor the Subsidiaries are currently involved in any litigation or disputed claims in court or in any administrative or arbitration proceedings and Seller Represents that no claims that may entail such litigation or proceedings are threatened. 12.2 Seller warrants that neither the Company nor the Subsidiaries are in default under any judgement or order of any court, arbitrator or administrative authority. 13. BANKRUPTCY PROCEEDINGS 12 16 13.1 Seller warrants that the Company and the Subsidiaries are not insolvent and are not concerned by any receivership or liquidation subject to court supervision or any conciliation, voluntary settlement or other bankruptcy proceedings provided for under current law. The Seller has informed the Buyer that the equity of BMF Jutor Sp.z.o.o. is negative according to the Interim Balance, cf. Schedule 3 and that the Company has planned to convert a part of the Company's outstanding amount in BMF Jutor Sp.Z.o.o. to share capital which decision will be made in connection with the financial reporting for 2000. 13.2 Subject to Clause 13.1 Seller warrants that there is nothing, at the date hereof, to lead one to believe that the Company or the Subsidiaries may subsequently be insolvent or be concerned by any bankruptcy proceedings. 14. PRODUCT CLAIMS 14.1 Seller warrants that there are no current, known product claims with regard to products manufactured, assembled or sold by the Company and/or the Subsidiaries, and that Seller is not aware of facts on which such a claim could be based except as shown in Schedule 9. 14.2 With regard to the Munch Stal A/S case (as described in Schedule 9, Articles A and C), Seller warrants that the Company shall not incur further costs as a result of the defective steel supply from Munch Stal A/S, except for costs related to the Company's own risk deductible under the product liability insurance, in-company time spent by the Company's employees and legal expenses for the Company's attorneys which shall be borne by the Company. 14.3 With regard to the problem with the defective "cantilevers", in Danish "Gerberbeslag" (as described in Schedule 9, Article A) Seller warrants that the Company shall not incur further costs as a result of the defective cantilevers, except for costs related to 13 17 the Company's own risk deductible under the product liability insurance, in-company time spent by the Company's employees and legal expenses for the Company's attorneys which shall be borne by the Company. 14.4 With regard to the case with Tibnor A/S regarding defective galvanization (as described in Schedule 9 Article D), Seller warrants that the Company shall not incur further costs, except for cost related to the Company's own risk deductible under the product liability insurance, in-company time spent by the Company's employees and legal expenses for the Company's attorneys which shall be borne by the Company. 14.5 Seller Represents that a spot test procedure of the existing stock of screws, in Danish "beslagskruer", has been performed. Seller finds that the spot test has been a sufficient test of the supply of defective screws. 14.6 Schedule 10 shows a transcript from the Company's insurance company showing the product claims raised by the Company and the Subsidiaries against the insurance company. Seller warrants that there have been no material product claims for the last 5 years except as listed in Schedule 9-10. 15. INSURANCE 15.1 Seller warrants that the Company and the Subsidiaries are insured under the insurance policies shown in Schedule 11. Seller Represents that such insurance is normal based on the Company's and the Subsidiaries operations and in Seller's opinion and in the opinion of the Board of Directors of the Company is adequate and normal. 16. ENVIRONMENTAL MATTERS 16.1 Seller Represents that the Company and the Subsidiaries have complied and are in compliance with all the relevant environmental laws and regulations in all material respects. 14 18 16.2 Seller Represents that there are no judicial or administrative proceedings or investigations pending regarding environmental matters relating to the Company and/or the Subsidiaries and threatened against the Company and/or the Subsidiaries. 16.3 Seller Represents that there is no pollution on the properties of the Company and the Subsidiaries or resulting from their activities, and that no environmental works or cleaning up are required, apart from pollution (if any) expressly mentioned in the environmental investigation report by Carl Bro A/S of 18 December 2000 and the Technical note by Carl Bro A/S of 8 January 2001, Schedule 12. 16.4 Seller informs and Buyer accepts that for a short period galvanization has been made on the premises of the Company, cf. Schedule 13. 