Mail Stop 0510
May 25, 2005
Via U.S. mail and facsimile
Mr. Timothy P. Scanlan
General Counsel
Mestek, Inc.
260 North Elm Street
Westfield, MA 01085
Re: Mestek, Inc.
Schedule 14C filed April 29, 2005
Form 10-K filed March 31, 2005
File No. 001-00448
Omega Flex, Inc.
Form 10 filed April 29, 2005
File No. 001-32849
Dear Mr. Scanlan:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your filings in
response
to these comments. If you disagree with a comment, we will
consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any
questions you may have about our comments or on any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
SCHEDULE 14C FILED APRIL 29, 2005
General
1. Please update the capitalization table, the selected historical
financial and operating data, the unaudited pro forma financial
statements, the management`s discussion and analysis of financial
condition and results of operations, and the financial statements
for
financial information as of and for the three months ended March
31,
2005. In addition, please update all other disclosures as of the
most
recent practicable date, including, for example and without
limitation, the security ownership table.
2. Please disclose the information required by Item 3 of Schedule
14C.
3. It appears that Mestek appointed a special committee of
directors
to review the spin-off of Omega Flex, which was first proposed by
Mr.
John E. Reed. Please expand the disclosure in the filing to
discuss
the selection of this committee and its findings. In this regard,
we
note that the current disclosure in the filing only discusses the
findings of the full board.
Cover Page of Schedule 14C
4. Please disclose the amount on which the filing fee was
calculated
and the method by which the transaction value was calculated.
Cover Page of Information Statement
5. We note the disclosure in the second sentence of the third
paragraph. Please revise this disclosure to provide it in the
form
required by Item 2 of Schedule 14C.
6. We note the disclosure here and in the two letters to security
holders that Omega Flex`s common stock has been authorized to be
listed on the Nasdaq National Market. We also note the disclosure
contained elsewhere in the filing that Omega Flex has merely
applied
to have its common stock listed on the Nasdaq National Market.
See,
for example and without limitation, the sections entitled "Summary
of
the Distribution - Stock Exchange Listing" and "Description of
Capital
Stock - Nasdaq National Market Listing." Please revise
accordingly.
7. Please disclose up front that 14% of the company will be owned
by
executive officers.
8. Please briefly explain "when issued" trading and "regular-way"
trading.
Table of Contents
9. Please revise to include a listing of all agreements and other
exhibits that will be delivered to security holders with the
information statement.
Questions and Answers About the Distribution
Summary of the Distribution
10. Please revise to eliminate information that is repeated in the
Q&A
section and the summary section. For purposes of eliminating
redundancies and grouping like information together, please view
the
Q&A and summary as one section. In addition, when revising this
disclosure, we strongly suggest that the procedural questions be
discussed with short, clear answers in the Q&A and that the
material,
substantive disclosure be placed in the summary.
11. Please tell us supplementally of the basis for your statement
that
you are a "leading" manufacturer of flexible metal hose.
Settlement of Intercompany Receivable and Payment of Dividends to
Mestek
12. Please clarify here and, as appropriate, elsewhere in the
filing
that the dividend will be paid to Mestek and the management
security
holders. In addition, it appears that Omega Flex will finance
this
dividend by incurring indebtedness. Please disclose here and, as
appropriate, elsewhere in the filing the terms of this
indebtedness.
In this regard, we note the disclosure in the section entitled
"Relationships Between Our Company and Mestek, Inc. - Mestek
Dividend."
13. Please describe in greater detail here and, as appropriate,
elsewhere in the filing the terms of the intercompany receivable
that
Mestek owes Omega Flex and how this receivable will be repaid upon
completion of the distribution.
Incurrence of Debt
14. Please disclose the aggregate amount that Omega Flex
anticipates
will be available under its credit facility.
Risk Factors
15. Many of the risk factors could apply to any issuer. See, for
example and without limitation, risk factors three, thirteen,
fourteen, fifteen, seventeen, nineteen and twenty two. Please
clearly
explain how they apply to Omega Flex.
We may substantially increase our debt in the future
16. Please disclose the amount of debt that Omega Flex will have
outstanding as of the completion of the distribution.
The agreements we are entering into with Mestek in connection with
the
distribution...
17. Please clarify that these agreements may be less favorable to
Omega Flex than either its previous agreements with Mestek or what
it
could have obtained in arm`s length negotiations with unaffiliated
third parties.
Our charter documents or agreements may delay or prevent a change
in
control
18. Please briefly discuss the provisions of Omega Flex`s charter
documents that may delay or prevent a change in control. In this
regard, we note the disclosure in the section entitled
"Description of
Capital Stock - Anti-Takeover Provisions." In addition, please
clearly state the risk, namely that these anti-takeover provisions
may
prevent or frustrate attempts to effect a transaction that is in
the
best interests of its security holders.