16.5 Buyer accepts that Buyer cannot claim proportionate reduction in the Purchase Price ("forholdsmaessigt afslag") due to environmental matters and that Buyer may only raise any claims related to environmental matters if such claim is based on breach of any of Seller's representations. 17. INTELLECTUAL PROPERTY RIGHTS (IPR) AND IT 17.1 Seller warrants that the IPR listed in Schedule 14 has been registered. The Seller Represents that the Company has the sufficient IPR to carry out the current production and sale in the Company and the Subsidiaries. Seller warrants that IPR owned by the Company are free of any liens, mortgages and license rights, except as disclosed in Schedule 15. 17.2 Seller warrants that the Company is not bound by any contract or any agreement concerning IPR or by any contract entered into with one or more employees concerning their inventions. 17.3 Seller Represents that the Company has made contracts with suppliers of software and hardware as described in Schedule 16 and has a license to use all software used 15 19 by the Company at present. 17.4 Seller Represents that the Company and the Subsidiaries do not infringe any third party IPR except as provided in Schedule 17. 17.5 Seller Represents that the IPR belonging to the Company and the Subsidiaries is not violated by third party except as provided in Schedule 18. 17.6 Seller Represents that neither the Company nor the Subsidiaries are parties to any claims or disputes regarding IPR except as described in Schedule 19. 17.7 The name of the Company shall continue to be BMF Bygningsbeslag A/S until 31 January 2003 unless otherwise agreed between the Buyer and the Seller. 17.8 Seller accepts that BMF Holzverbinder GmbH shall be named BMF Simpson GmbH and thus both the logo of the Company and the Buyer shall be used. 17.9 Seller Represents that the management information system of the Company is running and no new investment is necessary to the basic system at the current level except if the Company decides to have extra functionalities. 18. TAXES, SOCIAL SECURITY CONTRIBUTIONS, CUSTOMS 18.1 Seller warrants that the Company and the Subsidiaries have duly paid to the relevant government authorities within the required time limits all the taxes, contributions, duties, other tax, special tax, social security or customs expenses owed by it. It does not owe any fine or interest on late payments. However, Seller has informed Buyer that there might be a problem with regard to Polish stamp duty. 16 20 18.2 Seller warrants that the Company and the Subsidiaries have duly filed all information required under Danish tax law. 18.3 Seller warrants that the provisions for taxes, contributions, duties including Polish stamp duties and fines for not paying in due time, other tax, special tax, social security and customs expenses, such as they are included in the Interim Balance and in the Audited Financial Statements for the years up to 30 September 2000, are exact and cumulatively sufficient for that period, except as disclosed in Schedule 20 and except the item DKK 523,000 for tax owed mentioned in PricewaterhouseCoopers' report included in the Interim Balance (Schedule 3). 18.4 Seller warrants that the Company is not the subject of any tax assessment, any request or investigation by the tax authorities and Seller represents that no such assessment, request or investigation is threatened. Seller warrants that no proceeding by any court or administrative or governmental body is pending and Seller Represents that no proceedings are threatened with respect to any taxes due from or relating to the Company. 18.5 If the authorities intend to change the tax assessment of the Company and the Subsidiaries (or other assessment comprised by Clause 18) the Buyer shall procure the Company to contest at the Company's expense such proposed change by the authorities' assessment, provided that such procedure in the opinion of the Company's lawyer or auditor is likely to be won by the Company and/or the Subsidiaries. 18.6 Seller warrants that the Company and the Subsidiaries are not jointly taxed at present. However, Seller warrants that the Company and BMF Holzverbinder GmbH have been jointly taxed in the period 1 January 1993 up to and including 31 December 1998 and that the cessation of the joint taxation has not and will not affect the Company or the Subsidiaries in any way which has not already been reflected in the Audited Financial Statements, the Interim Balance or in Schedule 20. 17 21 18.7 Seller warrants that the Company and its subsidiary BMF Holzverbinder GmbH have no corporate or other tax exposures arising from the resolution to increase the share capital of BMF Holzverbinder GmbH by DEM 1,000,000 that was approved on 2 July 1999 and that has not yet been finally registered. 19. REAL ESTATE 19.1 Seller warrants that the Company's and the Subsidiary's real estate (cf. Schedule 21) is used legally and is in good condition, except normal wear and tear. 19.2 Seller warrants that the real estate is free from liens and mortgages except as provided in Schedule 22 and the Audited Financial Statements and the Interim Balance. 19.3 Seller warrants that neither the Company nor the Subsidiaries' are party to any lease agreements as lessee or lessor except as listed in Schedule 23. 19.4 The Company owns some farm land. The Company shall be obliged to have the farm land transferred from the rural zone into the urban zone (which can take place as soon as the local development plan has been finalized) or otherwise sell the land, cf. Schedule 24. 19.5 Buyer has been informed that the Company is preparing the purchase of a site in Poland with a view to building its own office and storage facilities. The Buyer is aware of these preparations and the Seller acknowledges that a final purchase must be approved by the Board of Directors of the Company. 20. CONTRACTS 20.1 Seller warrants that all major contracts of the Company and the Subsidiaries are listed in Schedule 25. 18 22 20.2 Seller Represents that all contracts and agreements not listed in Schedule 25 have been entered into on normal terms in the ordinary course of business. 20.3 Seller Represents that neither the Company nor the Subsidiaries are in breach of any term or obligation under any contract or agreement to which the Company or the Subsidiaries are a party. 20.4 Seller Represents that there are no change of control clause in any of the Company and/or the Subsidiaries' contracts and that the transfer of the Shares will not cause any breach under or termination of any material contract or agreement of the Company or the Subsidiaries. 21. OUTSTANDING AMOUNTS 21.1 Seller warrants that outstanding amounts have been and will until Closing be posted in the Interim Balance in line with GADAP and in accordance with the usual accounting principles and has been recorded in line with past practice. The composition of the outstanding amounts does not differ from past practice. 22. EMPLOYEES/MANAGEMENT 22.1 Seller warrants that all the Company's and the Subsidiaries' employees as at 1 December 2000 are listed in Schedule 26 which includes date of employment. Other relevant information regarding the terms and conditions upon which they are employed with the Company and the Subsidiaries including salary and pension obligations, terms of notice and other important salary accessories is listed in Schedule 27-29 . Employees considered as key employees are identified in Schedule 27 and Schedule 29. The Buyer is aware that due to seasonal variations in the turnover there are more employees in the Company in the summer period than in the winter period. 22.2 Except as set forth in Schedule 27 and Schedule 29 Seller warrants that the Company has not granted any benefits to its employees which go beyond what follows 19 23 from applicable collective bargaining agreements (Schedule 28) and/or the Danish Salaried Employees Act (in Danish "Funktionaerloven"). 22.3 The Buyer is under an obligation to employ the present managing directors Mr Poul Bentsen and Mr Henrik Bentsen on the terms stipulated in the service agreements, cf. Schedule 29. Mr Poul Bentsen and Mr Henrik Bentsen shall be a key part of the Buyer's European management team. In this connection the Buyer recognizes that Mr Henrik Bentsen's interest in factory automation and product development could have real benefits and involvement with all of the Buyer's European operations. In addition, the Buyer recognizes that Mr Poul Bentsen will have a valuable insight into other possible sales opportunities and assistance with the Simpson Group's strategic plans for the European market. 22.4 Seller warrants that the Company has not received any notice of any key employee to leave the Company and/or the Subsidiaries and the Seller Represents that it is not aware of any intention of them to give such notice. 22.5 Seller warrants that no present or previous employee of the Company and/or the Subsidiaries has any claim against the Company arising out of any breach by the Company of any of its obligations towards such employee, except the claims mentioned in Schedule 30. Seller warrants that no previous employee has submitted any claim for redundancy payment, damages or other compensation as a result of the termination of his/hers employment with the Company and/or the Subsidiaries. 22.6 Seller warrants that all provisions for pension contributions, holiday payments or allowances or other compensation or payments owed by the Company or the Subsidiaries to past or present employees as at 30 September 2000 have been included in the Interim Balance. Seller warrants that a list of provisions for pension contributions, holiday payments or allowances or other compensation or payments owed by the 20 24 Company or the Subsidiaries to past or present employees as at 30 November 2000 is enclosed as Schedule 31, and that since this date and until signing of this Agreement there has been no material change in the amounts owed except in the ordinary course of business and in accordance with past practice. 