Cautionary Note Regarding Forward-Looking Statements
19. Please delete the reference to the Private Securities
Litigation
Reform Act. The safe harbor does not apply to statements made by
a
registrant that is not subject to the reporting requirements of
Section 13(a) or 15(d) of Exchange Act.
Description of the Distribution
U.S. Federal Income Tax Consequences of Distribution
20. We note the disclosure in the first sentence of this section.
Please clarify that the disclosure in this section summarizes all
material federal income tax consequences of the distribution.
21. Please supplementally provide us with a copy of the tax
opinion.
22. We note your statement that "the legal opinion letter is to
the
effect that." Please revise to state counsel`s opinion.
Capitalization
23. The capitalization table should not include cash and cash
equivalents, intercompany receivable, and note receivable from
Mestek.
Please revise the disclosures to remove these lines.
Unaudited Pro Forma Income Statement
24. Please remove the operating income before interest, taxes, and
stock based compensation subtotal.
Unaudited Pro Forma Balance Sheet
25. The unaudited pro forma balance sheet should include all major
captions identified in Rule 5-02 of Regulation S-X, to the extent
that
the individual captions exceed 10% of total assets. See Rule 11-
02(b)(3) of Regulation S-X. Accordingly, please:
* present, at a minimum, accounts receivable, inventories, and
intercompany receivable from parent company separately from
current
assets;
* present separately, at a minimum, other accrued liabilities from
current liabilities; and
* include lines for the remaining captions included in the
subtotal
current liabilities. To the extent that these captions do not
exceed
10% of total assets, these captions may be combined.
Notes to Unaudited Pro Forma Financial Statements
26. Please explain to us how you calculated your pro forma income
statement adjustment (1) to decrease operating expenses by $330.
In
particular, please tell us how this adjustment is factually
supported,
as required by Rule 11-02(b)(6) of Regulation S-X, including
whether
there are executed contracts underlying the calculation of this
adjustment. In the notes, please disclose the assumptions
involved in
calculating this adjustment.
27. You state that pro forma income statement adjustment (2) to
interest income would be immaterial. Please tell us the amount of
this adjustment and why you believe it is immaterial. In
addition, in
calculating this amount, we note that you reduce the outstanding
intercompany balance by a dividend of $2,861. Please tell us why,
in
calculating this adjustment, you have not also reduced the
outstanding
intercompany balance by the $9,350 dividend paid in January 2005.
Based on your pro forma balance sheet adjustment (1), it appears
that
this dividend is also directly attributable to the transaction,
and
accordingly, would be considered in determining the pro forma
adjustment to interest income.
28. Given that you will be retroactively restating your historical
financial statements for the intended stock split, we do not
understand the purpose of pro forma income statement adjustment
(4).
Please advise.
29. Please include a note for the pro forma adjustment of $409 to
reflect the tax effect of the other pro forma adjustments.
30. We note that you only reflect $8,041 of the $9,350 dividend
disclosed in pro forma balance sheet adjustment (1) as a reduction
of
retained earnings. Please advise or revise. In addition, please
provide a statement that explains the $1,309 adjustment to common
stock subject to put obligation.
31. In pro forma balance sheet adjustment (4), you indicate that
cancellation of the put rights will increase paid in capital.
However, in the pro forma balance sheet, you reflect this
adjustment
in retained earnings. Please revise.
32. Please tell us how you estimated the transaction costs to be
reimbursed by Mestek in pro forma balance sheet adjustment (5).
In
particular, please tell us how this adjustment is factually
supported,
as required by Rule 11-02(b)(6) of Regulation S-X, including
whether
there are executed contracts underlying the calculation of this
adjustment. In your notes, please disclose the assumptions
involved
in calculating this adjustment.
Management`s Discussion & Analysis of Financial Condition and
Results
of Operations
33. We note that Mestek has identified several significant
deficiencies in its internal control over financial reporting. In
this regard, we note the disclosure in Mestek`s annual report on
Form
10-K for the fiscal year ended December 31, 2004. Please describe
these deficiencies and the steps that Omega Flex has taken to
remediate these deficiencies as they apply to its company. In
addition, please consider whether risk factor disclosure regarding
this deficiency would be appropriate.
Non-GAAP Financial Measures
34. Please describe in greater detail the reasons why Omega Flex
believes the presentation of the non-GAAP financial measure
provides
useful information to investors regarding its financial condition
and
results of operations.
Results of Operations
35. Please quantify each factor that you disclose contributed to a
change in financial results.