22.7 An extraordinary general meeting shall be convened in the Company without delay after Closing to appoint a new Board of Directors of the Company. It is agreed between the Parties that the Board in the first two years after Closing shall be appointed by the Buyer and in such a way that three persons shall be appointed in accordance with the nomination by the Seller which appointment shall not be unreasonably withheld and two persons shall be appointed in accordance with the nomination by the Buyer. In addition, according to Danish rules, up to three employees shall be Board members. After Closing the Board of Directors for the first term shall consist of the persons listed in Schedule 32. Board meetings shall be held at least three times a year. Simpson's agreement will be required on the Board of Directors for certain major and specific board matters as budget and budget procedure and salary level and strategic decisions for the Company and the Subsidiaries which would include as a minimum: Proposed business and real estate acquisitions, lease or debt obligations in excess of 1/2 million DKK, capital expenditures in excess of 1/2 million DKK, director and key management compensation. 23. COMPETITION LAW AND LEGAL REGULATIONS 23.1 Subject to Schedule 33 Seller warrants that the Company and the Subsidiaries have not entered into agreements with any third party and is not engaged in any practice violating any provisions of applicable competition law. However, the Company rebate system as described in Schedule 33 is structured as usual within the business. 21 25 23.2 The Parties agree that the Company and the Subsidiaries shall in the future in accordance with the instructions given by the Board of Directors of the Company comply with the competition law if this is not already the case. It is also agreed that the members of the Board of Directors of the Company appointed by the Seller shall be under an obligation to vote in the same manner as board members appointed by the Buyer in matters regarding competition law issues. 23.3 Seller warrants that, the Company and the Subsidiaries are in compliance with all applicable legal regulations in all material respects. 24. DUE DILIGENCE 24.1 The Buyer has made a comprehensive due diligence review. Seller Represents that the information disclosed in the due diligence process has been for the information disclosed accurate, complete and precise in all major aspects and the information passed on by the Seller gives a fair and accurate picture of the Company's affairs. 24.2 A copy of all documents submitted by the Seller to the Buyer in the due diligence process will at the signing of the Agreement be placed in boxes under common seal of the Parties and shall be kept, seal unbroken, by Kromann Reumert for at least five years following Closing. Either Party shall upon due notification of the other Party be allowed access to the documentation in case of any dispute between the Parties related to this Agreement. See Schedule 33a. 25. CONFIDENTIALITY AND PRESS RELEASE 25.1 Except if required by law, no public announcement or other disclosure to any third party concerning the contents of this Agreement and the negotiations between the Parties shall be made without the prior written approval of the other Party. Such approval shall not be unreasonably withheld. However, the Seller accepts that the Buyer is obliged to announce the proposed transaction to the SEC after the Agreement has been signed. Therefore, after the Agreement has been signed both Parties will issue a 22 26 press release and for the Company customer information as well. Each Party's press release and the Company's customer information shall be approved by the other Party and such approval shall not be unreasonably withheld. 26. INTERIM PERIOD 26.1 Seller warrants that the Company and the Subsidiaries have since 30 September 2000 carried out and will carry out until the Closing Date its activities solely in the normal and usual course of business, with care and responsibility, so as to protect its relations and reputation vis-a-vis third parties, the public authorities and any other persons maintaining business relations with the Company and the Subsidiaries. 26.2 All warranties and representations of the Seller under this Agreement shall be deemed given or reiterated at Closing, and in so far as a warranty or representation is made with respect to the situation at the date of the signing of this Agreement it shall be deemed to apply also at Closing Date, unless the Seller no later than the day before Closing Date at 6.00 p.m. local Danish time informs the Buyer in writing that a certain warranty or representation due to facts of which the Seller was not aware at the signing cannot be given or apply at Closing Date. If the Buyer receives such notice, the Buyer shall at its discretion be entitled to terminate this Agreement forthwith, and neither Party shall be liable to the other due to such termination. However the Buyer shall not be entitled to terminate this Agreement due to subjects of insignificant nature. 27. POWERS 27.1 Schedule 34 lists the names and addresses of each person who has received a general or special power of attorney from the Company or its legal representatives, including any power concerning the Company's bank accounts. The Company's bank accounts are listed in Schedule 35. 23 27 28. INDEMNIFICATION OF THE BUYER AND REMEDIES 28.1 Seller shall not be liable for the breach of this Agreement to the extent that the facts which would result in the breach are disclosed in any of the Appendices to this Agreement or Seller proves that the information has come to the Buyer's knowledge as a result of the discussions and negotiations from June 2000 up to signing the Letter of Intent and in the period from signing the Letter of Intent to signing this Agreement, provided that such disclosure is sufficiently detailed and comprehensive in order to enable the Buyer to reliably assess the risk and the possible damage or loss which may result from such facts. 28.2 No liability shall arise in respect of any breach of any warranties or otherwise (i) if and to the extent that any claim occurs as the result of any legislation not in force at the time hereof, or which takes effect retrospectively or occurs as a result of any increase in the rate of tax in force on the date hereof or any change in the legal practice of the relevant tax authorities; (ii) which will not have arisen but for the intentional negligent act or omission carried out by the Buyer, or any other person deriving title from the Buyer, after Closing Date; (iii) in respect of any deficiency or cost which is recoverable under a policy of insurance in force on the Closing Date for the Company and/or the Subsidiaries, provided that the Company shall be reimbursed any capital value of the potential increase in the premium and own risk deductible, if any; (iv) if any individual claim raised by the Buyer against the Seller has the value of less than DKK 250,000; (v) if the aggregated amount of claims raised by the Buyer against the Seller is less than DKK 2.15 million. 24 28 The limitations of indents (iv) and (v) shall not apply to any claim under Clause 18 of this Agreement. Such claims may be raised regardless of individual size or aggregate amounts and without any time bar. 28.3 For product claims according to Clause 14.2-14.4 Clause 28.2 (iv) shall mean that with respect to a specific product defect the Buyer shall be entitled to combine claims raised on the basis of the same product defect and consider such claims as one claim as regards the amount of money claimed. 28.4 Any claim under the Agreement shall be raised within three years after the Closing Date, except for tax claims. If a claim has not been raised within three years after the Closing Date (except for tax claims) such claim cannot be validly raised against the Seller. 28.5 The limitations according to Clause 28.2(iv) and (v) and Clause 28.4 shall not apply with respect to any claim relating to Seller's title to the Shares or in case of any act or information of Seller which is fraudulent or intentionally misleading. 28.6 The time bar according to Clause 28.4 shall not apply with respect to product claims according to Clause 14.2-14.4. Any such product claims shall be raised within five years after the Closing Date. If a product claim according to Clause 14.2-14.4 has not been raised within five years after the Closing Date such claim cannot be validly raised against Seller. 29. BUYER'S INTENTIONS, REPRESENTATIONS AND WARRANTIES 25 29 29.1 The Parties agree that there are favourable advantages to maintain production in Denmark. Therefore, there is no intention to move production from Boulstrup. It is the Buyer`s intention to have the production facilities in Boulstrup operate as a key production unit for the Buyer's activities in North and Central Europe. Bulldog-Simpson's long term relationship with production in Norway is an exception. 29.2 The Buyer warrants that it will maintain production in Boulstrup at least until December 31, 2005, except, if due to deteriorating market and competitive conditions, the Company incurs losses at the operating profit level (excluding goodwill and interest from the acquisition) for two consecutive years. It is also agreed that this warranty does not prevent the Buyer from moving a product/production line to another country (e.g. Poland) if it is the most advantageous for the Simpson Group as a whole. If market conditions make it necessary, the Company will make redundancies to reduce production. 