Liquidity and Capital Resources
36. Please provide the information required by Item 10(e) of
Regulation S-K with respect to the use of the non-GAAP financial
measure "Adjusted EBITDA."
Description of Business
37. Please disclose the information required by Item 101(c)(xii)
of
Regulation S-K.
Raw Materials
38. Please clarify whether Omega Flex is dependent on any supplier
or
vendor or if these raw materials are readily available from other
sources.
Customers
39. Please describe in greater detail Omega Flex`s contracts
and/or
arrangements with its customers, particularly Ferguson
Enterprises.
In addition, please identify each customer on which its business
is
dependent. In this regard, we note the disclosure that certain
"customers represent a material portion of [Omega Flex`s]
business."
See Item 101(c)(vii) of Regulation S-K.
Competition
40. Please explain the basis for the statement that Omega Flex
holds a
number one or number two share position in each of the two major
market categories in which it participates.
41. Please disclose the principal methods of competition in Omega
Flex`s industry.
42. Please balance the discussion in this section by disclosing
the
advantages that Omega Flex`s customers have over it and how these
advantages affect Omega Flex`s competitive position within its
industry.
Intellectual Property
43. Please disclose when Omega Flex`s material patents or other
intellectual property rights expire or terminate pursuant to Item
101(
c)(iv) of Regulation S-K.
44. We note the disclosure in the section entitled "Description of
Business - Legal Proceedings" regarding legal proceedings Omega
Flex
initiated to protect its intellectual property rights. Please
expand
the disclosure in this section to describe in greater details
these
legal proceedings.
Research and Development
45. We note the disclosure regarding the aggregate amount Omega
Flex
spent on research and development during the past three years.
Please
explain how investors are to evaluate this disclosure and consider
whether disclosure is required in MD&A.
Our Management
Our Directors and Executive Officers
46. We note that Omega Flex has identified several individuals who
are
not currently directors but who may serve in that capacity upon
completion of the distribution. Please file their written
consents to
be named as directors in the information statement.
47. Please identify Omega Flex`s independent directors.
48. The business experience summary of each director and executive
officer should include disclosure regarding positions held and
dates
employed during at least the past five years. In many cases, the
employment dates are omitted, there are gaps in the summary or the
description does not adequately describe the responsibilities of
the
position. Please revise accordingly.
49. We note the disclosure in the section entitled "Summary
Compensation Table" regarding Omega Flex`s executive officers.
Please
include Messrs. Treichel, Wilkinson and Quinlan in the table and
provide a summary of their business experience. In addition,
please
include these executive officers in the table set forth in the
section
entitled "Security Ownership of Management."
50. Please confirm that no options were granted during your last
fiscal year.
Relationships Between Our Company and Mestek, Inc.
Agreements Between Us and Mestek
51. We note the statement in the second sentence of the first
paragraph of this section. It does not appear that you are
eligible
to incorporate information by reference into the information
statement. Please consider whether you may incorporate by
reference
and supplementally provide to us your analysis. See Note D and
Item
14(e) of Schedule 14A.
Security Ownership of Management
52. We note the disclosure in footnotes (1) and (3). It appears
that
the excluded shares should be included in the calculation of Mr.
Reed`s beneficial ownership. Please revise accordingly. See Rule
13d-3 under the Exchange Act.
53. It appears that the Reed family will own more than 50% of
Omega
Flex`s common stock following the completion of the distribution.
Please advise us as to whether Omega Flex will be a "controlled
company" under the rules of the Nasdaq National Market.
Description of Capital Stock
Recent Sales
54. Please disclose the material terms of the loan transactions
between Mestek and each of Messrs. Hoben and Albino. In addition,
please disclose the manner in which these loans were repaid.
Financial Statements
Consolidated Statement of Operations
55. Your disclosures in your management`s discussion and analysis
regarding the reasons for your increased sales expense as a
percentage
of revenue suggest that you classify consideration paid to
customers,
such as rebates and promotional incentives, in selling expense.
Citing relevant accounting literature, please tell us why you do
not
classify such costs as a reduction of revenue. See EITF 01-9.
56. You disclose in your management`s discussion and analysis that
you
enter into commodity forward agreements to hedge a portion of the
cost
of certain commodities. Please explain how you account for such
agreements, pursuant to paragraphs 17 and 18 of SFAS No. 133.
Please
also tell us whether these agreements have been designated and
qualify
as cash flow hedges, and if so, why there are no amounts reflected
in
accumulated other comprehensive income for these agreements. In
addition, please revise your notes to your financial statements to
include the disclosures required by paragraphs 44 and 45 of SFAS
No.
133.