29.3 The Buyer shall provide a statement from the Board of Simpson Manufacturing Company Inc. stating that the Simpson group of companies intends to maintain its European activities at least until December 31, 2005. 30. THE FUTURE BUSINESS OF THE COMPANY 30.1 It is agreed that where practicable and where it is for the best advantage for the overall European operations of the Simpson Group, any current and future activities within the part of Europe listed in the enclosed Schedule 36 within the product area of standard connectors for timber and masonry (hangers, brackets, straps, etc.) will within the limits of the competition law be carried out by the Company and/or the Subsidiaries. 30.2 The future strategy of the Company is focused on continued growth and development of both existing and new markets through both organic growth and acquisition of competing and/or related companies. 26 30 30.3 The Buyer agrees subject to Buyer's purchase of the remaining shares in Bulldog-Simpson GmbH to consolidate Bulldog-Simpson GmbH, Simpson's sales company in Germany, with the Company's and/or the Subsidiaries' sales activities in Germany in a single operation, provided that this is in the best interest of the Simpson Group from a legal and financial point of view. 30.4 The Parties agree that if the Company takes over GH-Baubeschlage-Hartmann GmbH, the German company shall be merged with BMF Holzverbinder GmbH (or coordinated in a similar way). If the Buyer takes over GH-Baubeschlage-Hartmann GmbH, GH-Baube-schlage-Hartmann GmbH's future activities shall be consolidated with the activities of the Company and/or the Subsidiaries provided that this is in the best interest of the Simpson Group from a legal and financial point of view. 30.5 The provisions of this Clause 30 shall be subject to further review in the light of competition law. If this review shows that the proposed provisions conflict with competition law, the Parties shall agree on terms which are as close as possible to the provisions of this Clause 30 and which may be validly agreed upon according to competition law. 31. NON-COMPETITION CLAUSE 31.1 For a period of two years after Closing Date the Seller undertakes not to have any direct or indirect financial or business interest whether in any form of business in Europe (except for passive investment in stocks listed on a public stock exchange) which competes with the current activities of the Company. 32. CLOSING 32.1 The Closing shall take place at the offices of Kromann Reumert, Arhus on Closing Date or such other place or time as the Parties may agree. 32.2 At the Closing, 27 31 a) Buyer shall cause the basic purchase price to be paid to the Seller in accordance with Clause 2.1 above, b) Seller shall deliver to Buyer a resolution of the Board of Directors of the Company approving the transfer of the Shares to the Buyer; c) Seller shall deliver to Buyer (i) duly updated Shareholders' Register for the Company; (ii) the Company's Minutes Book, Auditing Protocol, and all other corporate books. 33. EXPENSES 33.1 Each Party shall bear its own expenses with respect to this transaction. 34. COMPETITION AUTHORITIES 34.1 Seller is of the opinion that it is not necessary to notify the Danish and German competition authorities about this transaction whereas the Buyer shall bear the responsibility for handling any notification to or approval from competition authorities in any other countries, except from Norway which is handled by Seller. 35. GOVERNING LAW AND ARBITRATION 35.1 This Agreement shall be governed by and construed in accordance with Danish law. 35.2 Any dispute or claim arising out of or in connection with this Agreement shall be settled by arbitration in accordance with the "Rules of Procedure of the Danish Institute of Arbitration (Copenhagen Arbitration)". The arbitration tribunal shall be composed by three arbitrators. The place of arbitration shall be Copenhagen and the language of the proceedings, including any written pleadings, shall be English. 36. COUNTERPARTS 28 32 36.1 This Agreement is signed in two original copies, one for each of the Parties. 37. SCHEDULES Schedule 1: Annual Accounts Schedule 2: Accounts for the Subsidiaries Schedule 3: Interim Balance Schedule 3A: Definition of profit before tax Schedule 3B: Definition of operating profit Schedule 4: The Company's Articles of Association and transcript from the Danish Commerce and Companies Agency Schedule 5: The Company's Budget for 2001 Schedule 6: Assets sold etc. Schedule 7: Leased equipment Schedule 8: Litigation Schedule 9: Product claims Schedule 10: Insurance claims Schedule 11: Insurance policies Schedule 12: Report by Carl Bro A/S of 18 December 2000 and Technical note of 8 January 2001 Schedule 13: Memorandum on galvanization Schedule 14: Registered IPR Schedule 15: IPR rights to which third party has restricted rights Schedule 16: Contracts with software and EDP-equipment suppliers Schedule 17: Potential infringement of third party IPR Schedule 18: Infringement by third party Schedule 19: IPR disputes Schedule 20: Changes in tax assessment for the income years 1996-1998 Schedule 21: Deeds of real estate Schedule 22: Mortgages etc. Schedule 23: Lease agreements Schedule 24: The Company's farm land 29 33 Schedule 25: Major contracts Schedule 26: List of employees Schedule 27: Employment contracts Schedule 28: Collective Bargaining Agreements and Local Agreements. Schedule 29: Service Agreements for Poul Bentsen and Henrik Bentsen Schedule 30: Claims from employees Schedule 31: List over payments owed by the Company as at 30 November 2000 Schedule 32: Board members Schedule 33: The Company's rebate system Schedule 34: List of persons who have received a general or special power of attorney Schedule 35: The Company's bank accounts Schedule 36: The Company's main territory Place and date: Place and date: For Simpson Strong-Tie(R) International, Inc.: For BMF Holding A/S: (Buyer) (Seller) By: /s/THOMAS J FITZMYERS By: /s/HENRIK BENTSEN -------------------------------- -------------------------------------- Name: Thomas J Fitzmyers Name: Henrik Bentsen Title: Chairman Title: Manager /s/STEPHEN B. LAMSON /s/POUL BENTSEN -------------------------------- -------------------------------------- Name: Stephen B. Lamson Name: Poul Bentsen Title: President Title: Manager 30 EX-11 4 f70975ex11.txt EX-11 1 EXHIBIT 11 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE FOR THE THREE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 BASIC EARNINGS PER SHARE
2000 1999 1998 ----------- ----------- ----------- Weighted average number of common shares outstanding 12,019,329 11,834,915 11,556,629 Shares issuable pursuant to stock bonus plan 3,375 2,400 3,825 ----------- ----------- ----------- Number of shares for computation of basic net income per share 12,022,704 11,837,315 11,560,454 =========== =========== =========== Net income for computation of basic net income per share $38,354,103 $38,467,392 $31,141,523 =========== =========== =========== Basic net income per share $ 3.19 $ 3.25 $ 2.69 =========== =========== ===========
2 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE FOR THE THREE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 DILUTED EARNINGS PER SHARE
2000 1999 1998 ----------- ----------- ----------- Weighted average number of common shares outstanding 12,019,329 11,834,915 11,556,629 Shares issuable pursuant to employee stock option plans, less shares assumed repurchased at the average fair value during the period 268,085 392,723 483,361 Shares issuable pursuant to the independent director stock option plan, less shares assumed repurchased at the average fair value during the period 4,133 3,827 4,382 Shares issuable pursuant to stock bonus plan 3,375 2,400 3,825 ----------- ----------- ----------- Number of shares for computation of diluted net income per share 12,294,922 12,233,865 12,048,197 =========== =========== =========== Net income for computation of diluted net income per share $38,354,103 $38,467,392 $31,141,523 =========== =========== =========== Diluted net income per share $ 3.12 $ 3.14 $ 2.58 =========== =========== ===========
EX-21 5 f70975ex21.txt EX-21 1 EXHIBIT 21 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES LIST OF SUBSIDIARIES OF SIMPSON MANUFACTURING CO., INC. AT MARCH 15, 2001 1. Simpson Strong-Tie Company Inc., a California corporation 2. Simpson Dura-Vent Company, Inc., a California corporation 3. Simpson Strong-Tie International, Inc., a California corporation 4. Simpson Manufacturing International Corporation, a Barbados corporation 5. Simpson Strong-Tie Canada, Limited., a Canadian corporation 6. Simpson Strong-Tie France, Limited., a French corporation 7. Simpson Strong-Tie, S.A., a French corporation 8. Simpson Strong-Tie Japan, Inc., a California corporation 9. Simpson Strong-Tie Australia, Inc., a California corporation 10. Simpson Strong-Tie Company Inc. Chile Y Compania Limitada, a Chilean corporation 11. Simpson Strong-Tie Company Inc. Argentina SRL, an Argentinean corporation 12. Simpson Manufacturing Co., Inc., a Delaware corporation 13. Keybuilder.com, LLC, a California limited liability company 14. BMF Bygningsbeslag A/S, a Danish corporation 15. BMF Holzverbinder GmbH, a German corporation 16. BMF Jutor Sp.z.o.o, a Polish corporation EX-23 6 f70975ex23.txt EX-23 1 EXHIBIT 23 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (File No. 33-85662 and File No. 33-90964) of Simpson Manufacturing Co., Inc. of our report dated February 9, 2001, except for Note 15 for which the date is March 9, 2001, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. /s/PricewaterhouseCoopers LLP San Francisco, California March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----