Consolidated Statements of Cash Flow
57. Please tell us why your translation effect on cash in your
consolidated statements of cash flow agrees to your cumulative
translation adjustment in shareholders` equity. The translation
effect on cash in your statement of cash flows should reflect the
effect of exchange rate changes on cash balances held in foreign
currencies, whereas your cumulative translation adjustment should
reflect the effect of exchange rate changes on assets,
liabilities,
and operations of a foreign entity. See paragraph 25 of SFAS No.
95
and paragraphs 12 and 13 of SFAS No. 52.
Notes to the Consolidated Financial Statements
Note 6. Income Taxes
58. We note that you have tax operating loss carry-forwards of
approximately $997 in the United Kingdom. We also note that you
have
deferred tax assets of $207 as of December 31, 2003 and $249 as of
December 31, 2004, which we assume relate to operating loss carry-
forwards in the UK. In light of the history of losses in the UK,
please tell us why you believe no valuation allowance is necessary
related to these deferred tax assets. In your response, please
explain, in detail, your consideration of paragraphs 20 - 25 of
SFAS
No. 109.
FORM 10-K FILED MARCH 31, 2005
Item 9A - Controls and Procedures
59. In light of the fact that Mestek has identified several
significant deficiencies with respect to its internal control over
financial reporting, please disclose in reasonable detail the
basis
for its CEO`s and CFO`s conclusions that its disclosure controls
and
procedures were nonetheless effective.
60. We note that Mestek and its auditors identified several
significant deficiencies in its internal control over financial
reporting. Please provide to us your written analysis as to why
these
deficiencies, when viewed together, did not constitute a material
weakness in Mestek`s internal control over financial reporting.
61. Please disclose in greater detail the nature of the
significant
deficiencies identified in Mestek`s internal control over
financial
reporting and the specific steps that Mestek has taken to
remediate
these deficiencies. In this regard, we note the disclosure that
Mestek has "formulated a plan to take appropriate remedial steps."
In
addition, please clarify whether or not Mestek`s auditors have
confirmed these steps.
62. Please state clearly whether or not the significant
deficiencies
still exist.
FORM 10 FILED APRIL 29, 2005
General
63. Please note that the Form 10 will go effective by lapse of
time 60
days after the original filing date, pursuant to Section 12(g)(1)
of
the Exchange Act. If our comments are not addressed within this
60-
day time period, you should consider withdrawing the Form 10 prior
to
effectiveness and re-filing a new Form 10 that includes changes
responsive to our comments. If you choose not to withdraw, Omega
Flex
will be subject to the reporting requirements under Section 13(a)
of
the Exchange Act.
64. We note that you are registering Omega Flex`s common stock
under
Section 12(b) of the Exchange Act. However, it appears that Omega
Flex is listing its common stock on the Nasdaq National Market.
Since
the Nasdaq National Market is not an exchange, it is not
appropriate
to register Omega Flex`s common stock under Section 12(b) of the
Exchange Act. Please withdraw the Form 10 and re-file the Form 10
registering Omega Flex`s common stock under Section 12(g) of the
Exchange Act.
Item 15. Financial Statements and Exhibits
65. Please file as promptly as possible all exhibits required by
the
exhibit table provided in Item 601(a) of Regulation S-K. These
exhibits and any related disclosure are subject to review.
66. Please file each of the following documents as an exhibit to
the
Form 10 or explain why it has not been filed as an exhibit:
* Separation and distribution agreement between Mestek and Omega
Flex.
* Employee matters agreement between Mestek and Omega Flex.
* Confidential disclosure agreement between Mestek and Omega Flex.
* Agreements relating to the termination of the management put
rights.
* Agreements relating to the termination of Omega Flex`s guarantee
of
Mestek`s indebtedness.
* Shareholders agreement between Omega Flex and its executive
officers
and other security holders.
* Agreements with each of your significant customers and
suppliers.
* * * *
Please respond to these comments by filing amendment to each
of
your filings and providing the supplemental information requested.
Please provide us with a supplemental response that addresses each
of
our comments and notes the location of any corresponding revisions
made in your filing. Please also note the location of any
material
changes made for reasons other than responding to our comments.
Please file your supplemental response on EDGAR as a
correspondence
file. We may raise additional comments after we review your
responses
and amendment.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal
securities laws of the United States.
You may contact Donald Cavern, Staff Accountant, at (202)
942-
1925 or, in his absence, Nilima Shah, Accounting Branch Chief, at
(202) 942-2923 if you have questions regarding comments on the
financial statements and related matters. Please contact Andrew
Schoeffler, Staff Attorney, at (202) 824-5612 or, in his absence,
the
undersigned at (202) 942-2864 with any other questions.
Sincerely,
Jennifer Hardy
Legal Branch Chief
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Mr. Timothy P. Scanlan
May 25, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE